Tuesday, November 30, 2010

Tax "cuts" for the rich?

An interesting situation has developed in Congress. The tax rates initiated during the Bush administration are due to expire on December 31 unless Congress votes to extend them. Republicans currently want the rates for everyone to remain the same, while Democrats want the rates for "the rich" to go up, and everyone else’s to stay where they are. Democrats argue that with the federal government's financial precariousness, we can’t “afford” not to squeeze more out of the rich.

Notice how I have carefully avoided the term “tax cut.” That phrase implies something that just ain’t so. A tax rate cut (a decrease in the percentage of your income that is taxed) differs from a tax cut (a decrease in how much you pay in taxes.) Thomas Sowell has a recent column in which he explains more elegantly than I can the importance of the difference:

“These are not new arguments on either side. They go back more than 80 years. Over that long span of time, there have been many sharp cuts in tax rates under Presidents Calvin Coolidge, John F. Kennedy, Ronald Reagan and George W. Bush. So we don't need to argue in a vacuum. There is a track record.

“What does that record say? It says, loud and clear, that cuts in tax rates do not mean cuts in tax revenues. In all four of these administrations, of both parties, so-called "tax cuts for the rich" led to increased tax revenues-- with people earning high incomes paying not only a larger sum total of tax revenues, but even a higher proportion of all tax revenues.

“Most important of all, these tax rate reductions spurred economic activity, which we definitely need today.”

[Edit: Re-reading this later, I realized I missed my own point. The whole debate about so-called "tax cuts" is ridiculous, the opposite of what's happening, because no one's taxes are to be cut. The discussion is over whose taxes to raise!  Any claims Obama (who incredibly is arguing for keeping the current rates) makes about the economic stimulus from tax "cuts," are deceptive, because there will be none.  Rather, there will be economic damage if the taxes are raised. It's like Orwell's 1984 listening to the Democrats talk newspeak.  Tax raises are now called tax cuts.]

It would be nice if that historical track record were part of the discussion, and that the general populace knew the facts.

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