WSJ - Bush, Kerry Are Far Apart on How Raising Taxes on 'Rich' Pans Out

[question everything]

CAPITAL
By DAVID WESSEL

Write to him at [e-mail]9.

August 5, 2004; Page A2

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"He's only going to raise the tax on the so-called rich."

True. The candidates differ sharply on how heavily to tax Americans with incomes above $200,000 a year. President Bush wants a top marginal tax rate of 35%. The Democratic Mr. Kerry would boost rates to 39.6% and undo Mr. Bush's tax breaks for dividends and capital gains for those folks, too. He'd use the money to expand access to health insurance and to subsidize employer-provided coverage.

"You know how the rich is: They've got accountants. That means you pay."

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Seriously, rich folks do find ways to shrink tax bills and alter their behavior after big changes in U.S. tax laws, such as the 1986 law that cut the top rate to 28% from 50%. "If someone has been contributing money to a deferred-compensation plan and tax rates come down to 28% after decades of being at 50%, it's a good time to take money out," says Massachusetts Institute of Technology economist James Poterba.

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Overall, though, the government still is likely to come out ahead, as the gush of tax revenues after the 1993 tax increases suggests. "In the last decade, the top rate was as high as 39.6%, and we know at that rate you can collect quite a bit of revenue," says Joel Slemrod, a University of Michigan economist.

"That means your small business pays. It means the farmers and ranchers pay."

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Yes, Subchapter S companies pay taxes on profits at individual income tax rates. But the bulk of small businesses, farmers and ranchers don't make enough to fall into top brackets. They won't pay more under Mr. Kerry's plan. And I've never understood the case for taxing a farmer, rancher or small-business owner who clears $500,000 differently than a corporate executive, lawyer or ballplayer who earns $500,000.

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