From the Weekly Standard, “Tax Cuts, Real and Imaginary” by Newt Gingrich and Peter Ferrara As you know, I have a self-imposed guideline that prohibits linking to pieces that appear in our own magazine. No reason to offend my unlinked colleagues. Anyway, new rule – this guideline will not apply to men or women who served as Speaker of the House or in a higher office. I’m linking the Gingrich/Ferrara piece not just to curry favor with a man as powerful as Newt (although that would be plenty reason enough) but because the campaign’s renewed focus on Obamanomics and the Democrats’ purported tax cut plans make the article especially relevant. In short, the Obama campaign’s rhetoric on tax cuts is hollow at best, deliberately deceitful at worst:
The latest data from the Congressional Budget Office and the Internal Revenue Service show that the lowest 40 percent of income earners as a group actually receive net payments from the federal income tax system. (They get 3.8 percent of total federal income tax revenues instead of paying any income taxes.) The middle 20 percent of income earners pay 4.4 percent of federal income taxes. Thus the bottom 60 percent of income earners together, on net, pay less than 1 percent of all federal income taxes. (These workers earn 26 percent of national income.)… When Obama says that he will cut taxes for 95 percent of Americans, he is talking about his proposal for a $500 refundable income tax credit for all but the top 5 percent of income earners. For the bottom 40 percent of income earners, this will be just another check from the federal government rather than a reduction in tax liability. It is another sharp increase in government spending rather than any sort of tax cut. An arbitrary cash grant does not, moreover, do anything to improve the economy or incentivize productive business. That only comes from cutting tax rates. What Obama is proposing here is really quite similar to George McGovern’s 1972 plan to send everyone a $1,000 check, which voters rightly saw as a crass vote-buying scheme rather than serious policy.
Tax cuts, handouts – what’s the difference? Although the Obama campaign will be the first to remind you that words matter, it’s not their way to get bogged down in the semantical weeds. This issue also provides an opening for the McCain campaign to focus on a little substance this week in an area where McCain sits right in the sweet spot of popular opinion. Americans love tax cuts and are wary of grandiose governmental plans to spend still more of their money. Gingrich and Ferrara contrast the McCain and Obama plans this way:
John McCain is proposing to reduce our federal corporate tax rate to 25 percent. The top income tax rates borne by noncorporate small businesses and investors should be reduced to 25 percent as well. Obama is taking the opposite tack, calling for increases in the income tax rates that small businesses pay and additional tax increases for larger corporations (such as the so-called windfall profits tax on oil companies that would only further hurt the American economy with higher energy costs). With two-thirds of the American people now owning stocks, capital gains taxes are another middle America issue. Obama proposes to increase the top capital gains tax rate by 33 percent, which will cause a decline in the value of stocks held by middle-income families. History has also proven, time and again, that rising capital gains tax rates cost the federal government money. From 1968 to 1975, the capital gains tax rate was raised four times, and capital gains tax revenue fell by more than 50 percent. When capital gains tax rates were raised by 40 percent as part of the compromise in the 1986 tax reform act, revenues fell by 40 percent the next year, and by 1991 they had fallen by 63 percent. McCain is proposing to retain the current capital gains rate of 15 percent.
We will of course have our tactical fun in the week ahead. I’m already looking forward to the Obama campaign taking its gloves off for the 17th time and shrieking “Swiftboating!!” for the 17 millionth time. But the McCain campaign shouldn’t allow itself to think that the Obama campaign’s stumbles, amusing though they may be, are sufficient for victory. McCain and Palin will have to keep reminding the public who they are and what they stand for. Especially in areas like tax policy where their message will resonate.
