Sunday, October 03, 2010

Democrats’ election strategy is to evade responsibility

Published in The Tennessean, Sunday, October 3, 2010

Democrats’ election strategy is to evade responsibility

by Richard J. Grant

House Majority Leader Steny Hoyer, D-Md., has found a way to blame President George W. Bush for future tax increases. He says that because President Bush’s tax-rate cuts were not permanent, but were set to expire at the end of 2010, it is actually President Bush who is responsible for the coming tax increases.

The trouble with Hoyer’s attempt at logic is that President Bush has been retired for almost two years and the Democrats have all the power they need to prevent the tax rates from rising at the end of the year. They have that power now. They are supposedly in charge right now. But with an election looming – and their ideology clashing with economic reality and voter sentiment – the responsibility is too much for them to handle. So they evade it.

Like the Ancient Mariner who shot the albatross, Democrats have used their majorities during the current session to ram through economy-killing legislation, and they now wear the dead bird of economic stagnation around their necks.

The recent financial reform legislation, they claim, will protect consumers from financial misinformation and predatory lenders. Perhaps voters need some protection against predatory legislators.

Few would suggest raising tax rates at a time of slow and hesitant business activity and high unemployment. But that is what Democrats have chosen to do. They say they won’t raise all the rates to the pre-Bush levels, but they do intend to raise some tax rates.

The intention is to raise rates on “the rich.” By that they mean anyone who has a high income or who leaves a large estate. It also includes anyone who earns dividends or capital gains.

But intentions are not the same thing as outcomes. And those who bear the tax incidence are not necessarily the same people who bear the tax burden. A tax on capital is a tax on our productive capacity. A tax on our productive capacity reduces the demand for labor, thereby reducing wages and employment.

“Tax the rich” might be a popular leftist slogan, but it comes at a high, undisclosed price.

Those with higher levels of either wealth or income tend to be the most adaptable to changes in the business environment, whether commercial or legal. If Plan A is more productive than Plan B before tax, but Plan B leaves more after-tax income, then Plan B gets the go ahead. Plan B might even require shifting operations overseas. Or it might simply offer more leisure.

Those with lower incomes might believe that they are escaping the effects of taxation when only “the rich” are taxed. But they are not. Plan B means lower incomes for everyone on the productive side of the tax equation. When the tax rates on capital gains and dividends rise in January, the burden will be borne by everyone.

Some Democrats recognize this, but their chosen leaders do not. Republicans have offered to support a motion to stop all the scheduled tax increases. But rather than accept this offer, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid have chosen to take no action before the November elections. Rather than face voters cleanly, they will probably sneak their tax increases through during the lame-duck session after the election.

Evasion of responsibility might be clever politics, but it is not clever governance in a free republic. It is an old, but contemptuous, political game to extract resources from the people without disclosing the full cost of government.

Rather than reduce the burdens on people, the Democrats have used their time and power to impose on us the highly flawed health-care and financial “reform” bills. Federal regulatory compliance costs already use up more resources than we now spend on health care. But the new health care law has not only increased those compliance costs, it also contains its own tax increases.

For what happens next, voters are responsible.

Richard J. Grant is a professor of finance and economics at Lipscomb University and a scholar at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail:

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