Congressional Democrats going the wrong way on carried interest tax
© Greg Nash

Anyone who has seen the 1987 comedy “Planes, Trains and Automobiles” will remember the hilarious scene where Del (John Candy) and Neal (Steve Martin) are driving down the highway in the wrong direction. A man and woman in a car across the median desperately attempt to warn them with screams of “You're going the wrong way!” Del laughs off the warning, “Oh, he’s drunk. How would he know where we’re going?” Neal realizes what’s happening – only too late. Del almost gets them both killed as he drives between two semi-trailer trucks racing toward them down the freeway.

This past week, it was Del’s idiotic, wrong-way driving that came to mind as I listened to Sen. Tammy BaldwinTammy Suzanne BaldwinDems make history, and other takeaways from Tuesday's primaries Establishment-backed Vukmir wins Wisconsin GOP Senate primary Live results: Wisconsin, Minnesota, Vermont, Connecticut hold primaries MORE (D-Wis.) and Rep. Sander Levin (D-Mich.) hold a press conference demanding higher taxes. These Democrats aren’t actors in an old 1980s flick and they’re not drunk. They are serious. Baldwin and Levin introduced legislation that would double the tax on carried interest.

ADVERTISEMENT
I know what you’re asking. What is carried interest? "In short, carried interest refers to the share of investment gains earned by a professional investor, in exchange for managing someone else's money.” Carried interest is treated for tax purposes as a capital gain, which is lower than the income tax rate. The Tax Foundation explains that “the justification for a lower tax rate on capital gains relative to ordinary income is threefold: it is not indexed for inflation, it is a double tax, and it encourages present consumption over future consumption.” Simply put, “not only has a low capital gains tax rate worked to encourage savings and increase economic growth, a low capital gains rate has historically raised more in tax revenue.”

 

After eight years of President Obama's failed “You didn’t build that” economic policies, new business creation in the U.S. is at a standstill. The Obama years of high taxes and massive regulations killed business investment, leading to historically low labor force participation with high rates of unemployment and underemployment.

New, greater business investment is needed to get the economy moving again. So Democrats propose to do what? That’s right, increase taxes on investment profits. It’s an awful idea that will punish success and obstruct economic growth.

Creating government barriers to investment is exactly what we don’t need. Democrats say they’re targeting "Wall Street fat cats" and "hedge fund guys." Wrong. Supporters of increasing the carried interest tax are really going after pensions, charities, small businesses, start-up firms, and innovators.

Compared to the tax-cutting proposals coming out of the White House, these liberal Democrats are going the wrong way on tax reform. Worse, Democrats are actually worried that President Trump’s tax plans may—get this—lower taxes on investment. An iron law of economics is “if you tax something more, you get less of it.” Members of Congress who want this tax want less investment in the American economy, i.e., they’re working against job growth.

Baldwin and her allies have become fixated on raising the tax rate on carried interest, an idea which will ultimately punish retirees, seniors, partnerships, and people who have saved money in the market with mutual funds and other investment vehicles.

Congress must move in ways that will grow the economy and spur job growth. Reducing the tax burden on the American people will create jobs, promote prosperity and ultimately mean more money in the pockets of all Americans.

The Democrats are still playing off their failed script of higher taxes and bigger government. However, unlike John Candy and Steve Martin from Planes, Trains and Automobiles, Baldwin and Levin aren’t playing roles for laughs. Let’s hope their ‘wrong-way’ tax scheme crashes and burns.

Jerry Rogers (@CapitolAllies) is vice president at the nonprofit Institute for Liberty and founder of Capitol Allies, an independent, nonpartisan effort that promotes free enterprise. He’s the co-host of The LangerCast on the RELM Network.


The views expressed by contributors are their own and are not the views of The Hill.