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Tax-Cut Chicken

 Posted 11/17/2010 07:13 PM ET

Fiscal Policy: With just 43 days to go, it looks like Americans may be hit with the largest tax hike in history. If so, blame it on the Democrats. It's their ideological rigidity that's costing the country its economic growth

President Obama and congressional Democrats are battling with Republicans over the fate of the one bright spot in our economy over the past six years: Bush's tax cuts.

Obama and his Democratic allies want a temporary extension of the 2001 and 2003 Bush cuts for the middle class (the poor already pay no income taxes), but not for individuals earning more than $200,000 or families earning more than $250,000.

Problem is, even Democrats are split over this. And Republicans are in no mood to let Democrats play class politics with our nation's economy. They want all the tax cuts extended or nothing.

When asked Wednesday if the Republicans would agree to a deal that would permanently cut rates on the middle class, but for only two years on those with upper incomes, Sen. Orrin Hatch of Utah replied, "Are you kidding?"

Good answer. With Bush's cuts set to expire at year-end, Democrats, who control Congress until January, can't agree among themselves what to do — much less cut a deal with Republicans.

"I don't even know what the options are at this moment," said Sen. Maria Cantwell, D-Wash. And she's on the Finance Committee, which will write any new tax law.

By their unwillingness to compromise and inability to even agree among themselves, the Democrats deserve blame if the tax cuts expire. And if you think these tax hikes won't matter, think again.

Even raising taxes just on the rich, as Democrats propose, would cripple the economy. As American Enterprise Institute economist Alan Viard notes, households with incomes over $200,000 in 2007 took 47% of all taxable interest income, 60% of the dividends and 84% of net capital gains.

These highly productive investors drive the economy and create most of our jobs. Yet they're the ones the Democrats want to tax. If they do, it will lower income for all groups.

While we support keeping rates low on high incomes, other taxes are also slated to go up sharply at year-end. Republicans shouldn't forget to keep other Bush tax cuts in place too. They include:

• The estate tax. It will jump from the current zero to 55% at the end of the year on estates larger than $1 million. That will force many families to liquidate businesses to pay taxes, killing jobs.

• The corporate tax. Now at a top rate of 39%, it's way above the 26% average for the OECD. It's a big reason for outsourcing. It should be cut to the OECD average.

• Capital gains. Slated to jump from 15% to 20%, the cap-gains tax will hurt stock investors and capital formation. Fewer businesses plus less investment equals a permanent loss of jobs.

• Dividends. Dividend tax rates are set to surge from 15% to a top rate of 39.6% — decimating seniors' incomes and further hitting investment markets. Dividends should be taxed like cap gains.

These are things that will restore growth — something that the Obama-led Democrats seem to have forgotten.

http://www.investors.com/NewsAndAnalysis/Article/554072/201011171913/Tax-Cut-Chicken.htm