The 2001 and 2003 tax cuts expire on January 1. President Obama wants to extend the current rates for households making less than $250,000, limiting the increase to the rich. Republicans say raising taxes in a weak economy is a mistake, full stop. And guess what, plenty of rank and file Democrats agree with them. Who says bipartisanship is dead?
In the House, a group of 31 Democrats is circulating a letter that asks Nancy Pelosi not to raise taxes. At least five Senate Democrats explicitly support extending current rates for all. Chances are they’ll be joined by other members of their caucus as Election Day approaches. If all goes well—knock on wood—the rogue Democrats, together with a unified Republican party, may stop an Obama tax hike.
It’s no accident that the number of Democrats who support an extension is growing. The case for extending all the current tax rates is economically and politically sound. We yield the balance of this paragraph to the senators from Connecticut and Nebraska. “The more money we leave in private hands, the quicker our recovery will be,” Joe Lieberman told the Chamber of Commerce in Middlesex, Connecticut, last week. “Raising taxes in a weak economy could impair recovery,” Ben Nelson said in a recent press release.
What’s more, President Obama’s arguments for the tax hike are unpersuasive. He says an extension would add to the deficit, wouldn’t be fair, and wouldn’t help the economy. The deficit argument is laughable. The cost of extending tax rates for the poor and middle class dwarfs the cost of extending them for the rich. A president serious about fiscal austerity would want all of the tax cuts to expire, or propose offsets in spending. Obama doesn’t support either option. He isn’t serious.
Obama isn’t serious because he thinks fairness is more important than fiscal responsibility. What’s fair? Obama says households making more than $250,000 don’t deserve tax relief because the past decade has left them well off. He’s the cop who’s arrived to break up the rich people’s party. But Obama never explains just how the gains at the upper end of the income distribution have hurt the rest of us. Maybe that’s because he can’t. The market is not a zero-sum game. Earning an additional dollar is not the equivalent of theft.
Obama objects to low taxes depriving the government of revenue. Leave aside the fact that economic growth sometimes results in more revenue under lower tax rates than higher ones, because higher rates lead to tax avoidance and diminished output. The larger question is: Whose money is it to begin with?
In the liberal imagination, the money is the government’s by default, and the president and Congress determine through the tax code how much to give back to the people. Last week Obama told an audience in Virginia that an extension would be “giving them $100,000 for people making a million dollars or more.” But this is backwards. Low taxes don’t give away the government’s money. Low taxes allow individuals to keep the money they’ve earned through hard work, sound investment, and good fortune.
Since Obama thinks the taxpayer’s money is his in principle, he feels an obligation to redistribute the money to the best possible end. Thus the tax code becomes a tool for economic and social policy. Obama claims low taxes on the middle class encourage consumption, whereas low taxes on the rich encourage savings. As he put it last week at the White House, “middle-class folks are the folks who are most likely to actually spend this tax relief.” And spending, in Obama’s view, is the key to recovery. So, he favors one class of people over another in the pursuit of a public good.
But what if Obama’s wrong? What if the key to recovery is aligning incentives in a way that promotes work, saving, and investment? In that case, wouldn’t you want to allow taxpayers to keep the dollars they earn? Wouldn’t you want to encourage people to earn more, rather than encourage dependence on government subsidies and transfers?
The president doesn’t answer such questions, probably because doing so would lead him to admit that he’s in error. The result is a tax policy that makes no sense. Obama wants fiscal responsibility along with deficit-financed tax cuts for most Americans. He wants fairness along with a tax code that discriminates between certain types of people and certain types of income. He wants economic recovery along with policies that discourage economic activity. Somebody alert the IRS. In all of this, Obama’s guilty of a serious case of tax evasion.
—Matthew Continetti
