Can Democrats Get the White House...
It’s 2004, and just in case you hadn’t noticed, that means we’re officially in the presidential campaign season. The Iowa caucuses are just around the corner on January 19, then comes the New Hampshire primary, followed by contests in other states to determine which Democrat will square off against President George W. Bush (R) in November.
Unfortunately, various policy ideas put forth by the nine Democrats seeking the White House are strikingly anti-small business.
That’s odd and quite misguided considering that small businesses create the bulk of new jobs in the economy – between 60 percent and 80 percent each year -- and that America increasingly is a nation of entrepreneurs. Consider that the number of businesses in the U.S. (according to IRS tax return data) jumped by 111 percent from 1975 to 2002, compared to a 34% increase in population.
Of course, the Democrats seeking the Oval Office will vehemently deny even the slightest whiff that they might not be friendly toward small business. Practically every politician in the nation sings the praises of small business owners.
Democratic frontrunner and former Vermont Governor Howard Dean, for example, recently told The Wall Street Journal: “I am pro-business.” Connecticut Senator Joseph Lieberman’s campaign website notes, “Joe Lieberman knows that small business has become the prime engine of job creation in America.”
The campaign website for Senator John Edwards of North Carolina accurately points out the essential role capital plays in starting up and growing small businesses. And John Kerry, Senator from Massachusetts, even opened his own small business – a cookie and muffin shop – in 1976 with a friend. Kerry also is the former chairman and current ranking member of the Senate’s Small Business and Entrepreneurship Committee.
This all sounds great – doesn’t it? Unfortunately, key policy proposals from the Democrats in the 2004 presidential race turn out to be glaringly out of tune with the entrepreneurial sector of our economy.
Most damaging, each of the nine Democrats favors either rolling back all or part of the tax cuts that were passed by Congress and signed into law by President Bush over the past three years. That is, while disagreeing on some details, these Democrats stand unified for higher taxes. That’s anything but pro-small business.
From the entrepreneur’s viewpoint, the big plusses in the recent tax measures were cutting personal income tax rates, reducing the capital gains tax and phasing out the death tax.
Lower personal income taxes boost the bottom line of most businesses. As sole proprietorships, partnerships or S-corporations, roughly 91 percent of businesses pay the personal income tax, rather than the corporate income tax. The lower capital gains tax rate – cut from 20 percent to 15 percent -- means that investors see improved returns from starting up, expanding and investing in businesses. And eliminating the death tax translates into more businesses surviving and thriving, rather than being sold or closed in order to pay death tax bills.
These tax relief measures enhance incentives for working, saving, investing and entrepreneurship, which are the engines of economic growth and job creation.
Nonetheless, the Democrats running for the White House want to increase taxes to one degree or another. For example, Dean and Rep. Richard Gephardt call for the complete repeal of the Bush tax cuts. Lieberman actually is calling for a higher top personal income tax rate – one of 44.6 percent -- than what was in effect prior to the Bush tax cut. Wesley Clark does much the same. Edwards wants to impose a whopping 67 percent increase in the capital gains tax rate, and proposes retaining the death tax. If you’re pro-small business, none of this makes any sense.
The field of Democratic contenders largely is invoking class warfare to justify such tax increases. They want to tax the rich. However, a good chunk of the so-called rich that stand in these taxing crosshairs also happen to be entrepreneurs, business owners and investors.
It’s not smart economics, and it’s certainly not pro-small business, to increase taxes on the returns on investing and entrepreneurship. Starting up, expanding and investing in businesses are high-risk endeavors. There, of course, is a trade-off between risk and reward. Diminish the potential rewards through higher taxes, and you get less risk taking.
The Democrats pursuing the White House seem intent on imposing a soak-the-rich tax system. In reality, if their plans come to fruition, they’ll soak entrepreneurs, which translates into less innovation, fewer jobs created, and slower economic growth. That soaks everybody.
Raymond J. Keating serves as chief economist for the Small Business Survival Committee.
