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105 IRET Byline 1 (1992)

handle is hein.taxfoundation/iretbyln0105 and id is 1 raw text is: July 24, 1992 No. 105 Clinton's Economic Plan Governor Clinton's economic plan, Putting People First - A National Economic Strategy for America, might be better named Putting Government First. It would move the country toward a command economy, with resources directed by political rather than economic forces. Missing the point on growth. The Clinton plan is the opposite of a constructive growth program. Economic growth is promoted by reducing government obstacles to private sector production and income and wealth creation, by reducing tax rates on the earnings of capital and labor, cutting Federal spending, and reducing the costs of regulation. Over much of the past decade, the U.S. economy has labored under rising tax rates, increasing regulation, and increasing government spending, all of which raise the cost of private sector production and retard growth. The Clinton economic program would increase taxes, spending, and regulations, and retard growth even further. Tax increases. Clinton seeks to raise taxes by $150 billion over four years, mostly by trying to soak the rich and foreign firms. Since 1981, the income tax burden has been shifted substantially toward upper-income individuals. As tax rates were reduced, the higher-income people created more GNP, reported more income, and paid a higher percent of the total tax bill. Institute for Research on the Economics of Taxation IRE By gl gi neAv Nonetheless, Clinton accuses the rich of not paying their fair share. The fair share of taxes to be paid by the rich is never defined. In practice, redistributionists like Clinton define fair as more. Clinton would create a new higher tax bracket for the top roughly two percent of taxpayers, impose a 10% surtax on millionaires, and increase the alternative minimum tax. The affected taxpayers produce about one-fifth of the national income. Boosting their combined federal and state marginal tax rates to between 40 and 45 percent would lead to significant cutbacks in their work effort, saving, investment, and economic growth. Much of Clinton's assumed revenue gain would be lost. Clinton asserts massive tax evasion by the rich on interest and dividend income, and would expand IRS enforcement. This charge is unproved demagoguery. Reforms during the Reagan Administration have enabled the IRS to match 1099 forms to tax returns and impose back-up withholding on payments to taxpayers who have not furnished Social Security numbers to banks and corporations. Increasing the IRS budget won't raise the revenue the governor predicts. Clinton would raise taxes on U.S. firms operating abroad and on foreign companies operating in the United States. Contrary to Clinton's assertions, additional taxes on foreign investment by American firms will not cause them to shift the investment back to the United States; it will merely reduce the foreign investment. The U.S. firms will become less competitive in world markets. They will order fewer U.S.-made parts to supply their plants abroad. U.S. saving, investment, employment, and income will be lower than otherwise, and tax revenue will be lower, not higher. Clinton claims that foreign firms operating in the United States overcharge their U.S. subsidiaries for parts and products to reduce taxable profits in the IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1331 Pennsylvania Ave., N.W., Suite 515, Washington, D.C. 20004 Phone: (202) 347-9570

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