Good luck if the Democrats win

Posted: Nov 06, 2006 12:01 AM

Two things will likely happen if the Democrats regain control of Congress Tuesday: Federal social welfare spending will go up and the core of the Republican tax cuts will be repealed.

We know this will happen because Democratic leaders have said so numerous times, in their campaign statements and in their election agenda.

Since President Bush's tax cuts were enacted in 2001, the Democrats' have been calling for their repeal, repeatedly ridiculing them as "tax cuts for the rich" when the bulk of the provisions are aimed at those in the middle class and below. "I can't see Democrats opposing the rates that are being paid at the bottom two-thirds of the tax code," said Democrat Robert Reischauer, head of the liberal Urban Institute think tank.

But Congressman Charlie Rangel of Harlem, who would become the Democratic chairman of the powerful tax-writing House Ways and Means Committee, told Bloomberg News not too long ago that he could not think of a single tax cut he would want to extend before they are due to expire by law in 2010.

An analysis by the nonpartisan Tax Foundation shows us just what is at stake for middle-income families if the tax cuts were repealed: A family of four (with two children under the age of 17), taking the standard deduction on an income of $50,000 a year pays a federal income tax bill of $1,365.

If the Bush tax cuts were never enacted, or if they were repealed, their tax bill would be $3,320. Not only does this family benefit from the lower income tax rates in Bush's cuts but also from the doubling of the child tax credit to $1,000. A family of four earning $75,000 a year presently has an income tax bill of $5,115. That bill would shoot up to $7,538 if Democrats had their way and the Bush tax cuts were never enacted.

A worried Charlie Rangel late last month, as Republican congressional candidates pounded their opponents on the tax cut issue, put out a hasty statement denying that he had any intention of raising taxes on the middle class. "Democrats have a long history of supporting targeted relief for middle-income families," he said.

Rangel said he would only "close tax shelters and eliminate benefits for companies that move jobs overseas." As for the across-the-board tax rate cuts Bush enacted, he simply dodged the question about what he would do, saying, my gosh, 2010 was "light years away from the debate before us." He hoped he would be able to provide middle-class relief, however, he told reporters.

His evasiveness, following Democratic leader Nancy Pelosi's repeated claims that Democrats would raise taxes on upper income Americans, drew suspicion from Republican tax-cutters.

"Charlie Rangel's a master politician, but when he talks about everything being on the table and tax cuts for the middle class, my eyes begin to widen," said former Rep. Jack Kemp, the architect of the Reagan tax cuts in the 1980s. "When you start targeting tax cuts to a class of people, you are entering the arena of redistribution of wealth," Kemp told me.

This is exactly what Rangel and Pelosi have in mind. The "pay-go" rules they say they will institute would require that any tax cuts be offset by spending cuts or higher taxes on someone else. Thus their plan would call for raising taxes on the higher income brackets to finance lower rates elsewhere on the income scale.

But it is unlikely that the Rangel-Pelosi Democrats will want to tamper with the lower 10 percent rate for workers in the bottom tax bracket or for those in the middle who now benefit from the Bush rate cuts. Their targets: raise the death tax, boost capital gains and dividend taxes on investors and hit upper income brackets harder.

"Democrats are for taxing the super-rich, though it has yet to be defined where super-richdom begins," says Reischauer, the former Congressional Budget Office director.

One tax hike scenario discussed in Democratic circles would push for tax hikes limited to six-figure incomes, corporate profits, investor gains and higher death taxes in exchange for an extension of Bush's other tax cuts. "They will try to find some way to raise taxes to finance their spending programs," former House Republican leader Dick Armey told me.

As for spending, an examination of the Democrats' campaign agenda, titled "A New Direction For America," proposes to increase a broad range of social welfare spending by hundreds of billions of dollars. One analysis by the National Taxpayers Union puts an annual price tag of some $80 billion on the Democrats spending wish list, but that is likely to be only a small part of their spending plans.

A Senate cost analysis of Democratic spending amendments for fiscal 2006 and 2007 totals $95.2 billion and $74 billion respectively. One of the plans in their agenda is an income redistribution scheme aimed at lower to median income Americans that would match the first $1,000 contributed to an IRA account at a cost of nearly $40 billion over five years.

So if you think federal taxes and spending are bad now, wait until the Democrats get a hold of the government's purse strings.