Reverse Tax Reform
Wesley Clark proposes a Clintonian hike--only much bigger.
Wednesday, January 7, 2004 12:01 a.m. EST
We've been waiting a long time for another Democrat to grab the mantle of tax reform the way Bill Bradley and Dick Gephardt did back in the 1980s, so we studied Wesley Clark's proposal on Monday with interest. The kindest thing we can say about it is that we sure hope the retired general knows more about war than he does about taxes.
Mr. Clark is proposing what is best described as reverse tax reform. As typically understood, tax reform involves trading lower tax rates for a broader tax base--that is, lower rates on all income while reducing the scope and number of tax exemptions and credits. This was the logic of the last tax reform to make it through Congress, the one in 1986 that was midwifed by Mr. Bradley and Ronald Reagan. Mr. Clark is proposing more or less the opposite: higher rates on an even smaller tax base.
We are probably giving the general's use of the phrase "tax reform" more credit than it deserves. He is using it as a political shield to disguise that what he is really proposing is a huge tax increase. As a vote getter, "reform" does tend to beat "tax hike." This is the same rhetorical gambit that Democratic Governor Mark Warner is attempting in order to get a tax increase through Virginia's legislature, and the political strategy was laid out on these pages last year by former Bill Clinton adviser and now Illinois Congressman Rahm Emanuel.
The Emanuel conception is no coincidence, because Mr. Clark's "reform" is essentially an updated version of the tax jujitsu that Candidate Clinton offered back in 1992. Promise to raise taxes only on the upper middle class and wealthy, while offering to cut taxes on a slew of "middle-class families." Once Mr. Clinton took office, you may painfully recall, the middle-class tax cut vanished and everyone got socked with some kind of tax hike.
The major difference today is that Mr. Clark is proposing to raise marginal income-tax rates even higher than Mr. Clinton did. He'd not only repeal the Bush tax cuts, thus restoring the top Clinton marginal rate of 39.6%, but he'd pile on another five-point rate surcharge on incomes of more than $1 million.
Yes, friends, the old "millionaire surtax" ploy. The last time we roasted this chestnut was also in 1992, except that once Mr. Clinton took office the definition of millionaire became anyone making more than $250,000. Mr. Clark is proposing to raise the top marginal rate on income to 44.6%--or about 46.6% counting the current exemption and deduction phase-outs--higher than anytime since the pre-1986 rate of 50% when there were many more tax loopholes. And Mr. Clark keeps hinting that Howard Dean is unelectable in November.
High marginal rates--the rates on the next dollar of income earned--matter because they are a disincentive to work and invest. Mr. Clark says so himself. His own Web site summary brags that his tax cut for "lower-income parents" is "pro-growth" because it would reduce "marginal tax rates that provide a disincentive for millions of taxpayers to work." Chew on that for a second. Apparently Mr. Clark thinks that higher marginal rates are irrelevant for higher-income earners, though in fact those taxpayers are precisely the ones most able to shift or shelter income.
Mr. Clinton's favorite general justifies this revival of punitive taxation with a whopper worthy of his mentor. "Over the last two decades, the tax system has become more regressive, as the share of taxes paid by the richest Americans has decreased significantly," Mr. Clark said when unveiling his plan in Nashua, N.H., on Monday.
We realize the mythology of a "regressive" tax system is useful in selling tax hikes, but the general needs a better researcher. A new IRS paper on the "distribution of individual income and taxes, 1979-2001" shows that the rich are paying a far greater share than they did 20 years ago. We quote: "The share of income taxes accounted for by the top 1% also climbed steadily in this period, from initially at 19.75%" for 1979, "before rising to 36.3% for 2000." The authors conclude: "The progressive nature of the individual income tax system is clearly demonstrated."
While we're on the subject of unfair taxation, we should also mention that Mr. Clark's tax "cut" isn't universal even for taxpayers who make less than $100,000. He'd exclude millions of single folks and married couples without children. This is what we meant earlier when we said Mr. Clark wants to shrink the tax base. His unified tax credit (to replace the several that now exist) would take even more people entirely off the income tax rolls. But someone has to make up the revenue lost from this shrinking taxpayer base, so pity the poor saps not on Mr. Clark's politically favored list. That means most of you reading this editorial.
All of this is to say that we are still waiting for some brave Democrat to propose a genuine tax reform. Mr. Clark can paint the facade of his proposal however he likes, but it still amounts to a monumental tax increase. Memo to White House political strategist Karl Rove: You must be living right.
URL:http://www.opinionjournal.com/editorial/feature.html?id=110004516 |
