Kerry's tax plan may not be what he thinks it is

‘Hope is on the way,” promised Sen. John Edwards over and over in his vice presidential nomination acceptance speech at the Democratic National Convention.

He meant, “Higher taxes are on the way.”

After listing a number of proposed new government programs, he explained, “So now you ask how are we going to pay for this? Well, here’s how we’re going to pay for it. Let me be very clear, for 98 percent of Americans, you will keep your tax cut — that’s 98 percent. But we’ll roll back the tax cuts for the wealthiest Americans, close corporate loopholes, and cut government contractors and wasteful spending.”

Let’s just look at that 2 percent who will have their taxes boosted should Sen. Edwards and presidential nominee John Kerry get their way.

“About 60-70 percent of the income in the $200,000 and up category is business-related income” for those who run companies, says Bill Ahern, spokesman for the free market Tax Foundation.

The details of the Kerry plan are not yet known, but “if the statutory result of the Kerry tax increase is to restore the (pre-Bush tax cut) top rate of 39.6 percent from the current 35 percent, and the 36 percent (second tier, pre-Bush tax cut) tax rate from the current 33 percent, we would expect a lot of individuals with businesses and high-income couples to bear the brunt of that new tax,” Ahern said.

Cutting their taxes provides “good bang for the buck” in the form of business expansion and job creation, Ahern says.

“At that level, a significant part of income is business income that economists see used for economic growth,” he added.

“The income is rolled back into the business to create jobs. We would expect that a restoration of those rates would reduce business and jobs growth.”

Sen. Kerry, in his Thursday acceptance speech, did say, “I will reduce the tax burden on small business.”

Ahern responded that “in a lot of cases Kerry would be giving a tax incentive to those who got a tax increase in another place.”

He noted that Kerry hasn’t given the specifics, but “the business tax cuts probably would be targeted at certain types of business so it would ‘cost less’ ” to the government.

That’s an old Democratic idea that, in essence, is an industrial policy that distorts the market by picking winners and losers.

It’s far better, as Ahern said, to just keep the current tax cuts and let the market choose which businesses ought to prosper. The market, not government “targets,” then most efficiently would create new jobs.