The Democrats Hidden Tax Plan? You decide.

THE DEMOCRATS' HIDDEN TAX PLANS

By Dick Morris

Published on TheHill.com on October 24, 2007.

It’s easy to see the disguises that the Democratic Party is planning to don for Halloween. Not this year, but in 2009, after they have elected Hillary as president and as many as 58 Democratic senators. (Possible takeaways in Minnesota, New Hampshire, Maine, Oregon, Virginia, Nebraska, Colorado and New Mexico.)

While we can only speculate on the taxes they are planning to increase — “everything” would be a safe bet — it is becoming clear how they will dress the tax increases up to make the radical change they will, in fact, represent seem moderate and reasonable, even necessary to protect the “middle class.”

Put the pieces together:

Why are the Democrats adopting a one-year patch for the Alternative Minimum Tax (AMT) rather than a long-term fix?

And why are liberal leaders like Sen. Charles Schumer (D-N.Y.) opposing closing the loophole that protects private equity hedge funds? And why is Ways and Means Committee Chairman Charles Rangel (D-N.Y.) pushing for a broad-based fix closing capital gains treatment for all partnerships, not just for hedge funds, even though he must realize that such broad-based reform can’t pass?

And why did Senate Majority Leader Harry Reid (D-Nev.) and other Democratic leaders hail the action of the Budget Committee as representing a tax cut when all it did was to include in its long-range plans the renewal of some, but scarcely all, of the Bush tax cuts that will sunset in the next four years?

The answer is that the party is concocting an elaborate costume with which to disguise its coming mammoth tax increases.

Once the Democrats firmly control both ends of Pennsylvania Avenue, they will probably:

Raise the top bracket on the income tax back up to 40 percent from its current 35 percent.

Increase the Capital Gains Tax from its current 15 percent to 30 percent or, perhaps, eliminate it entirely and tax these gains as ordinary income (at 40 percent).

Double, triple or perhaps eliminate the ceiling on FICA taxes so that instead of taxing only the first $99,000 of income, the levy covers a much higher portion of earned income.

Repeal much of the rollback in estate taxes passed by Bush.

The combined effect of these increases will be horrific, and will probably trigger a recession. As Election Day 2008 nears, it is easy to anticipate massive sell-offs of stocks and real estate in anticipation of a Democratic increase in capital gains rates.

So, to induce America to swallow their tax poison, the Democrats understand the need to camouflage their intentions and hide them in the rhetoric of middle-class tax cuts.

So here’s what they’ll do. They will bill their tax increases as a middle-class tax cut by including in the calculation the Bush middle-class tax cuts, which they will not permit to sunset, and also by taking credit for a long-term fix of the AMT. Together, the sums “saved” by these “tax cuts” will be gigantic, at least on paper, and will permit them to call their revenue-raising leviathan a tax reduction. Of course, no actual middle-class human being will see his or her taxes cut. The Bush tax cuts will just continue and the theoretical harm of the AMT will be averted.

Then they will repeal the carried interest exemption on all partnerships (real estate and energy as well as private equity) and will hold up the massive and obscene earnings of hedge fund managers and their unjustifiable tax preferences as the poster child for their tax increases. They will feature Blackstone and its billion-dollar executives as the targets of their tax increases.

All of this camouflage will fool enough people to get the votes in a Democratic Congress to pass their tax program. But once the increases start being felt on tax day, it will be a different story. But, by then, it will be too late. Halloween will be every day.

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"Freedom is Knowledge"