The View From 1776

Economic Class Warfare

Democrats remain true to form: tax and spend the nation into recession.

In a Wall Street Journal article (online subscribers can read it here), Sarah Lueck reports that,

The campaign to raise taxes on wealthy hedge-fund and private-equity managers got a big boost Friday, with the new endorsement of several leading congressional Democrats. The broad attack appears set to snag managers of venture-capital firms and real-estate partnerships as well… The bill is the second time in two weeks that prominent lawmakers have gone after the rapidly growing financial sector. A week ago, the top Democrat and Republican on the Senate Finance Committee introduced legislation that would boost taxes on publicly traded financial partnerships such as Blackstone Group LP, which began trading Friday.

Democrats will paint the carried-interest bill, like the Blackstone legislation, as a narrowly targeted attempt to close an unjustified loophole benefiting a small group of the U.S. economy’s most spectacular winners. Republicans will seek to cast it as a broader bid by Democrats to attack the shape of a tax code they argue has fueled growth and stock-market gains throughout the Bush years. In particular, they will cast Democrats’ goal as wiping out the preferred tax treatment for capital gains that has benefited a swelling “investor class” as stock ownership has proliferated.

Liberals apparently have yet to learn from repeated experience:

The chief sponsor of the House bill, Michigan Democrat Rep. Sander Levin, said he wasn’t convinced by industry arguments that lower tax rates are necessary to continue the economic growth fostered by the industries.

The facts of history are that every tax increase has slowed economic growth or pushed the economy into recession.  Every tax reduction has strongly boosted economic growth and created millions of new jobs.

The political game, however, is played by pandering to poorly informed voters: soak the rich and use their money to buy votes with benefits handouts.  The average voter can’t connect the dots between that and the ensuing business recession and job layoffs.

Washington Post columnist E. J. Dionne, Jr., sets out the liberals’ Joseph Goebbels-style approach.  In ‘The Left’ Moves Front and Center, he refers to the new taxation target as “the privileged role of hedge funds.”

What liberals won’t acknowledges is that the huge growth of hedge funds and private equity groups like Blackstone has nothing to do with privilege.  It’s strictly a product of the massive over expansion of the money supply engineered by the Federal Reserve to accommodate unstoppable growth in Federal spending.  When the world is awash in liquidity, individual citizens and institutional investors (who pool small amounts from not-so-rich individuals) look for places to invest their funds, and hedge funds and private equity groups have been the most attractive home for those funds in the last few years.

Unfortunately, both Republicans and Democrats have been guilty of stoking the Federal spending engine.

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