Thursday, March 29, 2007

Tax Man is a Coming

Fire of Liberty

Amity Shlaes has a good column over at which notes that the tax payers should be wary about the Democrat's current work on budget resolutions. According to Shlaes, the various appropriations committees within the Democratic led Congress are pushing bills-under the new pay-as-you-go rules- that are presented as benefits for the "Middle Class," but when you peel back the veneer you discover that they are planning to lay large tax bills at the feet of America's taxpayers and the "Middle Class" that they say they're helping. Here's a look at what's coming down the road:

Raising Rates

Consider five possible changes:

The first is the most obvious: raising the top marginal rate on income tax back to President Bill Clinton's old 39.6 percent levy.

For 2006, the top bracket of 35 percent starts once income exceeds about $335,000 in taxable income, a level routinely breached by even modestly successful staffers at Wall Street firms. Lawmakers would push that back up.

Second, lawmakers would also like to fiddle with the next rungs on the tax ladder. Don't be surprised if in the name of tax reform Democrats start talking about recalibrating so that the current 28 percent and 33 percent brackets become 36 percent.

A third likely change is especially important for Wall Street, which has enjoyed a tax on dividends of 15 percent for the past several years. Lawmakers are likely to revert to the old system for dividends, under which the payments are treated as ordinary income and taxed up to the top 35 percent rate. Or make that 39.6 percent -- if the first of the changes above is made.

Capital Gains, Estate Tax

Capital gains likewise are under the gun, with the possibility that the tax rate may move back to the 20 percent of the 1990s from the current 15 percent.

Then there is the estate tax, which is already a mess. It phases out under current law in 2010, only to roar back in following years. In order to prevent its revival, lawmakers must enact a new law. Democrats are likely to take advantage of disillusionment at the complexity and write a new law that makes the estate tax, once again, an American fixture.

The reason these tax uglies are likely to be on the table is that they are reversions to the rates in place before George W. Bush came to power.

Democrats therefore can tell themselves and their constituents that they aren't really raising taxes. They are merely going back to the happy status quo of the 1990s. Undoing the Bush Legacy is easier and more enjoyable than writing a new tax increase.

I have a strong feeling that the Democrats are becoming more and more jealous of the stagnant economies of Europe. Here's hoping for 08.

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