In the recent debate about ending or prolonging the Bush
tax rates, the Democrats subtly staked out a new fiscal doctrine —
not increasing tax rates costs the government money and
increases the deficit.
What we heard ad nauseam from President Obama and
congressional Democrats was that keeping the Bush rates in effect
for those earning more than $250,000 will “cost” the government
$700 billion in lost revenue over the next ten years and increase
the federal debt by the same amount. That supposedly is the
difference in revenue generated by the top income Bush rate (35
percent) relative to the Clinton era top rate of 39.6
percent.
The Bush tax rates had been in effect for seven years and
represent what had become the status quo. Although they were
originally passed with an expiration date, that hardly makes them
unique in any meaningful sense. Since tax rates have been increased
and decreased numerous times in the past, no one could assume they
are ever permanent, whether they have built-in expiration dates or
not.
The top rate decreased under President Reagan (from 70
percent to 28 percent), increased to 31 percent under President
G.H.W. Bush, increased to 39.6 percent under President Clinton, and
decreased to 35 percent under George W. Bush.
If we are going to calculate revenue lost when tax rates
are not increased by 4.6 percent, why stop there? Following the
Democrat logic, it “costs” the government money whenever taxpayers
are allowed to keep any of their earnings. Accordingly, any tax
rates below 100 percent on everyone are costing the government
money and adding to the national debt.
This Democrat position reveals a profound difference in
fundamental beliefs between liberals and conservatives. For
liberals, the basic premise is that all wealth is, or should be,
the property of government or the collective. That’s their starting
point.
The basic conservative belief is that wealth belongs to
those who created it. Conservatives believe tax increases damage
the economy. Conservatives are much more concerned about the health
of the overall economy than they are about the well-being of the
government.
The Democrats desperately need to believe that all wealth
rightfully belongs to the government. They have a bottomless pit of
wonderful things they want to spend the money on. Their avarice
defines their ethic. Big-government Democrats have a desperate need
for money. Wealthy people have money. Ergo, go get it!
The Democrats implicitly assumed that, for those earning
more than $250,000, the Clinton era tax rates are “the way it’s
spozed to be.” They projected federal tax receipts under the
assumption that those rates would be reinstated. In anticipation of
that revenue, they spent the money. In fact, they spent a lot more
than that. As usual, the Democrats created their own problem by
spending revenue before it existed. They literally could not wait
to get their hands on your money. Republicans, of course, were not
innocent bystanders in this shameful behavior.
One interesting inconsistency the Democrats maneuvered
themselves into was their less than total rejection of the Bush tax
rates. The rate structure they wanted was a Bush/Clinton hybrid,
what you could call a political Prius, or maybe a genetically
modified rate structure. They wanted the Bush rates for incomes up
to $250,000, and the Clinton rates thereafter.
The Democrats have maintained for years that there was
absolutely nothing good about anything George W. Bush did while he
was in office. We were told that the only people he cared about
were his rich cronies. Apparently that was not the whole
story.
Something else revealed in the tax rate debate is that
many on the left, including some in Congress and the
administration, despise anyone earning high incomes. You can almost
see their eyes bulging when they say “tax cuts for millionaires and
billionaires.” The left want these people not just to provide
additional revenue, they want them punished. They apparently
consider upper income tax rates as more of a fine than a tax.
Exactly what millionaires and billionaires are guilty of is never
specified.
Democrat politicians will rarely admit what they really
want top income tax to be. It would be great if they could be up
front about how much progressivity they want in their heart of
hearts. They don’t want to tell us that, of course, because they
are well aware of how politically devastating it would
be.
One exception is Robert Reich, the former Secretary of
Labor under President Clinton. In a recent column he advocated a
top rate of 70 percent. He did not specify how much it’s costing
the government not to have a 70 percent top rate.
The expiration or retention of the Bush tax rates has not
been permanently resolved. The rates have been extended for two
years only. This brief extension adds to the climate of uncertainty
that is one of the biggest obstacles to economic recovery.
Furthermore, in two years or less we will again be treated to a new
round of class warfare.
Republicans were able to buy time for the full range of
the Bush tax rates, but they had to hold the country’s entire
middle class hostage to do so (according to President Obama). They
need to be well prepared for what we know will happen two years
from now. If the economy is recovering by then, they will not be
able to use the argument that you can’t increase taxes in a
recession. There are numerous reasons why raising taxes is a bad
idea and the Republicans better be ready to articulate
them.
