The basic situation? The Democratic party is facing a dilemma of more or less its own doing with the looming end of Bush-era tax cuts. The party generally ran on a program of repealing them for the ‘rich,’ which was rhetorically useful (if not fiscally so); and some Democratic legislators are beginning to worry about the political effects of that. The problem – which the Right has been saying all along – is that raising taxes on the top two tax brackets will affect an indeterminate number of small businesses. Democratic legislators apparently plan to solve this problem by demonizing the Republican party’s position on tax relief while simultaneously coming as close to it as they dare.
While the battle lines at first glance seem straightforward enough, what the NYT carefully did not mention in its article above is that at least some small businesses will see a tax increase (one of almost 5%) under this system; a lot of businesses report their earnings – perfectly legally and openly – as individual income. The effects of changing this? The Wall Street Journal reports ‘doom:’
New data from, of all places, the Democratic-run Joint Committee on Taxation show that in 2011 roughly 750,000 taxpayers with net business income will pay the highest marginal rate of 39.6% or the next highest bracket of 36% (up from 33%). About half of the roughly $1 trillion of total net business income will also be reported on those returns. In a stroke, that will make tens of billions of dollars unavailable to invest or to hire new workers.
It will probably not surprise most of the people reading this that when you take energy out of a system, you end up with a less productive system; conservatives have certainly not been shy about saying so. It will probably also not surprise any of the people reading this that the White House is ignoring fiscal reality. To be fair, their own ideology is getting in the way; they can’t afford to fund our currently bloated government, and the Democratic party is constitutionally incapable of cutting the government down to size. The very idea that you can cut or eliminate an entitlement, once it’s been allocated… is semantic white noise to many on the Left.
But facts are stubborn things.
Crossposted to Moe Lane.