Wednesday, May 09, 2007

The Middle-class Tax Cut Canard

Are middle-class tax cuts worthwhile? No, yes...maybe? Larry Kudlow looks at the House Democrats' budget resolution:

The House passed a budget resolution yesterday that leaves out investor tax-cut extensions for capital gains and dividends. While it does include extension of the kiddy credits and the marriage deduction, it’s actually the investment tax cuts that deliver the real economic growth impact by reducing the tax rate on the extra dollar earned from the sale of assets or the receipt of dividends.

Ironically, the latest budget report clearly shows that these investor tax-cuts have paid for themselves. Remember, non-withheld income taxes hit a record high on April 24th at $48.7 billion dollars. So far this year, this tax collection category has shot up 30 percent. By the way, income tax collections at lower tax rates have jumped by 17.5 percent.

Democrats and the official Washington scorekeepers never acknowledge the Laffer Curve that shows lower tax rates lead to higher tax revenues through a growing economy and larger income base.

What the Dems have done in their budget resolution is to endorse the least growth-sensitive tax cuts and to eliminate the tax-cuts that possess the largest growth impact.

By the way, with congressional Dems once again vowing to end “tax cuts for the rich” and the same tired message coming from the Democratic presidential hopefuls—Hillary, Obama, Edwards—the party is crafting a losing election year tax message. Tax cuts for the rich have never worked in presidential elections. (Just ask Mike Dukakis, Walter Mondale, or Jimmy Carter. Or ask Al Gore if you can find him.)

Don't get me a Married-Filing-Jointly, I love the marriage deduction and even if we reverted to the pre-2001 "marriage penalty," my wife and I will still file as such every year. But numbers don't lie.

Revenue gains as a result of the reduced rates on capital gains and dividends have eclipsed us poor middle-class schlubs and that's just a simple reflection of the obvious: the money is with the rich. While the top rates were not nearly so high in 2001 as they were 20 years earlier, there was still a significant amount of money in the economy locked up, doing nothing for anybody.

Democrats could do worse than to leave the marriage deduction and child tax-credits alone, the fact that they can't get past their populist inclinations to leave in-place investor-friendly tax policies demonstrates, yet again, that they don't get it.

Rather odd for a party that last captured the White House by telling us repeatedly how "It's the economy, stupid."

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