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Overtaxing the Rich and the Dead : Clinton's retroactive increase is unconstitutional and breaches faith with the people.

August 08, 1993|PAUL CRAIG ROBERTS | Paul Craig Roberts, former assistant treasury secretary, is chairman of the Institute for Political Economy in Washington.

Bill Clinton propagandizes against the rich, depriving them of legitimacy, and the Democrats are willing to violate the law to punish them. The Democrats have singled out "the rich"--and the dead--for unconstitutional retroactive taxation and are legislating this prohibited act.

Clinton's tax increase, misleadingly termed a deficit-reduction plan, is a blatant assault on Article I, Section 9 of the Constitution, which explicitly forbids retroactive law. Moreover, it is contemptuous of all legal precedent.

The Supreme Court has permitted some retroactive taxation, but new taxes have never been permitted to have an effective date prior to the date that the specific increases were first proposed in Congress. (Retroactivity has been judged permissible based on the reasoning that appropriate notice is given once the taxes are proposed.) The Jan. 1, 1993, effective date on Clinton's tax increase, however, is prior to the proposal of the new taxes.

In the case of estate taxes (transfer taxes), there is no precedent for retroactivity. Clinton's increase taxes the dead, who do not have the option of remaking their wills, retroactively. Henceforth, no American can plan his affairs to reflect his intentions since the laws that guide him can be retroactively overturned after his death. This strikes at the heart of the testator's right to bequeath his property. U.S. tax rules are already the most grasping of any in the world, and now we are reaching back beyond the grave.

Clinton and the Democrats could single out "the rich" and estates for special tax burdens without violating the Constitution. Why, then, the retroactivity?

The answer is simple. Clinton and the Democrats know that higher marginal income-tax rates will not raise the predicted revenues if they are prospective. In order to raise revenues, the higher tax rates have to be applied to income that is already earned.

The retroactivity of the bill is proof that the Democrats accept the supply-side argument that an increase in marginal tax rates reduces the supply of labor and capital, thereby failing to produce the revenues forecast by static revenue estimates. In short, by making the higher tax rates retroactive, the Democrats are avoiding the relative price or disincentive effects that stymie revenue raising measures.

Now that the Democrats have learned that only retroactive tax-rate increases succeed in raising revenues, the next tax increase will be made retroactive two years. Then five years. Indeed, since the United States is in the clutches of a governing class that is utterly contemptuous of both legal precedent and the Constitution, there is nothing to prevent the next Clinton tax increase from being retroactive to the beginning of the republic. If notice requirements are no longer to be observed, the 1913 income tax can be made retroactive to the founding of the country and all personal wealth can be confiscated.

The Clinton tax plan is not just bad economic policy. It is constitutionally illegal and destructive of the polity. It signifies the government's complete breach of faith with the people. This bill will accelerate the growing perception of the federal government as a grasping criminal class of robber barons.

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