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John Kerry, semi-supply-sider?

By W. James Antle III
web posted September 29, 2003

Before Wesley Clark jumped into the 2004 presidential race as an opponent of the same Bush foreign policy team and tax cuts he praised not so long ago, tax policy had become an issue dividing the Democratic candidates. Both Howard Dean and Richard Gephardt, for example, have come out in favor of repealing both the 2001 and 2003 tax cuts entirely. This proposal has drawn criticism from some of their rivals for their party's nomination.

One critic not surprisingly is Sen. Joseph Lieberman of Connecticut. Although he is far from conservative, he has for years been gently urging the Democratic Party to temper some of its excesses on taxation, business and big government (hopefully this revelation doesn't cost him too many primary votes – diehard left-statists should be reassured that his voting record has lagged quite a bit behind his rhetoric on this front). He has pointed out that, contrary to the partisan propaganda he himself helped advance as Al Gore's running mate in 2000, some of these tax cuts actually went to the middle class. Raising the bottom marginal income tax rate, reinstating the marriage penalty and slashing child tax credits would not merely "soak the rich" who ostensibly aren't "paying their fair share." It would also raise taxes on families of more modest means. The whole "New Democrat" gambit was intended to rescue the party from such naked tax-and-spend pathologies.

But Lieberman is not alone in lashing out against the resurgence of tax-the-middle-class-liberalism. Unexpectedly, Sen. John Kerry of Massachusetts – a state known elsewhere in the United States as "Taxachusetts," and did I mention that Kerry once served as lieutenant governor under Michael Dukakis? - has also been a vocal critic of repealing the Bush tax cuts in their entirety. He too points out that doing so would increase the tax bills paid by the middle class.

John KerryIn an op-ed piece for the reliably anti-tax Manchester Union-Leader, Kerry argued that repealing tax cuts for the middle class as Dean and Gephardt propose would be economically unsound and amount to "abandoning Bill Clinton's economic legacy." He doesn't mince words in criticizing President Bush, who he claims has "forgotten the middle class" and holds personally responsible for a litany of negative statistics, but neither does he spare his fellow Democrats. He repeats his party's standard talking point that the bulk of the Bush tax cuts consisted of special tax breaks for special interests and the wealthy. "However," he wrote, "repealing all the tax cuts for the middle class, which some Democrats want to do, would mean that a family of four, with two parents working hard on the job and at home, would have to pay about $2,000 more a year in taxes." He describes this as "bad economics" and "a violation of fundamental fairness."

While Dean usually credits the Clinton's 1993 increase in marginal tax rates, "passed without a single Republican vote," for the ‘90s economic growth, Kerry describes "Clinton economics" differently. He contends that "nearly 40 million hard-working families got a tax cut." In spots, he almost sounds like a supply-sider. He pointed out that the "budget deficit isn't the only deficit we face," and indeed we face "an investment deficit, a jobs deficit and a fairness deficit; and all these deficits would be made worse by a breakneck rush to raise the tax burden on struggling middle class families."

So there may be times when the effect of raising taxes is worse than that of budget deficits? Deficit reduction can be achieved without resorting to tax increases? Higher taxes can be unfair while having a negative impact on job creation and investment? Stop the presses! Perhaps if Republican Arnold Schwarzenegger can have a big-government man like Warren Buffet as his economics advisor, Kerry can take advice from Jack Kemp.

Yet Kerry seems to be of the impression that tax increases on those he defines as wealthy – apparently families with annual incomes above $90,000, which would mean that a police officer could marry a schoolteacher and they would qualify – will somehow have a different economic impact than tax increases on the middle class. Perhaps this is due to the Keynesian superstition that fiscal policy should target consumption rather than production, when the latter actually drives the former more than the other way around. Pro-growth tax cuts don't merely induce people to spend money – they increase the after-tax rate of return on productive economic behavior, thereby incentivizing income-generating activities. The responses to such incentives are greatest at the point where marginal tax rates are the highest. By excluding the so-called rich and favoring tax cuts that don't lower marginal rates, Kerry would have us miss out on the major economic benefits that can come from lower taxes. That would really worsen our "investment deficit" and "jobs deficit" in the name of closing an inaccurately defined "fairness deficit."

Kerry's criticism of Gephardt and Dean acknowledges that onerous tax burdens on working families can be detrimental to social capital, but he ignores the fact that keeping the top marginal rates high is often literally a tax on capital. Investment, risk-taking and entrepreneurship drive job creation, so penalizing those who are supposedly wealthy will have negative repercussions for households in lower income brackets. Some two-thirds of those paying the highest tax rates are small business owners, a group responsible for much of the job and wealth creation in our economy. In any event, the people Kerry would like to repeal Bush's tax cuts for are often not truly "wealthy," they are merely households in their peak earning years.

So while Kerry might start sounding like a supply-sider when he is talking about the 10 percent income tax rate, he reverts to income redistributionist form once the discussion turns to the 33 percent tax rate. In reality, he wants to revive illusion that government can grow deficit-free with only the "wealthiest one percent" having to foot the bill. One of the reasons Bill Clinton was successful in the 1990s is that he convinced a plurality of voters that they did not have to fear that taxes would go up on everyone if the Democrats held the White House; only a handful of rich Republicans would need to worry about paying. Kerry would like to replicate that success. Yet even Clinton failed to deliver on his middle-class tax cut during his first term and ended up increasing some levies paid by more than the wealthiest one percent, even though the biggest spending programs he proposed were never adopted.

Of course, Kerry is right to criticize primary opponents who would inflict an across-the-board tax increase on Americans in an anemic economy. It's just that his criticisms would be a lot more convincing if he were a consistent friend of the taxpayer rather than merely a presidential aspirant politically savvy enough to understand that Democrats can't win if they are perceived as the party with designs on middle-class paychecks.

W. James Antle III is a senior editor for Enter Stage Right.

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