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Congressional Democrats bombing taxpayers with stealth budget lines. 24 May, 2007

Posted by stoptaxing in federal.
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From Robert Novak’s e-newsletter

Budget: In routine party-line votes last week, both houses of Congress completed action on a Democratic-crafted budget containing the biggest tax increase in
U.S. history.

  1. Democrats’ success in shaping the coverage of this tax-hike as a non-tax-hike can be attributed to Senate Budget Chairman Kent Conrad (D-N.D.), who has repeatedly insisted his budget contains no higher taxes. But Conrad’s budget increases discretionary spending $200 billion over five years, while promising immense budget surpluses in the future. It only does so because it raises taxes on upper-bracket income earners and investors who receive dividends and take long-term capital gains.
  2. Conrad’s denial about the tax-hike in his budget resulted in a Senate debate not on the merits of higher taxes, but on the existence of the tax increase. The bottom line is that if Congress does nothing, several tax rates will increase when President Bush’s tax cuts expire in 2011. Moreover, the Senate’s adoption of the Baucus amendment, to extend some of the tax cuts, was adopted and changed the revenue bottom line, despite Conrad’s earlier insistence that there were no tax hikes in his budget.
  3. Conrad has defended his no-tax-increase claim with an exercise in statistical sleight of hand. He has been comparing his own budget to the President’s budget using data from two completely different sources, which employ different techniques and operate under different economic assumptions. The result of this trickery is the appearance that the two budgets raise the same amount of revenue.
  4. Democrats in the Senate buy into his euphemisms. Not a single Democratic senator voted against the tax-increasing budget — not even Ben Nelson (D-Neb.), who broke a no-tax-hike pledge in casting the vote. Nelson supported the Bush tax cuts, but now he has voted to let them expire. But the budget resolution only narrowly passed the House, with 13 Democrats opposing it, nearly all of them moderates. Freshman Rep. Harry Mitchell (D-Ariz.) was among those not fooled by Conrad’s rhetoric that there was no tax increase in the budget, as he said, “I simply cannot support a budget that allows key tax cuts to expire.”
  5. The Democratic budget does contain a one-year patch for the Alternative Minimum Tax, extension of the increased child tax credit, and the bottom 10 percent income tax bracket. But the continuation of reduced tax rates on capital gains and capital gains tax treatment for dividends are not included in the budget, nor are the lower marginal rates passed in 2001 (these expire in 2011).
  6. Some market-watchers assert that the effect of the expiring tax cuts — especially capital gains — still has not been priced into the stock and real estate markets. This could mean a major market boom or bust late next year, depending entirely on the results of the 2008 election, on the perception that that election decides whether taxes on gains will increase in 2011. Gridlock or Democratic control — the two most likely outcomes — is likely to result in a correction driven by tax policy.

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1. Alan Coffey - 30 May, 2007

We are in some serious deep doodoo if they allow those tax cuts to expire. It won’t be the end of the world like welfare reform, but it won’t be good either.


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