Tax The Rich

“Moment Of Clarity”; is a weekly commentary by Libertarian writer and speaker Tim Nerenz, PhD


 "To be fair to the Democrats, the financial system melted down on their watch. And to be fair to Republicans, terrorists flew planes into buildings on theirs. Neither party asked for the trouble that dropped in their laps; none of us ever do. But we don’t pay our elected officials to be lucky and we don’t pay them to make excuses; we pay them to fix things."

       Both ends of Pennsylvania Avenue have forgotten the latter imperative.

        November 25, 2011 Tax Truth:  Now that the Super Committee foolishness is behind him, President Obama can focus his full attention to the more serious business of blaming all of his failures on George W. Bush. Let me say at the outset that I am no fan of George W. Bush. One of the worst things he ever did was attach his name to a sensible economic policy that worked. Yes, worked. I thought it might be useful to pre-empt the next year of carnival-barking with a number or two for my liberal friends who prefer their economics to be delivered to them in slogans. Start with this one: the FY2003 budget deficit was $377 billion. The significance of that milestone is that it is the year when the Bush tax cuts were implemented. Four years later, in FY2007, the deficit had fallen to $161 billion. The deficit shrunk by 57.3% in the first four years of the Bush tax cuts; you will not hear that on TV, in schools, or on the campaign trail in the next 12 months. You’re welcome.

       And it didn’t happen because of those famous “draconian spending cuts” Senators Clinton and Schumer made a fortune complaining to their base about back then. In fact, government spending increased over those four years by 26% - more than double the rate of inflation. Two wars, No Child Left Behind, Katrina, the Patriot Act, and Medicare Part D will do that for you. The deficit was reduced in spite of all that spending because tax receipts rose by 44%. That is what reducing tax rates on producers will do for you. In FY2003 receipts were $1,782 billion, and in FY2007 they were $2,568 billion. Yes, MSNBC junkies, tax receipts went up when top rates went down; just like Arthur Laffer said they would.

       Go ahead and hate Bush as much as you want, but don’t take it out on math. And don’t even call them the Bush Tax Cuts, as I can’t imagine that he sat down one day by himself and wrote up changes to the tax code. He was not the only one who understands the difference between tax rates and tax revenues, and besides it is Congress, not the President, who levies taxes and controls spending. Amazing what you can find out when you actually read the Constitution.

       Bill Clinton lowered capital gains rates (seriously, he did) and the resulting surge in tax receipts caused the balanced budget that Democrats and Newt Gingrich now take credit for. Clinton knew what Margaret Thatcher, Ronald Reagan, and John F. Kennedy did – like the people who own it, capital will move to where it is punished the least. And capital formation is the necessary predecessor of job creation. And if you don’t like those stubborn facts about deficits during the Bush years, don’t get mad at me; take your grievance to Office of Management and Budget – President Obama’s OMB – who publish the numbers on actual receipts and actual outlays.

       Cash flow doesn’t lie, and receipts and outlays are the bottom line of fiscal policy. Tax-the-rich obsessive-compulsives will still complain that tax receipts fell as a percentage of GDP from 2003 to 2007 and they will be correct. But so what? Would you turn down a 44% raise because mine was 60%? The sad thing is, there are a whole lot of Americans who probably would; such is the state of the coveting class these days.

       In case you missed it, Bush has already been punished by the voters. Too much spending, debt, and war weariness cost the Republicans both houses of Congress in 2006. Taking office in January of 2007, Nancy Pelosi and Harry Reid inherited a 14,000 point Dow, a 3.5% growth rate, and unemployment at 4.4%. They promised to do much better and they got their chance, starting with the FY2008 budget. But they did not even wait for the budget process to begin; they announced their economic agenda right off the bat – increase taxes on the wealthy, increase taxes on corporations, cap and trade, (union) card check, tariff increases, more government regulation, nationalization of health care, “green” mandates, restricting energy production, and commandeering the nation’s student loan programs. Their war on capitalism was declared while the movers were still hauling boxes in and out of the Capitol. Mission accomplished, to borrow a phrase.

       In FY2011, after four years of Pelosi/Reid budgets, the federal government’s deficit is now $1.3 trillion - almost ten times what it was when they took over. 15 million Americans are unemployed. So let’s recap: Republicans controlled the House and Senate and enacted tax cuts; four years later their deficit was reduced by 57.3%. Democrats controlled the House and Senate and declared war on capitalism; four years later their deficit was increased by 819%. And they call George W. Bush dumb.

       To be fair to the Democrats, the financial system melted down on their watch. And to be fair to Republicans, terrorists flew planes into buildings on theirs. Neither party asked for the trouble that dropped in their laps; none of us ever do. But we don’t pay our elected officials to be lucky and we don’t pay them to make excuses; we pay them to fix things.

       President Obama’s idea of fixing things is to repeatedly threaten to punish job creators by repealing the “Bush tax cuts." He creates investor uncertainty every time he opens his mouth and then he blames the investors for their risk-aversion. The President himself is the risk that investors are avoiding now, and many have finally come out and said so in recent weeks. Here is what they know that the President apparently does not: the knife cuts both ways. If cutting the top selective tax rates increased tax revenues by 44% and reduced the deficit by 57%, then what do you think will happen when those tax rates are raised? That’s right, revenues will plummet, the deficit – already obscene – will blow up even worse, and the economy will crater. The $2 trillion that has accumulated on corporate balance sheets is not being hoarded to punish the working man; it is being saved for a time where it can be responsibly invested, when returns and risk can be reasonably estimated – in other words, when Mr. Obama is gone.