It’s difficult to conceive of a liberal myth more out of touch with economic reality than House Speaker Nancy Pelosi’s oft-repeated claim that tax cuts must be “paid for.” Over and over this week, Pelosi has insisted that any extension of the Bush 2001 and 2003 tax cuts should be restricted to the “middle class.” If the cuts are extended to couples making more than $250,000 — the rich, in Pelosi’s view — then, she claims, Republicans are saying “we should not pay for it, we should add that $700 billion to the deficit.” Variations of Pelosi’s claim — like the assertion that tax cuts “cost” the government — are the conventional wisdom among congressional Democrats and their allies in the liberal media and nonprofit activist communities. The stakes in this debate are immense: If all of the tax cuts expire as scheduled at midnight on Dec. 31, 2010, it will result in the largest tax increase in American history. But think about these liberal assertions for a millisecond and their speciousness becomes clear. For one thing, they assume that a tax cut is a gift from the government to the taxpayer rather than government choosing not to take something away that the taxpayer already possesses. Otherwise, to be logically consistent, the assumption must be that the money in taxpayers’ hands is actually government property, which we are allowed to keep until the tax collector demands that we return it in the form of taxes.
Another way of understanding the fallacious nature of the Pelosi argument that tax cuts must be “paid for” by government is to focus on the $700 billion she says will be added to the deficit if all of the Bush measures are extended. Where does Pelosi think those 700 billion dollar bills currently reside if not in the hands of those who will have to pay higher levies if her position is accepted? Does the lame-duck speaker of the House really think the Warren Buffets, Bill Gateses and Donald Trumps of the world will somehow break into the U.S. Treasury in the dead of night and steal the $700 billion if her view is rejected?
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The practical reality is that the best way to get more from “the rich” is to reduce marginal tax rates. The total of tax payments by top-bracket households nearly doubled after the 2003 Bush reductions, according to the most recently available Internal Revenue Service data. The data show the same pattern of the rich paying larger portions of growing government revenues from individual taxes following the Reagan, Kennedy and Coolidge tax cuts. T.S. Eliot once argued that great poetry requires a “willing suspension of disbelief.” Believing liberal nostrums about tax cuts requires a willing suspension of reason.
