by John F. Di Leo
Politicians, lobbyists, journalists, and voters do battle. They choose sides; they debate, they horse-trade. And the tax policy of the most important economy on earth is transformed.
Our tax coda are massive volumes of ever-changing rules, names, and methods, pitting interest groups and economic theories against each other, with politicians too often melding genuine and false economics with populism and envy, to the detriment of current and future generations, robbing America of prosperity and opportunity. It’s time we stopped playing this game.
The Lie of the Left
We are told that the current debate is on whether or not to extend the Bush tax cuts. From the very start, this argument is deceptive. A tax cut – the act of cutting – is a one-time thing. Once in place, it’s just another part of tax policy. The portions of our tax policy currently being debated have stood, unchanged, for five, seven, even nine years now. You simply can’t call these things “cuts” anymore.
The choice before us, honestly described, is between leaving the status quo alone or implementing an enormous tax hike the very second that lighted ball drops in Times Square on New Year’s Eve.
Imagine, if you will, that we were debating some federal judicial decision, such as Miranda, or Marbury v Madison, or Roe v. Wade. It’s been a few years – perhaps they should expire; perhaps they should be renewed. What would we be told in response? “But that’s settled law! We’ve been over that ground before, you can’t reopen it!” How much more so is it critical that tax policy be stable, that individuals and businesses alike should be able to count on predictable tax rates, level for years, to enable rational long-term planning.
It is unfortunate that these particular policies were saddled at their origins with a sunset provision of December 31, 2010. One of the many reasons for the stagnation of the past couple of years has been the promise of automatic tax hikes in 2011. Thanks to this devastating mistake, if no action is taken by Washington to the contrary, we are told that the cuts will merely end, but you can’t look at such a policy shift in that manner.
There is only one honest way to debate this issue: do we choose to allow the largest tax increase in American history, or do we stop it? Contrary to the position of the Pelosireidian Left, it’s not a tax cut if we stop the increase – “a costly extension of the Bush tax cuts” as they refer to such efforts to stop the expiration – no, failure to act would be a massive tax increase in the depths of a horrible recession (you can euphemistically call it a “jobless recovery” instead if you like, but if you’re honest, you know that as long it’s jobless, it’s no recovery).
The People Have Spoken
A majority of American voters called for lower taxes and limited government on November 2. Every poll confirms that this election was a repudiation of prevailing Democratic Party economic policy. The Democrats knew it, going in… they cowardly recoiled from even calling a vote on federal tax policy before the election, fully aware that their devotion to reaching their paw into every wallet and resting a jackboot on every shoulder is neither successful economically nor popular politically. So now we are left with mere weeks to determine what our tax code will look like when New Year’s Day dawns.
Contrary to the philosophy of the purest democrats (small d), government should not necessarily slavishly obey the will of the people as declared at the polling place. The Framers entrusted the United States with representative government, after all. Our representatives should do what’s right. But it’s unwise to dismiss election results as cavalierly as do the Democrats when they dislike them. Wise economic policy – low taxes and limited government – is always the right position; today, in the wake of the 2010 tsunami, deviation in favor of the leviathan is just especially foolish.
Denying Economic Reality
The troika of Obama, Pelosi, and Reid tells us that they favor tax cuts, just not for the rich. They want to cut taxes in a way that they help some constituents, and not others. They want to continue to play the game they have played for a century, pitting rich against poor, employee vs. employer.
So they maintain that a rate reduction on the top two percent only helps the top two percent… that a rate reduction on the bottom twenty percent is the best way to help the bottom twenty percent, and so forth. As if that position was plain to the naked eye, without question.
To the troika, it is an element of infallible faith that to raise tax rates is to raise tax receipts (all evidence to the contrary must be denied at all costs, however overwhelming it may be). In their world, none can gain but at another’s expense. So many of them cut their political teeth in socialist breeding grounds like Chicago, San Francisco, and the ivy league, where class hatred is what you sow, and the redistribution of existing wealth is all you ever hope to reap. The prospect of economic growth through actual wealth creation is foreign to them and to their wards, scattered as they are throughout the political machines, newsrooms, and schools of the American Left.
Sharpen your knife and prepare to slice up the pie; such divisions are what K Street and the Democratic Party coalition are based upon.
But it’s all untrue, and all unnecessary – all the result of theories and policies pursued for political advantage instead of a desire for genuine economic advance.
Indirect Results Matter More
One key problem with the Left’s approach is that they act as if each transaction is the only transaction; as if nothing else happens afterward as a result of it. If we lower Voter Number One’s taxes, he has more money. Or lower Voter Number Two’s taxes, and she’s the one with more money instead. Set Voters Number One and Number Two at each other’s throats, and you have the American political system in the age of Marx and Alinsky.
But in economics, we don’t end with that paycheck or that tax return; that’s just the beginning. Now that we’ve lowered a tax rate, and somebody is able to keep more of his or her own money, the real economic activity can finally begin. Instead of concentrating on who gets the tax rate reduction, we can instead concentrate on how they spend that money, and how that infusion of additional capital propels the invisible hand forward.
What the shortsightedness of Democrat tax policy fails to recognize is that money in the hands of some is just more productive than money in the hands of others.
When the lowest ranks of taxpayers have a bit more to spend, that money will most likely go to necessities, or perhaps to the occasional splurge of a dinner out, a movie or sports game… though in our current economy, it’s most likely to be spent on paying off bills. Nothing wrong with that; all this is good. It’s just not exciting, not particularly stimulative.
When the middle ranks of taxpayers have a bit more to spend, the same applies, just on a larger scale. It’s good, it’s worthwhile, but it’s not the home of quick excitement. The middle ranks pay off bills, splurge on a dinner out, hopefully return to better investment patterns that they might have curtailed during the worst of the recession, when they lost their jobs or went without raises or bonuses, while their property taxes and their cost of living continued to rise. Again, it’s good to cut their taxes; it’s worthwhile, but it’s not the home of quick excitement for the economy.
When the rich – actually, the so-called rich, because only a few of them are truly wealthy – when the top tiers of the economy have a bit more money in their hands, they can do things that the rest of us barely dream about. It’s a matter of scale. The small business owner who gets to keep ten or twenty percent more of his money can give a raise to some employees, can hire carpenters or designers to renovate his business or home, can invest in venture capital funds that actually create start-ups and infuse struggling businesses with the cash to keep going, or even to expand.
This happens in any economy, but at varying rates. The higher the tax rate, the more you are discouraged from doing the stimulative activities that an economy must produce, on a massive scale, for an economy to thrive.
A More Honest Debate
So we need to change the debate. Stop accepting the premise that we have to defend ourselves against the accusations of a pompous coastal elite, bent on using false economics and class envy to secure their hold on a purposely uneducated electorate.
The real question in this tax debate isn’t whether to give more of their own money back to the rich, the middle class, or the poor. Over a century of drinking from the well of progressive taxation has conditioned the public to think “the group that can afford it more should give more,” however immoral such institutional theft may really be, when honestly examined.
No, the question should include whether we want economic growth or not, and if so, whether we want it to be fast or slow.
Do we want to ensure that landlords are paid on time, that grocery stores and WalMarts prosper? These are worthy causes; then retain the tax cuts on the lower income levels.
Do we want to ensure that more homeowners escape from their underwater realms by catching up on their mortgages, that more owners of cars they’ve been stretching the past few years trade them in on a new Ford, that more middle-class Visa and Master Card holders can catch up on their bills, that families who had to skip vacations the past couple of years again hit the road to Galena or Door County, or catch a plane to a big city? Also worthy causes, also helpful to the economy at large. Then retain the tax cuts on the middle income levels.
But do we want to ensure that start-ups have investors so they can open their doors? Do we want businesses to hire and expand? Do we want our nation’s unemployed to get back to work? Do we want carpenters and cabinetmakers to be hired for remodeling jobs? Do we want Chrysler, Ford and Cadillac to sell more cars – the American-made luxury models that provide jobs not only for the storeroom salesmen but for American autoworkers as well? Do we want the natural infusion of private cash into the economy that will render it unnecessary at last for the federal government to keep attempting substitute stimuli in its absence? Then retain the tax cuts on small businesses and the so-called rich.
If this were an honest debate, all would acknowledge that this last group is the most desirable vehicle for economic improvement. It’s painfully obvious that money in their hands works faster and better than money in anyone else’s hands – not for themselves, but for everyone else (and remember, “everyone else” who benefits from their having this money to spend includes the people in those other groups). Rather than demonizing “the rich” as not needing the money, we should be championing “the rich” as the saviours of the economy, precisely because they’re in the position to generate more activity, more wealth creation, than any other group, public or private.
We should be united in saying “yes of course we’ll extend the current rate structure to the rich… no question about that”… and the debatable issues should be “should we extend it to the lower levels as well?”
Of course, the above generalities are just that, and there is spillover across the groups in all those examples. But it’s critical that we recognize that the quickest route to wealth creation is through that top tier, and using them as a punching bag is the worst possible thing to do when stuck in a recession with double-digit unemployment and economic malaise.
This modern habit of setting up “the rich” as a horn of plenty, a source to rob with impunity forever, must be broken. If anything, tax rates should drop as income rises, so that the tax code could act as ever more incentive for people to strive onward in their careers. Punish success, and you’ll get less of it. Reward success, and you’ll get more. And when the so-called rich succeed, so do we all. A rising tide does lift all boats.
As Rush and Sean so frequently remind their audiences, “I never got a job from a poor man.” This nation needs to return to the days of championing the successful and encouraging everyone to join their ranks… a process that can begin with an honest debate about tax policy in America, this winter of 2010, as a lame duck session gives way to what we dare to hope may be a new dawning of economic liberty in this great nation.
Copyright 2010 John F. Di Leo
John F. Di Leo is a Chicago-based Customs broker and international trade lecturer. While he’s not in those top two percent, he wishes them well. Leave envy to the bitter crowd on that other side of the aisle, shall we?
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