Who was the first president since Ronald Reagan to deliver tax breaks for investors? None other than Bill Clinton, who signed a 1997 law that included tax-rate reductions on capital gains. By doing so he was not unlike his hero, John F. Kennedy, who urged across-the-board income tax cuts to "reinforce the American principle of additional reward for additional effort."
Given this history, congressional Democrats should embrace making President Bush's tax cuts permanent before they expire in 2010.
Condemning these laws to die would make tax filing season terrifying for everyone, not just for some whimsical class of robber barons. Recent IRS data show that more than 30 million filers, many of them seniors , reported investment dividends.
Democratic leaders are muddling pledges to save the middle-class provisions of the Bush tax cuts with reserve funds that would be filled later from unspecified sources. Setting aside these improbable gimmicks, a middle-class family with two children could face a tax hike of $2,000 or more in 2011.
History tells us that seeking this short-term revenue windfall is short-sighted policy. George Bush the Elder backed a law that raised the top income tax-rate and put new levies on everything from yachts to beer. The economy sagged, and the budget deficit reached new heights.
Those who credit Bill Clinton's 1993 tax-hike scheme for taming deficits should remember that budget surpluses only appeared after 1997's capital gains tax relief. Conversely, Calvin Coolidge's tax rollback helped the 1920s roar, while Kennedy's relief package jump-started the nation's output. And Reagan's reductions preceded a boost in job creation.
The lesson? Leaving more money in private-sector hands can lead to more employment, business activity, and investment, which lead to more taxable earnings for the Treasury.
It's happening again. Revenues have zoomed 28 percent over the last six years.
So why hasn't the red ink dried up? During those same six years, when Republicans controlled both branches of elected government, expenditures rose by an astonishing 49 percent.
Advocates of "tax fairness" ought to back permanent relief, too. Tax returns filed in 2005 indicate that on the same dollar, the wealthiest 1 percent of Americans paid an effective income tax rate nearly eight times higher than those in the bottom 50 percent. By this measure, taxes have remained steeply "progressive" under Bush.
One benefit of cementing the current tax rates is hard to deny: stability. Every year since 2001 has spawned significant changes to the tax code.
But these headaches won't match the migraines from soaring tax rates lying ahead. Ordinary folks who are trying to pay for college or plan for retirement will have to guess about which college-finance plans or IRAs will provide the best after-tax returns. Small business owners will have to downsize operations or scuttle expansion plans.
Until lawmakers take on comprehensive tax reform, the least they can do is make permanent the reductions that have allowed our entire nation to prosper.