For decades, mainstream Democratic officeholders supported a centrist, moderate tax policy. While Democrats supported slightly higher tax rates and pushed to close corporate tax loopholes, they never supported the radical tax proposals advocated by left-wing academics and the far-left members of the party.
Proposals such as a financial transactions tax, a wealth tax, and sharply higher capital gains tax rates were all seen as radical nonstarters, fringe ideas that were bad economics and had no chance of being enacted in Washington.
Yet incredibly, these radicals tax ideas are now mainstream proposals for the Democratic presidential candidates. Even the so-called centrist candidates are pushing tax proposals that have never been supported by previous Democratic Party presidents.
For example, the financial transactions tax has been pushed by a small handful of House and Senate members for years. It has long been considered a fringe idea of the Left. In the first years of the Obama administration, when anger at Wall Street was high, some members pushed the president to support a financial transactions tax. But the Obama administration knew such a tax was unworkable and refused to support it.
A financial transactions tax is not a tiny tax on Wall Street fat cats that would raise a gusher of revenue without any harm on financial markets or the economy. In fact, the tax would hit middle-class taxpayers saving for retirement, disrupt U.S. financial markets, curb job-creating capital formation, drive financial trading overseas, and raise far less revenue than projected.
But now, with the exception of Sen. Amy Klobuchar, a tax that the Obama administration refused to support is being pushed by all the Democratic candidates.
A wealth tax is another radical tax idea supported by a number of the presidential candidates. A wealth tax was once popular in Europe as a way to wage class warfare and to fund social welfare programs. But over the past few years, the wealth tax has been dropped by France, Austria, Denmark, Germany, Finland, Sweden, and other countries as it became clear that the tax caused capital flight, hurt saving and investment, was impossible to administer, and failed to raise the predicted revenue.
The wealth tax has never been seriously considered in the United States, where many experts believe it would be found unconstitutional. But this radical tax plan is now a major feature of the campaigns of top Democratic candidates, including Bernie Sanders, Elizabeth Warren, and Michael Bloomberg.
Another radical tax plan being pushed by all the Democratic candidates is a sharply higher capital gains tax rate.
For years, the long-term capital gains rate has ranged between 15%-28%, save for a few years in the 1970s when it reached 39% before a Democratic Congress and a Democratic president reduced it to 28% in 1978. In 1997, after the rate went down to 20% and then up to 28% in the Reagan administration, President Bill Clinton signed a bill reducing the capital gains rate to 20%. President Barack Obama signed a bill in 2010 extending for two years a 15% rate enacted during the Bush administration, then pushed it back to 20% and then to 23.8%, where it stands today.
These Democratic presidents and mainstream Democrats in Congress understood that lower capital gains rates encourage saving, investment, and economic growth and that higher tax rates on capital would decrease federal revenue.
Yet today, there are Democratic presidential candidates calling for an increase in the top capital gains tax rate by more than 100%. Sanders and Warren have proposed a top rate of 55.8% and 58.2%, respectively. Bloomberg has proposed a top rate of 48.4%, and Joe Biden and Pete Buttigieg are calling for a top rate of 43.4%. All of them want to raise the top capital gains rate to a level never seen before in U.S. history and far higher than under previous mainstream Democratic administrations.
All of these radical tax proposals are far out of the mainstream for good reasons — they are unworkable, they would damage saving and investment, and they would reduce wages, jobs, economic growth, and the standard of living of all.
Bruce Thompson is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a Washington consultant. During the Reagan administration, he was assistant secretary of the treasury for legislative affairs.
