The change is politically counter-intuitive, given the proven benefits to all Americans of lowering taxes. The Kennedy cuts to individual income rates sparked a wave of growth and jobs in the 1960s.
In 1997 President Bill Clinton signed the Taxpayer Relief Act, cutting the tax rate on capital gains to 20% from 28%. Senate Democrats voted 37-8 in favor of the bill. House Democrats backed it 164-41. In 2015 Mr. Clinton’s wife, Democratic presidential front-runner Hillary Clinton, wants to raise the current 23.4% rate on capital gains, nearly doubling it for wealthy investors.
In 1982 Sen. Bill Bradley and House member Dick Gephardt, both Democrats, unveiled an ambitious tax-reform plan that would spur economic growth by eliminating loopholes, broadening the tax base and reducing the top rate on individual income to 30% from 50%. What Mr. Bradley and Mr. Gephardt started, President Reagan and Congress finished in 1986. A bipartisan tax-reform package was enacted, with a top rate of 28%.
Now Democrats have a new definition of tax reform. “They want to broaden the base and raise tax rates,” says Douglas Holtz-Eakin, the former head of the Congressional Budget Office. Rather than promote economic growth—a goal of Mr. Bradley and Mr. Gephardt—this approach is almost certain to hamper it. After nearly seven years of sluggish growth during the Obama era, the party seems to think that even an anemic 2% annual increase in GDP is too much.
It takes only a few minutes of watching the Democratic presidential debates to see how profoundly the party’s economic thinking has shifted to the left. Tax cuts are shunned and plans for achieving economic growth are barely mentioned. Tax increases are now the preferred choice of Democrats.
The change is politically counter-intuitive, given the proven benefits to all Americans of lowering taxes. The Kennedy cuts to individual income rates sparked a wave of growth and jobs in the 1960s. And the Reagan cuts in 1981 and tax reform—basically the Bradley-Gephardt type—were the underpinning of an economic boom in the 1980s and 1990s. Yet Democrats want to do the opposite now.
Vermont Sen. Bernie Sanders, the Democratic presidential hopeful who is polling ahead of Mrs. Clinton in New Hampshire, would subject annual income of more than $250,000 to Social Security taxes. The current ceiling is $118,500. He thinks a 90% tax rate on income is not too high. He also wants to tax “Wall Street speculation” to pay to make college tuition free.
Mrs. Clinton would impose an “exit” tax on American companies joining a foreign firm to escape high U.S. corporate tax rates. Former Maryland Gov. Martin O’Malley, another candidate seeking the Democratic nomination, would increase the capital-gains tax rate to make it level with income taxes—that is, to 39.6% from 23.4%.
The rich are seen by Democratic candidates as a bottomless reservoir of tax revenue, with no economic consequences for the nation.
Mr. O’Malley believes that the affluent will happily pay higher taxes. Last month in Des Moines, Iowa, in the second debate, he said: “In talking to a lot of our neighbors who are in that super wealthy millionaire and billionaire category, great numbers of them love their country enough to do more again in order to create more opportunity for America’s middle class.”
From personal experience, Mr. O’Malley should know better. When he was governor in 2008, a millionaire bracket was added to close a budget shortfall. In 2009, 1,000 fewer millionaire tax returns were filed in Maryland.
Democrats pay lip service to the need for economic growth, though the proud socialist Mr. Sanders regards growth as relief for the rich. But the Democratic ideological drift to the left has caused the candidates to renounce the kind of incentives for private investment that would stir growth and job creation. Tax incentives and private investment have become so foreign to Democrats that they went unmentioned in the first two debates. (The third debate is scheduled for Dec. 19 in New Hampshire.)
Instead, Democrats now offer fanciful remedies for economic stagnation. In the Las Vegas debate, Mrs. Clinton said: “I’ve put forward specific plans about how we’re going to create more good-paying jobs—by investing in infrastructure and clean energy, by making it possible once again to invest in science and research, and taking the opportunity posed by climate change to grow our economy.” Evidence that this approach has ever been effective was not offered.
Mr. Sanders favors a crude Keynesian approach. “When we put money in the hands of working people, they’re going to go out and buy goods,” he declared in the Des Moines debate. “They’re going to buy services, they’re going to create jobs in doing that.” He also promoted raising the minimum wage to “15 bucks an hour,” despite the proven job-killing effect such an increase would have.
While yearning for higher taxes, Mrs. Clinton says she is for “strong growth” and “fair growth” and “long-term growth.” In a speech last summer, she called for a “growth and fairness economy.” If Mrs. Clinton has even a faint suspicion that tax increases might jeopardize growth, she hasn’t said so.
Her agenda for boosting the take-home pay of middle-class Americans doesn’t rely on growth. She wants the rich and corporations to fund a wealth transfer. In the first debate, she expressed interest “in finding ways so that companies share profits with the workers who helped to make them.”
And she has proposed new tax credits and the expansion of old ones. Low-income Americans would get a tax credit for installing solar panels. A refundable tax credit up to $5,000 would cover out-of-pocket medical expenses. Tax credits have their virtues, but spurring economic growth is not one of them.
Along with President Obama, the Democratic presidential aspirants are the face of the party. They represent its thoughts and prayers for the future. Democrats in Congress, the Obama administration and a significant portion of the rank and file seem to agree. Their rejection of lower tax rates has made tax reform a nonstarter in Washington.
These days, Mr. Bradley, an investment banker, and Mr. Gephardt, a lobbyist, have little influence on Democratic policy. But there is one party veteran who still has some clout: Bill Clinton. After he agreed in the 1990s to cut the tax rate on capital gains, the economy and jobs grew and tax revenue soared. Budget surpluses followed for four straight years. Republicans had better hope that Mr. Clinton doesn’t clue in his spouse, or the rest of the party, about the secret of his success.