This article has been posted to DoctorZin’s New News Blog!
http://www.ntu.org/main/press.php?PressID=630&org_name=NTU
Kerry's Tax Plan: Too Much Tinkering by Peter J. Sepp
In offering a plan purporting to "create 10 million jobs," John Kerry has become the latest officeseeker to embrace the fanciful notion that mere tinkering with the Tax Code can outsmart the free market. History proves otherwise.
The three biggest economic expansions of the 20th Century, under Presidents Coolidge, Kennedy, and Reagan, were accompanied by straightforward reductions in federal tax rates. Unfortunately, Kerry's modest nod in this direction (a cut in the corporate tax rate of 1.75 percentage points) would be followed by a harsh slap -- new tax penalties on businesses that, in his words, "take jobs overseas."
Supporters of Kerry were buoyed by a General Accounting Office report supposedly showing that a majority of U.S. (and even more foreign-controlled) corporations reported no income tax liability between 1996 and 2000. But there may be less here than meets the eye. Many of these businesses were offsetting their liabilities with provisions that Congress itself enacted, such as employee benefit expense deductions. The effective overall corporate tax rate in the U.S. is higher than any other industrialized nation's except Japan's. Lawmakers may decry corporations relocating overseas, but Washington's reckless tax policies are helping to push businesses away from our shores.
Moreover, despite public concern over the "outsourcing" of white-collar jobs, a recent Wall Street Journal investigation discovered that foreign firms send more office work here than our companies send overseas -- contributing to a net value for the American economy of $54 billion. During the 1990s, three-fourths of U.S. manufacturing growth came from industries most open to worldwide trade and exports. Retaliating against foreign firms, or American companies with foreign ties, could negatively impact employment in this sector.
Kerry's other proposal, a tax credit for businesses that create jobs, is equally problematic. As former Treasury official Bruce Bartlett notes, the overall employment picture is made up of millions of lost and created jobs in the space of a single month, a dynamic process that a tax credit can't easily impact. In 1994, the Labor Department found that a Clinton-era jobs credit "did not induce employers to hire members of target groups they might not otherwise have offered jobs."
One irony of Kerry's jobs plan is that Kerry himself would further undermine its already minimal potential, by proposing to raise taxes on households in America making over $200,000. In his fairy-tale world, this income bracket is populated by robber barons and madcap heiresses, but statistics tell a different story. According to Congress's own Joint Economic Committee, over two-thirds of all personal income tax returns in the top bracket (which is actually higher than Kerry's proposed income threshold) report at least some earnings from a sole proprietorship, partnership, or "S" corporation.
Kerry supporters counter that most full-time small businesses report incomes much lower than $200,000, but putting up a tax barrier to their upward mobility certainly won't help them raise the capital to get to the next level. Starving businesses who've already reached this plateau isn't any smarter, since by their nature, they are home-grown enterprises that provide U.S.-based jobs.
Instead of Kerry's reward-punishment approach that uses a shriveled carrot and a clumsy stick, the "corporation" tax -- really just a tax on business owners, managers, investors, employees, and consumers -- should be reduced dramatically.
Restructuring the tax system itself could also free up far more resources for job creation than Kerry's plan could ever hope to provide. By the Tax Foundation's estimate, in 2002 businesses (and by inference their customers) were forced to bear more than half of the $194 billion economic burden of complying with the federal Tax Code.
One place to begin is by ditching antiquated laws allowing the IRS to tax the foreign profits of U.S. companies (most other countries avoid such a policy. As corporate tax rates are reduced, Congress could also clear away the thicket of special-interest deductions and credits that thwart honest competition among businesses.
Even better, Congress could scrap the entire Tax Code and replace it with a single-rate retail national sales tax -- and allow Americans to see the true cost of the federal government, an entity whose questionable bookkeeping exceeds that of any corporate behemoth.
The first Presidential candidate who gets past mere slogans about "job creation" and focuses instead on removing the barriers to productive economic activity could win a new age of prosperity for America -- not to mention the next election.
About the Author
Pete Sepp is Vice President for Communications with National Taxpayers Union.
Kerry will raise taxes dramatically. He will raise spending dramatically (although he will cut military expeditures). The result will be a recession of a fairly large size. The Dems will use the recession and the subsequent plunge in the stock market to argue against privatization of retirement programs; let's stick with Social Security!
America is no longer the land of the free and the home of the brave (although there are brave Americans). The Democrats fantasy of taxing anyone who makes between $200,000 and $500,000 a year is the ultimate repression of a person's rights. "I am going to take your hard-earned cash and give it people who we say deserve it more than you." Of course, Thereza (or whatever her name is) only pays 14% on her income while the rest of us will be paying way over 50% under Kerry's plan.
LOL
That's really damning.