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January 13, 2015

Income Redistribution Gets New Packaging

Democrats will never change their strategy of class warfare.

If you thought Democrats were going to change their class warfare strategy after being resoundingly rejected at the polls in November, think again. On Monday, Rep. Chris Van Hollen (D-MD), ranking member of the House Budget Committee, announced a proposal to address what leftists believe is the root cause of America’s economic malaise – income inequality.

The proposal, billed by The Washington Post as a “stark shift in messaging,” is an attempt to redistribute wealth from the rich to the middle class. Just how this represents a shift from previous leftist attempts to rewrite the laws of economics is unclear, but the details sound familiar enough.

The first step of Van Hollen’s proposal is a paycheck bonus tax credit worth $1,000 to individuals earning less than $100,000 and worth $2,000 for couples earning less than $200,000. This is a significant jump from Barack Obama’s “Make Work Pay” tax credit from the 2009 stimulus, which paid out $400 per worker.

Other elements of the proposal include raising the child care tax credit from $3,000 per person to $8,000, or $16,000 per couple. Workers who put away at least $500 per year toward retirement or other savings would receive an additional $250 saver’s bonus. There are also provisions to reduce marriage penalties for the working poor.

Democrats estimate these tax credits will “cost” the government more than $1 trillion over a decade, and, since they can never merely cut taxes for its own sake, Van Hollen plans to “pay for it” through a series of new fees and regulations aimed at the so-called one-percenters. Things like a new fee on high-dollar financial transactions, a 0.1% fee on stock trades and an end to a series of tax incentives on investments are just the beginning. Van Hollen’s plan would give the government the power to force employers to increase pay by prohibiting deductions for companies that offer executive performance benefits greater than $1 million. Companies would only be able to claim the deduction if workers’ wages were increased by 4%, which is estimated to be the rate of inflation and productivity growth.

Voters didn’t buy Democrats’ income inequality rhetoric in 2014, preferring to see economic growth rather than wage parity. And with a Republican-controlled Congress, this plan stands virtually zero chance of passing. So why bother?

Prepping for 2016, that’s why.

Democrats are hoping that this latest attempt to reframe income inequality as hindering economic growth will lay the groundwork for a theme sure to be central to Hillary Clinton’s (or Elizabeth Warren’s) presidential campaign: economic “fairness.” Class warfare is what Democrats know best, and since their fortunes in many other policy areas are falling they will likely focus their energies here.

“This is a plan to help tackle the challenge of our times,” Van Hollen told reporters Monday. “We want a growing economy that works for all Americans, not just the wealthy few.”

One problem is the assumption that economic growth is driven by consumer spending rather than investment. Respected economists say this is a backwards view. Investment is the seed of long-term growth. Capital invested in businesses leads to more production, which leads to hiring, which leads to wage growth, and then comes consumer spending.

James Pethokoukis of the American Enterprise Institute explains leftists’ unified theory of our economic state of affairs: “To be ‘pro-growth’ in their view doesn’t mean to raise America’s growth potential through investment and ideas – that might require, for instance, lowering the business tax burden – but instead through redistribution and spending.”

Seeing the world as they do, Democrats always double down on an incorrect and disproven view of economics. Instead, they will try to convince voters that they have a solution, dividing along class lines as they go.

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