Kudlow’s Money Politics

Tax Hikes Ahead?

WSJ Washington Wire headline yesterday:

“Grassley Predicts Huge Tax Increase on Wealthy”

Sen. Chuck Grassley says the top tax rate would have to jump to 46 percent from 35 percent to offset costs of a House Democratic plan to “fix” the AMT. In a floor statement, he said the result would be a ’shocking’ tax increase for the wealthy.

Let me also add that rumors are circulating that the House plan would take the capital gains tax to 31 percent from 15 percent. Yes, these penalty rates would hurt the most successful earners and investors.

But there’s a bigger point here: This would significantly reduce the amount of capital supplied to the economy for all manner of growth and job creation.

Tax something more, you get less of it.

Big tax rate hikes on upper-end earners and on capital gains would raise capital costs and reduce investment returns.

Remember, you can’t have a job without a business to create the job. And you can’t have a business without the capital to finance it. As a result, high tax rates on capital damage the outlook for all businesses and wage earners throughout the economy.

Think of it this way: You can’t have capitalism without capital.

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