Sunday, October 10, 2004
Copyright © Las Vegas Review-Journal

EDITORIAL: Kerry economic plan

Domestic policy was an issue in Friday's presidential debate, so let's look at a couple of John Kerry's specific domestic proposals.

If elected president, Sen. Kerry says he wants to increase the top income tax rate from 35 percent to 39.6 percent. He also would raise the tax on stock dividends from 15 percent to 39.65 percent for investors who earn $200,000 per year.

Sen. Kerry figures those higher rates would grab an extra $229 billion from private paychecks over 10 years for him to spend on expanded federal subsidies for public schools and socialized medicine.

But such schemes have never raised as much as planned.

In 1993, for example, higher federal income taxes on the highest-earning Americans produced only 30 to 40 percent of the projected new revenue, according to a study co-authored by Daniel Feenberg of the nonpartisan National Bureau of Economic Research.

In the case of this first set of Kerry tax hikes, the first and most likely strategies to avoid the tax hit would be for investors to shift holdings from dividend-paying stocks in private companies to tax-free municipal bonds.

What will that do? Local governments would have more money to hire highly paid municipal employees -- running up long-term pension obligations.

Meantime, at the private factories financed with the private, dividend-paying stocks? They'd have less capital to create private-sector jobs in this country, making it more likely those jobs would move offshore.

As it turns out, Sen. Kerry says he has a plan to deal with that, too.

In his acceptance speech at the Democratic convention, Sen. Kerry mentioned steelworker Dave McCune, who saw his job in Masillon, Ohio, "sent overseas and the equipment in his factory literally unbolted, crated up and shipped thousands of miles away along with that job."

The centerpiece of Sen. Kerry's proposal to create 10 million jobs in the United States is to change the tax code to punish firms that ship jobs overseas. But the Los Angeles Times reported Friday that this Kerry plan, as well, "may not do much to solve the problem."

"Here's what Kerry didn't say," the Times reported: "When that happened in late 2002, the Massillon plant was owned by Jindal Stainless Ltd., the largest stainless steel producer in India. And an Indian company closing an American plant, cutting 100 jobs and sending its gear to China, would presumably fall outside the scope of the proposals Kerry is advocating."

"Maybe we can slow it down a tad" by altering the tax code or taking other steps, said Douglas Shackelford, a professor of taxation at the University of North Carolina, "but we're just talking about whether a factory closes in one year or two."