The tax bill that emerged from the Senate Finance Committee is worse than the one that went in. The senators dropped the destructive BTU tax on energy but substituted an even more destructive surtax on capital gains.
This pushes the capital-gains tax rate up to 30.8%, a rate that is high both absolutely and in relation to other countries. This inappropriate increase comes at a time when House members such as Herbert C. Klein (D-N.J.) are complaining about the lack of venture capital money for start-up ventures. On May 12, he told the House that "just the other day I had a visit from a group from the electronics industry who said to me that they can create new jobs, that they have the business, that they can sell to foreign companies, and they cannot get the capital to finance their ventures."
After the 10% hike in the capital-gains tax, they will be even less able to get start-up capital.
You might think that the Democrats would put two and two together and come up with a decision to cut the capital-gains tax. But that assumes Democrats favor the growth of the private sector. They don't. Democrats are committed to the growth of the government sector.
The Democrats' answer to the lack of venture capital is to socialize the process. Having killed the formation of new businesses with high tax rates, the Democrats have come up with a bill, H.R. 820, titled, in appropriate Orwellian fashion, the National Competitiveness Act.
This act gives the federal government the job of providing start-up capital to entrepreneurs. It establishes the Department of Commerce as investment banker for start-up companies. All-knowing bureaucrats will allocate capital by making loans, purchasing preferred stock and guaranteeing the dividends of venture capital companies.
They will do this with taxpayer money, of course, thus completing the separation of risk and reward from accountability. The taxpayers will be able to lose a lot of their hard-earned tax dollars so that people who have never been in business can identify "critical technologies," "outreach to economically depressed areas" and allocate risk capital to 'socially and economically disadvantaged individuals.'
In other words, the government will have a new political slush fund to distribute in political ways for political purposes. In place of a capitalistic process of wealth creation, there will be another mechanism for redistributing taxpayers' incomes to the politically favored.
The National Competitiveness Act, like the capital-gains surtax, is a way to prevent the rise of new jobs and wealth. These are important achievements for Democrats, the party of government, because they lead to still more government. When capital is prevented by taxes from creating jobs, the government claims the responsibility and socialism expands.
The tax bill that is before the country makes it clear that there is no such thing as a New Democrat. The Democrats have clearly chosen to punish success and to reward failure.
They claim that this result is demanded by fairness, but in fact fairness would demand the repeal of the capital-gains tax. The capital gains tax is a triple tax on the same income. A company that is successful and earns profits pays income taxes. This income is taxed again when paid out in dividends. If some of the earnings are reinvested, future earnings are capitalized in the value of the stock and taxed a third time as capital gains.
Moreover, unlike the income tax, the capital-gains tax is not indexed for inflation. That means that increases in asset prices because of inflation are treated as real gains and taxed. This taxation of nominal gains is a confiscation of wealth.
The current tax code already taxes investment income three times, and the current tax bill raises all three of the taxes: the tax on personal income, business income and capital-gains "income." (In national income accounting, capital gains are not income.)
This extraordinary pummeling of success, which will make America poorer, less productive and less employed, is justified by Democrats and their media pimps on the grounds that the rich escaped taxation during the 1980s and do not pay their fair share.
This is a lie. Freely available IRS statistics show that the percentage of the total federal income tax paid by the top 1% rose from 19% in 1980 to 27.5%in 1988. The percentage paid by the top 5% rose from 36.8% to 45.5% and the percentage paid by the top 10% rose from 49.3% to 57.2%. Obviously, the Democrats have a perverted definition of fairness. It is one that is killing America as the land of opportunity.