Freedom Line Blog

We all know that driving with one foot on the gas and the other  on the brake  just slows you down.  And that dieting by day while binging by night will negate your weight loss efforts.

Similarly, spending billions of taxpayer dollars to “stimulate” the economy and job growth, while simultaneously proposing tax increases that would stymie investments in new jobs, won’t help us get our economy back on track.

Unfortunately, that is just the proposal before the U.S. Congress, in the form of the so-called Baucus/Levin American Jobs and Closing Tax Loopholes Act. What’s doubly unfortunate is the rush by some Congressional leaders to hastily pass this legislation without any public debate.

Among the provisions in the bill is a tax increase on “carried interest,” which is the profit from a successful investment. Carried interest earnings are often used to spur further investment, and don’t fairly constitute regular job income because the return on investment isn’t guaranteed like a paycheck is. The proposed increase would take the tax from the current capital gains tax level of 15% (20% in 2011) to a punishing 40%.  Consequently, investment partnerships would not invest as much as they do now.

Even some Senate Democrats recognize the folly in discouraging job-creating investments with this sort of tax increase. Four Democrats—Patty Murray (WA), Mark Warner (VA), Bob Casey (PA), and Jeanne Shaheen (NH)—along with Scott Brown (R-MA) have said that taxing venture firms at higher rates would merely hurt job creation and “could not occur at a worse time.”

There are additional reasons the carried-interest tax hike is a bad idea:

• While President Obama has admitted that small businesses are responsible for 70 percent of the nation’s net new jobs in the last decade, this legislation would translate to an $11.2 billion tax increase on some of those same small businesses.   How can this be an engine of job creation?

• The tax hike would also discourage investment and take away money used to start, grow and rescue companies.

• Under such high tax rates, the United States would be at a severe global disadvantage in terms of attracting investment.  The winners would be countries such as India, China, and the U.K., with carried interest tax rates of 0%, 10% and 18%, respectively.  Why drive jobs and businesses to overseas competitors?

Senator Max Baucus (D-MT) and Representative Sander Levin (D-MI) just introduced their ill-advised legislation on May 20, yet they are driving for quick passage.  This rush only serves to deprive everyday constituents of the ability to weigh in with their elected representatives on the legislation.

Is it any wonder that with such stealth legislating, millions of Americans are losing their confidence and trust in Congress’s ability to boost the economy?

As the Center for Individual Freedom sees it, this is another case of government “help” we can’t afford.