An economic time bomb is ticking, but the 2008 presidential candidates and media pundits are paying shamefully little attention.
Last week, both the Senate and House of Representatives approved the majority Democrats' budget proposal, which contains over $200 billion in tax hikes, the largest in American history. Under their budget, this decade's astoundingly successful tax cuts will be allowed to expire in 2010, at which time rates will surge to recession-era levels as Congress stands by and watches.
The present tax rates did nothing less than resuscitate the American economy from the Clinton/Gore recession of 2000 - 2001, which was exacerbated by the effects of 9/11 and Sarbanes-Oxley burdens imposed in 2002. Since the current tax rates were set in 2003, federal revenues have actually increased nearly $700 billion, the American economy has created over 7 million jobs, the unemployment rate has fallen to a historically tiny 4.5% (approximately half the current European unemployment rate), workers' wages have increased, the Dow Jones Industrial Average has surpassed its tech-bubble peak and the deficit has decreased by $300 billion despite increased federal spending.
In fact, April's tax receipts were $70 billion higher than April 2006, and April 24 of this year set a record $48.7 billion tax collections in one day.
This constitutes an indisputable record of supply-side economic success. It also demonstrates once again the simple fact that decreasing tax rates paradoxically increases federal revenues by spurring greater economic growth.
Along with tax rate increases across all income levels, the Congressional majority's budget also allows the current 15% capital gains and dividend tax rates to skyrocket to 31%. This will have a crippling effect and cannot be ignored. This year alone, incoming federal revenues from capital gains, dividends and other investment income alone have increased almost 30%. And they want to reverse this?
Every single Democratic Senator disappointingly voted for the budget's tax increases, including previous tax cutters like Ben Nelson (D - Nebraska). In the House of Representatives, 13 Democratic Members wisely defected and voted against the budget, and no Republican Member voted for it. Still, the budget proposal passed by a narrow 214 to 209 vote.
Meanwhile, across the world, from China to India to Ireland to Russia to Japan, nations are reducing their tax rates and gaining competitive advantage. Even stagnant France and Germany are considering tax cuts.
Here in America, in contrast, the current Congress would rather reverse twenty-five years of remarkable economic growth and the lessons taught by Ronald Reagan, and score cheap political points by alleging that they will simply make "the rich pay their fair share."
But don't believe them. According to the IRS, the top 1% of income earners in America earned 19% of the nation's income in 2004, but paid 37% of the nation's taxes. Moreover, the top 0.1% of American income earners earned 9.1% of the nation's income in 2004, but paid over 17% of federal taxes. In contrast, the lower 50% earned 13.4% of the nation's income, but paid only 3.3% of the nation's income taxes.
Furthermore, according to the Tax Foundation, over half of the nation's citizens now receive more dollars from the government than they pay in income taxes. This is an unhealthy trend, one which threatens to create a permanent underclass that soaks the minority of more productive citizens for their own benefit.
This form of class warfare and punishment of success, however, sells well with a compliant mainstream media.
Moreover, Congressional leaders such as Senator Kent Conrad (D - North Dakota) protest that their budget somehow does not raise taxes. The mainstream media is a willing accomplice, misleadingly labeling the tax increase a "partial lapse of tax cuts."
Politicians' distortions aside, however, the simple fact is that lower tax rates create a positive incentive for Americans to innovate, work, earn, invest and save. Since President Reagan entered the White House in 1981, the United States has enjoyed an unparalleled period of economic growth due to lower taxes. The facts speak for themselves.
Should the Democrats' budget proposal take effect, however, these achievements will be obliterated at the stroke of midnight in 2010. Reduced economic growth and greater deficits will soon follow, unless Americans begin to act. The time is now.May 25, 2007