The Tax and Spend Spectator

Tax Cuts for Your Love Life

Our president ridicules the Republican commitment to tax cuts, proving again how little he knows -- or cares to know.

By 9.24.12

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While on the tour of college campuses and late-night talk shows that serves as his campaign trail (despite seeming more appropriate for an aging rock band trying to make a few bucks off its past glory), President Barack Obama has been railing against tax cuts.

Not just criticizing tax cuts but ridiculing them. Since he knows that Americans generally prefer tax cuts to the tax hikes which he supports, he's resorting to childish attacks on Republican policy as "tax cuts to help you lose a few extra pounds, tax cuts to improve your love live. It will improve anything according to them."

From the "even a broken clock" files, Obama may be on to something here.

[Actually, that's not fair to broken clocks, which are right 14 times a week, far more often than our president. To wit: President Obama doesn't know how large our national debt is, is consoled because "a lot of it we owe it to ourselves" (as if a loan to a family member, much less a stranger, is any less of a loan just because the borrower is American) and thinks that "we don't have to worry about it short term" (which to a politician means we don't have to worry about it at all since he'll be gone in a few months or a few years). And he still blames a video for the attack on our consulate in Benghazi despite nobody outside of the MSNBC studios believing such a literally incredible claim.]

Former Obama economic adviser Christina Romer authored a paper with her husband in which they argue that:

  • "(T)ax increases are highly contractionary."
  • "(A)n exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent."
  • "(E)xogenous tax increases have a large, rapid, and highly statistically significant negative effect on output."
  • "A tax increase is followed by a large and highly significant rise in the unemployment rate."
  • "The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes."
  • "The large effect stems in considerable part from a powerful negative effect of tax increases on investment."

Looking at the charts in the Romers' paper makes one wonder why any rational person would ever propose a tax increase. Did I mention that Christina Romer was Barack Obama's top economic adviser for the first 20 months of his presidency?

While the Romers do not analyze the economic impact of tax cuts (perhaps not wanting to argue against their Democratic Party's high-tax religion), it stands to reason that if the impact of tax hikes on economic growth and employment is large and dramatically negative, tax cuts should bring positive effects.

Though it seems obvious, Barack Obama doesn't understand or doesn't care that high taxes take our money away. To put it in terms even a Democrat can understand: "If tax rates are higher, those of us who work for a living end up with less money in our pockets."

There is little doubt that Obama actually favors this outcome. Progressives believe government can do a better job spending your money than you can, and that they do not view economic growth or even employment as having greater value than gauzy, populist claptrap like "social justice" -- code for buying the votes of the unproductive with the earnings of the productive.

Romer herself says that raising taxes on the "wealthy" (whatever that means to today's Democrats) is a "straightforward, effective way to counter" income inequality, as if that is a proper or constitutional function of government.

So let's get back to Obama's petulant critiques of the Romney-Ryan proposals for initially revenue-neutral tax reform, implementing across-the-board tax rate cuts while limiting deductions and loopholes. (Even the tax-loving Christina Romer admits that "cutting back on deductions and loopholes…(is) preferable to raising marginal rates. After all, higher rates do have some disincentive effects.")

For the employed: Whether you are fortunate enough to be able to make ends meet with one job, or whether you are one of the 6.6 million Americans who hold multiple jobs (a number that understates the many lower-income people who work unofficially in second jobs) or the millions of others who work extra, perhaps unpaid, hours just to make sure you keep your current employment, how would having more of your money remain in your pocket affect your life?

If you are now working during hours in which you might otherwise find a little time for a jog or bike ride, walking the dog, a trip to the gym, or just getting your tuchus out of your chair, then a tax cut -- leaving more of your money in your pocket -- could actually "help you lose a few extra pounds."

More importantly, if you had more of your money in your bank account, you and your spouse would spend less time discussing, worrying, and perhaps even fighting about your finances. Multiple studies show that arguments about money correlate highly with divorce rates.

On a shorter marital relations time scale: I don't know about you, but in my house an argument about finances can't lead to anything good for the rest of the evening. Therefore, I suggest to you, with absolute red-blooded male seriousness about the things that are important in life, that tax cuts likely would "improve your love life."

Lots of other good things can come from keeping more of your own money. Things like a nicer car, an extra family outing or dinner at a restaurant, a longer vacation, a better school for your kids, a better doctor, or a more secure retirement. The list goes on and on, and is a little different for everyone. How many things that would make your life or your kids' lives better, happier, healthier might be possible if government took less of your money?

Obama, while trying to be sarcastic, is basically right that tax cuts can "improve anything," or at least most things, for most people.

For those of you who are unemployed or so discouraged that you've given up looking for a job even though you'd gratefully accept one, and for you recent college grads who have to live at home because you can't find a job:

The worst possible outcome of a tax cut for your job prospects is no improvement, but it is more likely that resulting economic growth would increase your chances of landing a job and, if you're in your 20s, your ability to move out of your parents' basement -- which is probably better than losing a few pounds and, more importantly, a huge potential improvement to your love life.

Finally, I would like to anticipate the liberal talking-point parrots who reflexively point to the Clinton administration as a time when tax hikes didn't hurt (and even helped!) the economy. This is a myth caused by the same sort of abuse of data by which Barack Obama claims to have created 4.5 million jobs. For Obama's claim, the administration ignores the first part of his presidency during which many jobs were lost. For Clinton, Democrats ignore the fact that the boom years under Slick Willie occurred after his 1997 capital gains tax cut. In the years between his 1993 tax hike and the 1997 cut, the economy underperformed and real wages actually fell.

In other words, while Bill Clinton was getting help from Monica Lewinsky with his love life in 1996 (not that any actual love was involved), he was hurting yours with higher taxes. But forced by a Republican Congress to cut taxes (and reform welfare), even the Clinton years showed that tax cuts can indeed improve almost anything for the rest of us.

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Epilogue: A little more on the Romer paper and on capital gains policy for fellow econ geeks…

The Romers maintain that "legislated tax increases designed to reduce a persistent budget deficit appear to have much smaller output costs than other tax increases." However, they note that "deficit-reduction packages…often include at least small cuts in spending." They neglect to consider the possibility that the lower (but still real) apparent negative impacts of those particular tax hikes are in fact due to positive economic reaction to government spending cuts. But then one would not expect Keynesians to reach that conclusion, or even seriously ask the question.

As Milton Friedman taught us, tax hikes do not reduce the deficit because "In the long run government will spend whatever the tax system will raise, plus as much more as it can get away with." (And that is separate from any Laffer Curve effects of higher rates.)

Therefore, tax increases even with promises of deficit reduction -- unless accompanied by large and credible spending cuts -- will have just as large a negative impact on the economy as any other tax hike would; participants in the economy and financial markets won't be fooled again.

Regarding capital gains tax policy, Obama gave the perfect leftist answer in a 2008 Democratic debate. The moderator, ABC's Charlie Gibson(!), informed then-Senator Obama that "in each instance, when the (capital gains tax) rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected."

Obama's response: "I would look at raising the capital gains tax for purposes of fairness."

But fairness to whom? Is it somehow fair to lower-income Americans to harm their job prospects in order to make Progressives feel better about soaking the rich (again, whatever "rich" means to Democrats these days)?

A Republican Study Committee's report a decade after the Clinton tax cut gives detailed analysis of the five capital gains tax rate changes from 1978 to 2003. After each of the four cuts, tax revenue grew dramatically, whereas capital gains tax revenue plummeted after the 1986 tax increase. But facts be damned if it's all about "fairness."

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About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver's NewsRadio 850 KOA on Saturday mornings from 6 AM to 9 AM. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.