The Left's View on Tax Rates
by Tom Donelson on November 22, 2011 at 9:08 AM
The recent debate about the super committee shows what the real debate is about, namely tax rates matter, or should matter. The GOP-proposed compromise has caused much apprehension among many Republicans and conservative since it may represent an overall tax increase, but what is missing is that the GOP plan is the beginning of a serious tax reform by lowering the overall tax rates. The GOP plan begins with lowering tax rates among individuals and businesses while eliminating or reducing selected deductions. The problem for many conservatives is the CBO has scored the GOP as increasing tax revenue, while the big problem for the left is that the upper crust of our society don’t get clipped enough. For the left, the symbolism of seeing the rich tax rates going up is more important than if it benefits the economy.
The GOP plan has yet to be fully explored so we don’t know what is in it, but one has to understand that CBO scoring is problematic since it underestimates the stimulus of lower marginal tax rates, so who knows whether this is really a true tax increase or simply the result of more economic activity due to lower tax rates? The real noise is that the GOP is following on what is the consensus that for any tax reforms to work, there must include lower marginal tax rates in exchange for reduction of deduction. The left simply doesn't care about the consensus, and for them, it is about class warfare and screwing the rich. There is very little economic reason for their economic plan, for tax rates matter and that has been the lesson for the past three decades.
The left's argument is that raising tax rates on the rich will return the rates to what it was in Clinton’s era, but this argument fails on three important points. The first is that Clinton did increase tax rates in the first two years of his administration, but the economy was already coming out of a recession, plus what is missing is that in the 90’s, massive free trade agreements along with capital gain tax cuts that were enacted after the 1994 midterm election represented significant tax cuts for investors and most Americans. What is overlooked is that Clinton’s major expansions of government spending, including Hillarycare, were defeated and Clinton was forced to the center for the rest of his term.
The second thing is that there are massive tax increases schedule beyond just the elimination of the Bush Tax cuts. Obamacare includes massive tax increases to fund Obama’s government takeover of health care, so when you add those tax cuts on top of what is coming, we are talking far greater taxes imposed on the America economy than even the Clinton Administration implemented. Furthermore, Clinton was forced to cut taxes on capital gains, so the Clinton era's prosperity was not an era propelled by taxing the rich; but by an administration that reformed welfare, cut taxes on investments and slowed the growth of government spending.
Finally, the left's argument is that Bush’s tax cuts did nothing for job creation is totally false since job expansion continued after Bush’s tax reductions were enacted and unemployment crept toward the 4% rate. The reason for the recession was government policies dealing with housing that imploded the financial system. So to blame Bush’s tax reduction for government policies failure is nothing more than desperation by the left as well as rewriting economic history.
The left's point that tax rates alone will not resuscitate the economy may be right but the right has the better solutions than the left whose only solutions is to keep spending money and increasing the debt further. The GOP ideas of cutting spending, stabilizing the dollar and reducing regulations is far better than Obamanomics, which consists of punishing the rich and spending money that we no longer have. The left has no understanding of what is needed to revive this economy and what ideas they do have is absolutely dangerous.
Finally, the number of wealthy people has been decreasing since the beginning of the recession, so the number of the rich to be taxed is being reduced. A strategy is to tax the rich in an economy where the number of the rich is decreasing is hardly a great economic strategy.
This brings us to the recent debate over the economy, the GOP controls only one house of Congress so they can’t get anything passed, and Obama really doesn’t care about passing much of anything so he can run against the do-nothing Congress. Obama has long given up governing and the Democratic Senate has decided to do nothing while blaming the Republicans for doing nothing! The Republican strategy of seeking lower tax rates in exchange for reducing reduction of deductions is the right strategy, both short term and long term.