The Corner

Class Warfare and the Rule of Law

Though I’ve taken a lot of grief around here for being among the minority of conservatives who do not categorically object to tax increases, so long as they are part of a real deficit-reduction deal, but I must concur that the president’s tax-hike proposal promises to be catastrophic, for a number of reasons.

I think there is a good argument to be made that investment income should be treated the same as salaries and cash bonuses (I think there’s a good argument on the other side, too), and in fact I’d prefer that all income be treated alike, but the fact is: We don’t treat it that way, and we haven’t treated it that way for a long time. That matters. Millions of Americans have made countless investment decisions based on the assumption that long-term investment gains will be taxed at a rate lower than regular income. “So what?” the Obama types will reply. “The president’s proposal only raises capital-gains taxes on families and businesses earning more than $250,000 a year.” That might be a good argument if there were two separate markets for financial assets, one restricted to households earning $250,000 or less and another for those earning more than $250,000. But that’s not how it is, and those earning less than $250,000 still have to someday find a willing buyer for the assets they wish to sell, and those assets are going to be a lot less attractive to most individuals, funds and other institutional investors — a.k.a. the market — if they’re taxed at 30-odd percent instead of 15 percent. Raising the capital-gains tax, even if it’s only on the so-called wealthy, devalues everybody’s investment portfolio, from Warren Buffett’s on down to mine. The Democrats are declaring war on everybody’s investments here, not just Joe Millionaire’s. Look for major institutional investors, private-equity types, and even venture capitalists — a.k.a. the financial lifeblood of a modern economy — to start seeking friendlier tax environments abroad. Nobody has to have an office on Wall Street any more. (I’ll say this for President Obama: By the time he’s done, I might be able to afford to buy a nice condo in Manhattan — once the pinstripes set has off-shored operations to Singapore.)

The worst part about the Democrats’ insistence on that $250,000 bright line is that personal income, business income, investment income, and even income from municipal bonds and the like will be treated differently for those $250k+ households than for everybody else. The aggregate effect of this is that those Americans will be operating under what amounts to a separate tax code — a punitive one at that. And their relations with the government will be changed in ways that go far beyond the tax code as well, in areas as far-removed as agricultural policy. And while the Democrats are railing against “corporations” and “the rich,” the president is dishing up a nice fat selection of special-interest favors for pet corporate interests — steel, certain manufacturers, politically connected energy firms — and the rich guys who own them. 

This isn’t just the road to a stock-market crash and a double-dip recession; it’s an agenda that undermines the principle that Americans are equal in their relations with the government. It is repugnant.

Kevin D. Williamson is a former fellow at National Review Institute and a former roving correspondent for National Review.
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