Sharpening The Knife To Kill The Goose That Laid The Golden Egg

Larry Kudlow notes that the Democrats are preparing to rescind several of the pro-growth tax cuts passed earlier in the Bush Administration. To do so would be economic suicide, especially now. The US economy has done astonishingly well over the past few years, mainly because the government made the right pro-growth moves at the right time. In 2004 we were supposedly in the “worst economy since Hubert Hoover” — that assertion was laughable then, and even more so now.

To undo that would be to erase the millions of jobs created in the past few years, introduce a huge amount of uncertainty into the market, and ensure that businesses would delay job-creating capital investments until they know what the tax consequences of those choices would be. The Asian markets had a massive sell-off because of similar fears, and the same would happen in America if there was a credible threat of a major capital gains tax increase.

James Pethokoukis of US News and World Report identifies why the Bush Administration made four key mistakes in their prior tax policies which have hurt the future viability of these crucial tax cuts. Indeed, Bush’s two biggest economic mistakes have been in failing to cut spending and failing to meaningfully deal with entitlement reform. Those mistakes will have long-running repercussions for the future.

However, the worst thing that could happen is for the Democrats to raise taxes, spurring another selloff and then add more to the already burdened entitlement system. That is also precisely what the Democrats want to do — which is why the President should be prepared to veto any bill that raises capital gains taxes beyond the current level.

The economic reality is that capital gains taxes are economically wasteful — they don’t generate much revenue and they hurt economic growth, reducing tax revenues in other areas. Even if a 0% capital gains rate isn’t politically acceptable, neither is a return to a time when capital gains rates were acting as an anchor on economic growth.

The Democrats are sharpening the knife they’ll use to kill the goose who laid the golden egg — and they cannot be allowed to sacrifice the US economy and millions of jobs for their high-tax agenda.

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