As the White House gears up to let the biggest tax hike in American history go into effect on Jan. 1, Treasury Secretary Timothy Geithner said Sunday that allowing big tax increases targeted at wealthy Americans is "the responsible thing to do" and will not further cripple the nation's economic growth.
"Just letting those tax cuts that only go to 2 percent to 3 percent of Americans, the highest-earning Americans in the country, expire, I do not believe it will have a negative effect on growth," while it would send an important message to the world about America's commitment to fiscal austerity, Mr. Geithner said on ABC.
And so the biggest-spending administration in the history of the world, an outfit that wouldn't even cut pork-barrel spending somewhere else to fund its unilateral extension of unemployment benefits last week, now smugly asserts a desire to protect its reputation for "fiscal austerity."
Because the planned Democratic tax hikes won't damage the economy. Really? Let's look at just one example:
Up in Seattle there's a high-tech business called GM Nameplate -- no relation to General Motors. The CEO, Donald Root, bought controlling interest in this manufacturer of graphic overlays, touch screens, brand identity nameplates and other machined components from the founding families in 1977. Under his leadership, GM Nameplate added plants around the United States as well as in Singapore and China, and grew to $80 million in annual revenue.
But Don Root is now 70, and he has Parkinson's disease. He'd like to turn over the business to his four sons, all of whom are involved in the company in some way.
Problem is, unless the elder Mr. Root takes things into his own hands and arranges to die by Dec. 31, the expiration of the Bush tax cuts will increase the federal death tax from today's "zero" rate to 55 percent, effective Jan. 1. Should Don Root die and leave his company to his children in 2011 or 2012, they estimate they'll owe $25 million in taxes on a business purchased and grown with after-tax income.
To get that amount of money, they'd almost certainly have to sell the company at a fire sale price.
Instead, according to Dick Patten, who runs the American Family Business Institute, lobbying against the death tax on behalf of America's millions of owners of small businesses and family farms, the Root family is now in discussions with a buyer who'd like to purchase GM Nameplate right now, at a market price. The only catch? The buyer wants to move the entire company -- with all its machine tools and all its jobs -- to Indonesia.
But returning to an environment of high estate taxes -- not to mention vast hikes in marginal income tax rates on investors perfectly free to move their operations offshore -- "won't cripple the nation's economic growth," Mr. Geithner?
If these tax hikes are imposed, "Businesses with narrow margins, they're going to go under," warns Steve Forbes, publishing magnate and two-time Republican presidential candidate, on CNN's "State of the Union." "Even entrepreneurs, people who are willing to buck the tide" are "very hesitant," he says, "because they don't know what kind of costs they're going to get hit with."