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May 3, 2007 10:18AM

Will Democrats Impose French‐​Type Tax Rates on America?

By Daniel J. Mitchell

SHARE

The alternative minimum tax is a wretched system affecting a couple of million taxpayers per year, but the AMT is scheduled to expand dramatically if current law is left untouched. Democrats do not like this tax, largely since it indirectly takes away the state and local tax deduction – and thus aggravates taxpayers in high‐​tax, Democratic states like New York and California. The AMT should be abolished, but the question is whether the elimination of this built‐​in tax hike will be “paid‐​for” with a tax increase on other taxpayers. Steve Moore of the Wall Street Journal opines on the growing possibility that Democrats will try to increase income tax rates on the so‐​called rich, even if it means that tax rates in America will climb above the oppressive levels found in welfare states like France and Germany:

Democrats want to go after high‐​income earners, whom they call “rich.” What is surprising is how high rates must be raised to make their plan’s numbers add up. The top AMT rate would increase to 31.5% from 28%. Democratic tax experts also recommend eliminating the lower rate for capital gains and dividends for those subject to the AMT. This would raise the capital gains tax rate to about 31% from its present 15% rate. …The changes in the AMT rate, and the treatment of dividends and capital gains, still leaves Mr. Rangel at least $600 billion short of paying for the AMT fix. House Democrats have acknowledged that to close this final gap, they will have to look to personal income taxes. Rep. Richard Neal of Massachusetts, the head of the Ways and Means tax panel, says this will require raising the top tax rate of 35% by no more than three to five percentage points. Mr. Neal should check his math. Tax experts on Capitol Hill and in the Treasury Department calculate that to get $60 billion a year from the top 1% of income earners would more likely require rate hikes of 10 to 15 percentage points. This would lift the top federal marginal income tax rate as high as 50%. “I can’t think of a better way to throw the economy into recession and end the bull market expansion of recent years than to raise tax rates like this,” warns Michael Darda, chief economist for MKM Partners. It’s hard to argue with that assessment. Overnight, the U.S. would go from being a nation with one of the lowest set of income‐​tax rates to one of the highest in the developed world. …In countries as diverse as Ireland, China, India, Japan, Russia and Hong Kong, tax rates are flat or falling, part of a world‐​wide effort to reward growth and get more of it. Yet Reaganomics, alive nearly everywhere else, is dead in the halls of the United States Congress.

Related Tags
General, Tax and Budget Policy

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