Democrats are jeopardizing the retirement portfolios of millions of middle-income Americans. Firemen, police o

Question

Democrats think they’re striking out at the rich, they’re actually jeopardizing the retirement portfolios of millions of middle-income Americans. Firemen, police officers, and teachers, to name a few, are all represented by the big state and city pension funds.

The latest assault comes courtesy of House Democrat Sander Levin. Late last week, he introduced a bill that essentially would abolish the 15 percent capital-gains tax preference for risk investing, and raise it by 20 percentage points to the 35 percent corporate and personal rate. This goes beyond an earlier tax attack on a public offering by the Blackstone Group, and would slam into all private partnerships, including buyout funds, hedge funds, venture-capital firms, real estate partnerships, and oil-and-gas deals.

Incidentally, while attacking capital gains, the congressional Democrats are killing initiatives for across-the-board cuts on wasteful appropriation bills. According to the Club for Growth, House Democrats defeated separate measures that would cut spending by 4 percent, 1 percent, and 0.5 percent.

Does this mean the Democrats favor tax hikes over real spending control? It appears so.

Washington economist Kevin Hassett says this is part of the Democrats’ “war against winners,” and he’s right on the money. In particular, these willy-nilly changes of the tax rules would have a chilling effect on capital formation, and could constitute the biggest attack on capital since the 1930s.

As mentioned, the lightning rod in this tax-hike endeavor was the Blackstone Group, the private-equity giant that went public last week. Blackstone’s investment-fund profits are taxed at the 15 percent cap-gains rate, and since these profits come from high-risk investments, that’s how it should be. But Democrats in Congress view these profits as plain income, and greedily want a higher take.

But plain ol’ income this is not. The recent crack up of two Bear Stearns sub-prime-mortgage hedge funds shows just how risky these ventures can be.

Yes, there’s big money to be made when these private partnerships click. But the economy at large also is a beneficiary. Private buyout funds often save highly troubled companies from bankruptcy. They insert skilled managers who streamline operations and make businesses more efficient, a process that can ultimately lead to greater profits and business expansion. You know a lot of these companies: Chrysler, Staples, Sears, Domino’s, Dunkin’ Donuts, Toys“R”Us, Clear Channel Communications, Hospital Corporation of America. All of these firms were brought back from the dead thanks to private partnerships.

Nobody knows for sure whether Congress will green-light the Democrats’ anti-growth agenda. The hope is that President Bush will veto any tax hike that lands on his desk. But the mere threat that Congress would embark on such a program of wealth destruction and economic impoverishment — all in the name of taxing “rich people” — has investors reeling.

Ironically, a lot of today’s anti-cap-gains momentum is the handiwork of former Clinton Treasury secretary Robert Rubin. He actually believes a low cap-gains tax has no economic growth impact at all. However, back when Clinton and Rubin were running things, the personal income-tax rate was lifted from 31 to 40 percent, while the cap-gains tax was reduced from 28 to 20 percent, making for a 20 percentage point tax advantage for cap-gains over regular income. Flashing forward, the current Bush administration lowered the income-tax rate to 35 percent and the cap-gains rate to 15 percent, preserving that 20 percent differential.

Hmm . . . Is Rubin saying the cap-gains tax advantage was good for the Clinton boom, but not the Bush boom?

Truth is, that differential provides a strong incentive for entrepreneurial risk taking and higher-risk, cutting-edge investment — both of which lend real torque to the economy.

Another unfortunate irony is that while Democrats think they’re striking out at the rich, they’re actually jeopardizing the retirement portfolios of millions of middle-income Americans. Firemen, police officers, and teachers, to name a few, are all represented by the big state and city pension funds. And these funds are heavily invested in the hedge and private-equity funds that the Democratic tax machine is targeting. Is this fact lost on the Democrats? And don’t they realize that two out of every three voters in recent elections owned stocks — either directly or indirectly? Are they attempting to commit political suicide?

If the Democrats get their way, job creation will be adversely affected, too. Clearly, you can’t create new jobs in the private sector unless there’s a new or expanding business to create those jobs. And since new and expanding businesses require capital for investment funding, if you tax that capital more, you get less investment and fewer jobs.

In short, you can’t have capitalism without capital. The process works for “rich people” and the middle class.

Whenever Democrats wage war against the rich, the middle class becomes the collateral damage. This may be the law of unintended consequences, but it is something this Congress fails to understand.

Answer 1

Writes a book, STILL wont include a source link...

What "Middle Class" are you talking about? The ones already completely broke and forgotten from when the Savings and Loans went belly up in the 90s?

Where was all this Rpeublican concern for the "Middle Class" when they were shutting down plants and outsourcing (but they call it "offshoring" now) millions of jobs, that of course had NOTHING to do with gutting pensions funds?

Were Enron's employees' pensions, the ones Kenneth Lay and a few others gutted, was their collapse due to Democratic "meddling"?

Whose pensions and 401Ks were enriched when Home Depot's CEO posted losses of $210 million for 2006, laid off 12,000 people who no longer have health insurance or jobs, then wrote himself a $100 million dollar bonus check?

Answer 2

Actually, the Middle Class actually saw their state and local taxes increase as a result of the bush Tax cuts. The much celebrated "Tax Rebate" of 2001 was actually an early refund which put a lot of people in a position where they actually had to pay MORE money in taxes due to the penalties exacted by the IRS. Letting the Bush cuts expire isn't going to hurt the Middle Class, they hardly got anything at all. And, since the cuts were targeted to the richest 10%, no one else will be seriously affected. You're right about capital formation. But, putting too much of it in too few hands militates against development and innovation. It's startups and small businesses that make the system work and the investment money isn't moving that way--it's going overseas or into the already bloated stock market. The much touted DJIA records are inflationary. There are fewer companies than in Y2K and less stock out there, due to mergers and buybacks. What you're seeing is the effect of too much money chasing too little equity.

Answer 3

Tell me about the platinum parachutes CEO's receive after the hundreds of millions for their poor performance. See CEO of Home Depot for your example. Poor management and greed at the top is killing this country, along with our corrupt politicians. Our debt is astronomical under this conservative President, when are you going to get real?

Answer 4

You should just start you own blog instead of cluttering our site with diatribe.
you might call it www.richgrumpynutjob.com
Do you really think Democrats aare threatening middle income Americans? Nonsense.

Answer 5

Talk is cheap.
You probably are, too.