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Jewish World Review April 15, 2004 / 25 Nissan 5764

Amity Shlaes

Amity Shlaes
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John Kerry's ‘tax the rich’ mantra won't get the jobs done


http://www.NewsAndOpinion.com | George W. Bush has a war, and now John F. Kerry has one too — a class war. At Georgetown University this month, Kerry opened fire when he vowed to raise taxes on the top 2% of earners while cutting taxes on the other 98%. The idea is not only to create jobs — Kerry says he can get 10 million — but to create economic opportunity. Kerry wants to plow through class barriers like an Abrams tank. Or, as he put it, to reclaim America on behalf of those who seek "paths to a better life."

Will it work? A short review of the program suggests otherwise.

Start with the Kerry plan for corporations. He says he wants to give advantages to firms that keep jobs at home. His critics have called Kerry inconsistent for bashing outsourcing even though his wife, Teresa, holds a great deal of stock in an international company, H.J. Heinz Co. But what is really important about the corporate tax plan is the way it shows that Kerry believes tax protectionism, rather than a free market, yields growth. (This position is so strange that the only other recent candidate to espouse it was Pat Buchanan — not someone, one suspects, whom Kerry wants to be compared with.)

On the personal side, Kerry would increase the top marginal tax rate on the highest earners, moving it from 35% up to the 39.6% rate set by President Clinton. This is where class war comes in. It's about reversing the work of President Bush, of course. But there is another factor driving Kerry here: The top-bracket crowd is an easy mark.

Back in, say, the late 1970s, raising taxes on high earners would have been a challenge. In those days, inflation blew millions of households, many of them firmly middle class, into the 30% tax range or higher. These people were so disgruntled that they launched that decade's tax revolts. And they voted. Most politicians understood that antagonizing a million Howard Jarvises was not a good idea.
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br> Today, however, it is a different story. There is little inflation. Brackets are indexed. To get to the top bracket, if you are a married couple, you have to have taxable income of $311,000. Even in the U.S., there are very few households that actually pay the statutory top marginal rate. So few that they probably couldn't turn any state but Florida. Attacking them is a no-brainer.

Kerry tends to portray high earners as bad guys, the unproductive leisure class. Coming from a man as wealthy as he is, this is a little weird, but never mind.

Sure, there are year-round snowboarders among the high earners. But a typical "top 2%" household could be two immigrants, an oral surgeon and a dentist, say, with three children. They live in San Francisco, or Chicago — someplace where costs are so high that dollars are worth less. They don't feel rich.

What's more, they are incredibly hard workers. They have high incomes because they structure their businesses — sole proprietorships, partnerships, etc. — so that profits flow directly to them. They are part of the famous small-business crowd that creates three-quarters of the new jobs in this country. Imposing new taxes on them is counterproductive, if one of your goals is job creation.

It is also cruel because, as a group, high earners already shoulder one of the heaviest tax burdens in history. The latest Congressional Budget Office study shows that the top 5% of earners pay more than half the income tax.

Kerry would counter that the tax-distribution table changes when you include Social Security payments as taxes. But even so, the top 10% of earners pay half the taxes.

His defense overall would be that "this worked for Bill Clinton." But that assumes that the 1990s can return. Yet as Kerry has noted, the U.S. now outsources, among other differences. Higher taxes at home will discourage start-ups here and create them in Shanghai. So much for 10 million new American jobs.

Pundits tend to talk about Kerry's tax plan in terms of the politics, and what it means to Bush. But the substance matters as well. The Kerry plan holds back the strivers — the people who inspire the rest of us by showing that class matters less than merit.

So even as he talks of breaking down class walls, Kerry is reinforcing those walls. Even as he talks of growth, he is laying plans that would slow it. It doesn't get more inconsistent than that.

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JWR contributor Amity Shlaes is a columnist for Financial Times . Her latest book is The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It. Send your comments by clicking here.

Up

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