March 5, 2007

Creative Rhetoric Masks Fiscal Reality 
 

Politicians use words to inspire, cajole and convince people that their particular policy prescriptions are without fault and beneficial to both the least among us and the nation as a whole. Unfortunately, some politicians also use words to deceive people with a rhetorical frequency and intensity that overshadow reality for the uninformed voter. 

Pundits often analyze a politician’s positions on the most prominent issues as distinct from his vision of sound fiscal policy. The shrewdest of lawmakers, however, seek to blur the distinctions, arguing that their brand of fiscal policy is a sure-fire cure for all of our social ills. The blurred lines are most apparent when the political rhetoric turns to discussion of taxation and government spending.

Examples abound, and politicians are careful to couch their desire for higher tax rates as benefiting some sort of common good. Presidential candidate Sen. Hillary Clinton (D-NY) recently stated that she wants to “take those profits” from oil companies to fund alternative sources of energy. House Ways and Means Committee Chairman Charles Rangel (D-NY) said last week that he wants to “rearrange” tax rates to achieve a more “equitable distribution” of the 2001 and 2003 tax rate cuts. His goal is to “offset” the “cost” of limiting or eliminating the Alternative Minimum Tax, which threatens millions of taxpayers. The website Politico.com reported last week that Democrats plan to pay for $700 million in health care for poor children with “revenue enhancements.”
 
Taking corporate profits, rearranging tax rates, offsetting tax rate cuts and enhancing revenue are clever rhetorical twists for advocating the same goal – raising tax rates on corporations and individuals deemed most able to pay more taxes.
 
The tax pushers buttress their arguments not only in terms of all the common good they plan to achieve, but in the “scoring” estimates of tax legislation produced by the Congressional Budget Office (CBO). Since the CBO was created in 1974, one of its duties is to estimate the “cost” of a proposed tax rate increase or decrease. That is, the supposed positive or negative effect of tax rates on the rate’s ability to generate federal revenues. The problem is the CBO uses what is referred to as static, instead of dynamic, scoring methods.

Static scoring estimates merely look at the proposed tax rate change and calculate a corresponding increase or decrease in federal revenues. A static CBO score would estimate, for example, that a 5 percent income tax rate reduction would reduce federal revenues by the same 5 percent. The tax pushers then argue that the 5 percent tax cut will cause a budget deficit. Therefore, Congress can’t possibly pass the tax cut because it “costs” too much and we can’t “pay for it.”
  
The claim that reductions in tax rates have a “cost” is ultimately an argument that we all work for the federal government. Politicians who decry the alleged cost – in their minds, a reduction in federal revenues – either do not understand the positive economic impact of low tax rates on growing the economy, personal wealth and the federal coffers, or, they want to deceive the public. I think the latter.
 
At the 2006 Conservative Political Action Conference, Vice President Cheney stated that the 2001 and 2003 tax rate cuts contributed to an historic surge in federal revenues. Cheney was correct. The Heritage Foundation found that capital gains tax revenues doubled following the 2003 rate cut. Tax revenues in 2006 were 18.4 percent of gross domestic product, a percentage that is above the 20-year, 40-year, and 60-year historical averages.
 
Though Cheney is correct, he is, in fact, making the wrong argument for low tax rates. Supporters of low to zero tax rates on income are not necessarily fans of more taxpayer dollars poured into the congressional trough.
  
Big government advocates focus the argument on taxation levels and not on federal spending, which is the real root cause of budget deficits. Look at your personal finances. No matter your level of income, if you spend 100 percent of your money and max out your credit cards you have a personal budget deficit. If you spend only that amount of income needed for necessities, you run a personal surplus.
 
The problem is not in the amount of income, but in the amount of spending. When members of Congress argue that lower income tax rates will cause budget deficits, they are acting disingenuous to say the least.
 
The entire 20^th Century is a testament to the folly of believing that the Marxist philosophy of “from each according to his ability, to each according to his needs” can outgain or outlast a governmental form that pledges to protect individual rights and the pursuit, but not the guarantee, of happiness.
  
Political rhetoric around the issues of taxation and spending, the two issues from which Congress derives its power, will be with us as long as politicians have to stand for election.

Deceptive rhetoric is a reality, but it can’t distort reality for truly informed voters. We just need more of them.

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