A taxing situation

Class warfare costs, but not the people at whom the rhetorical mortars are aimed.

The drumbeat of anger by the many at the few who travel on private planes and live in big houses is having a negative effect on those who don't.

USA Today recently carried a story about conventions that have been canceled, at least in part, due to the public's negative reaction to seeing some people having a good time while they are not. Management fears condemnation from the public, so they cancel meetings rather than risk negative media attention and public scorn.

This might make some of the enlistees in the class war feel good for the moment, but it does not improve their station in life. It is not the rich who suffer in this war. It is the middle class.

The U.S. Travel Association, according to USA Today, says meetings account for "about 15 percent of all travel spending, creating 2.4 million jobs, $240 billion in spending, and $39 billion in tax revenue."

Incentive and motivational meetings generate 40 percent of the business at Marriott hotels, which reports a 12 percent decline. A spokesman blames this on the public vilification of meetings. Marriott says thousands of jobs have been lost due to reduced business. Presumably none of the newly unemployed fly on private jets or live in big houses.

When conventions don't meet, hotel rooms are unoccupied, restaurants are not patronized, and wait staff do not earn tips, which figure prominently in their income. Las Vegas, alone, projects losses of $20 million this year from Fortune 500 clients who have canceled events, according to Las Vegas Convention and Visitors Authority CEO Rossi Ralenkotter. Last month, State Farm Insurance canceled a convention it holds every three years to honor and reward its salespeople. As a result, 17,000 agents, and their spouses, won't be contributing to the economy (or government tax revenue).

It isn't that we don't know the outcome of the misguided policy of "soaking the rich." The last time it was tried was during the administration of George H.W. Bush. A 10 percent "luxury tax" passed Congress and was signed into law by President Bush in 1991 (he opposed its repeal in 1992). Its purpose was seen as a "way of proving that the 1980s glorification of greed and wealth were over," in the words of a 1993 Wall Street Journal story by David Wessel.

During that recession, sales of luxury cars and powerboats dropped significantly, resulting not in CEOs flying coach, but in the laying off of employees from boat and private airplane companies that build private planes and yachts. When the tax was repealed in the early days of the Clinton administration, many of those who had been laid-off were rehired as sales improved.

What was that about those who do not learn from history are doomed to repeat it?

The stock market reacts not to the past, but forecasts the future. With proposed income tax increases and a boost in the capital gains tax rate, the stock market has fallen at percentage rates last seen in the Great Depression. The elderly and those about to become older Americans are seeing their savings and investments built up over a lifetime wiped out. Where is the party of compassion? Can the elderly, who have increasingly voted for Democrats after being peppered with demagoguery that Republicans will end Social Security, wake up and realize that the more rich there are, the richer they become?

President Obama can cling to liberal ideology and appease the left-wing fringe of his party, or he can do like President Clinton did and reduce capital gains taxes (how about eliminating them at least for a few years?) and watch the markets respond, re-filling individual retirement accounts and rekindling hope that millions of Americans won't have to abandon their lifestyles and their independence and become dependent on government.

This isn't about politics. It is about doing what works. We know what works. The question is will the president and congressional Democrats stop worrying about the rich and start worrying about the potential for increasing the number of poorer people? © 2009 Tribune Media Services Inc.