The View From 1776

The Democrats’ Plan to Wreck the Economy

If you really want to see business activity dry up and the value of your retirement-paying investments decline sharply, then vote for the Democrats.

The Wall Street Journal’s editorial gives chapter and verse about what is in store for you if the Democrats take control of Congress.

The Non-Contract With America
?October 28, 2006;?Page?A6

A joke in Washington these days is that the only thing that can save the Republicans on Election Day is the Democrats. House Speaker-in-waiting Nancy Pelosi seems to get this joke, because with few exceptions she’s kept her Members tight-lipped and unspecific: As New York Senator Chuck Schumer has put it, why take the focus off the GOP?

This is in notable contrast to 1994, when the Gingrich Republicans ended a 40-year Democratic House majority by laying out a 10-item agenda known as the Contract with America. What Democrats are campaigning on this year is a Non-Contract with America—mostly generalities about “helping the middle class” and “ending the corruption in Washington.”

As a campaign strategy, this may well pay off. But if they do win, Democrats will have to fill their campaign vacuum with something, and the best clue to what that would be is what they’ve already proposed. We’ve taken some time to inspect these policy priorities and thought we’d share a few of the highlights, if that’s the right word. (Warning: Keep sharp objects away from drug-company and Wal-Mart shareholders.)

Tax increases. The Bush tax cuts expire in 2010, and any chance that they’ll be made permanent will vanish with a Democratic Congress. The question is whether Democrats will try to raise taxes even sooner. Most Democrats voted against the Bush tax cuts, but this week Ms. Pelosi said on CNBC’s Kudlow & Co. that “Democrats like tax cuts. We support middle-class tax cuts.”

The same isn’t true, however, for the “investor” tax cuts of 2003 that coincided with the acceleration of the current expansion. Ms. Pelosi says reversing these tax cuts “at the high end” would be “an earlier resort.” This would raise the top income and dividend tax rate back to 39.6% from 35%, and the capital-gains rate back to 20% from 15%, substantially raising the cost of new investment in the United States. Economist John Rutledge estimates that raising the dividend rate alone would reduce the value of the S&P 500 stocks by between 5% and 8.5%, roughly a $500 to $700 billion decline in the wealth of the 52% of American households that own stock.

“Paygo budgeting.” President Bush would no doubt promise to veto any direct tax increase, but having the power of the purse would give Democrats plenty of leverage. What if they framed the political choice as a tax increase on “the rich” versus funding the war on terror?

Democrats have also pledged to restore so-called pay-as-you-go budget rules, which sound like a restraint on budget deficits but in practice restrain only tax cuts. They don’t apply to the growth of current entitlement programs or to domestic discretionary spending, only to tax cuts or new entitlements. This formula would probably take us back to the 1980s, when Democrats insisted on higher domestic spending while fighting Ronald Reagan’s increases in defense spending.

Health-care regulation. Big Pharma and private insurers, watch out. Michigan’s John Dingell, who would run the Energy and Commerce Committee, has co-sponsored the “Patients Before Profits Act” that would gut funding for the new Medicare Advantage plans that are proving so popular with seniors. Instead, he and the other Democrats who run health-care panels want to direct all seniors into a single government-run Medicare drug plan. Another proposal from top Democrats, the Medicare for All Act, would make all Americans, of any age, eligible for Medicare and pay for it with a new 1.7% payroll tax on workers and 7% on employers.

Ms. Pelosi has also pledged to pass, in her first 100 hours as Speaker, legislation to require the government to “negotiate lower drug prices.” That’s a euphemism for imposing price controls on new medicines, which can take as much as $800 million in research and development to bring to market. The actor Michael J. Fox is getting headlines for his ads in favor of Democrats who support stem-cell research, but price controls would do far more to delay the introduction of new treatments for Alzheimer’s, Parkinson’s or cancer.

The union label. AFL-CIO headquarters would be rocking with hope once again. A job-killing hike in the minimum wage, to $7.25 from $5.15, would whisk through Congress, and we’d expect that Mr. Bush would sign it.

But another top priority for Democrats is the Employee Free Choice Act, which has at least 215 co-sponsors in the House and 44 in the Senate. This would allow labor to turn workplaces into union shops without an election or secret ballot. Unions would merely have to gather signatures from a majority of workers at a work site, which means labor organizers could strongarm employees who opposed such a petition. This would almost surely pass the House.

Democrats have also moved well to the left on trade since the Bill Clinton-Nafta era. Mr. Bush’s trade-promotion authority, allowing up-or-down votes on trade deals without amendment, expires next July, and there’s little chance House Democrats would extend it. The entire Democratic leadership opposed free trade with tiny Oman and with Central America, so deals now in the works with Vietnam and other countries would also be long shots. Sorry, Robert Rubin.

Energy. The Pelosi Democrats favor a “windfall” profits tax on oil companies and a virtual moratorium on drilling for more domestic oil in Alaska and on the outer continental shelf (where the U.S. may have more energy than Saudi Arabia). These policies would make the U.S. more dependent on foreign oil. There would also be an effort to pass new, and higher, fuel-mileage mandates, which would make things tougher on what’s left of Detroit. And lobbying would begin for the U.S. to sign the Kyoto Protocol on global warming and to subsidize, even more than Republicans already have, ethanol and other “alternative” fuels.

We could go on, in particular in the regulatory arena, where agencies would be under greater pressure to restrict mergers, among other things. But you get the idea. A Democratic triumph would produce a major shift in the national policy debate, and we can understand why Ms. Pelosi isn’t plastering most of this agenda on billboards around the country. Not everything would become law, to be sure, especially if Mr. Bush were finally willing to use his veto pen. However, elections have consequences, and we thought our readers might like to know about them before November 7.

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