Democrats’ flawed logic on taxes

J.D. Thorpe Contributor
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President Obama has repeatedly voiced his opposition to extending the Bush tax cuts for “rich Americans,” though he favors extending the Bush tax cuts for individuals making less than $200,000 and families with incomes below $250,000.  His persistent class warfare and continued demonization of the successful is hurting the recovery.

Obama and his Democratic colleagues believe that individuals’ incomes are the property of the state and that only through the largesse of government are individuals allowed to keep what they earn.  When asked by ABC Chief Political Correspondent George Stephanopoulos whether he would veto a bill that extended tax cuts for the rich, Obama responded, “there are a whole bunch of better ways to spend the money.”

Translation: tax cuts are synonymous with spending.  Why not raise the highest marginal income tax rate even higher?  That would decrease “spending” even more.

This thinking is deeply flawed.  To suggest that government has an inherent right to an individual’s income is to oppose a free society.

Recently, Center for American Progress President John Podesta articulated the Obama logic by labeling upper-bracket tax cuts “Tax Assistance for Rich People” — “the Republican TARP.”  This faulty analogy is the product of someone who is either disingenuous or lacks the ability to think critically.  Podesta argues that using taxpayer dollars to bail out failing financial institutions is the same as allowing people to keep more of their own money.

Obama and Podesta are not bashful about stating how their Keynesian policies will affect economic growth.  The president claims that providing tax cuts to people like Warren Buffet is not helpful because it will not affect their spending habits.  He believes that we can spend our way out of the recession by reallocating resources.

This misstates how an economy works.  A consumer-driven economy is not viable in the long term.  Consumption can only be justified when production keeps pace.  Attempting to solve our economic problems through increased government and consumer spending while failing to address the production side will just result in more debt.

To sustain growth, it is necessary to create advantageous conditions for businesses.  Entrepreneurs hovering around the $250,000 bracket will lack incentive to risk their capital as long as the government insists on penalizing their success.

There are also problems with the statistics that the president uses to feign concern over the deficit.  Citing a Congressional Budget Office report, the president argues that extending the tax cuts would contribute $700 billion to the deficit over a ten-year period.

These projections are not realistic.  The methodology that CBO uses to generate projections is based only on current conditions.  Its analysis cannot factor in changing circumstances.  If the Bush tax cuts are fully extended, government revenue would exceed the CBO’s estimates because the tax cuts would spur economic growth.  Not extending the Bush tax cuts will have the opposite effect.  The Heritage Foundation projects an average loss of 693,000 jobs per year and a $1.1 trillion decrease in GDP over the next ten years as a result of the Obama tax hikes.

Allowing the Bush tax cuts to expire will cause the unemployment rate to spike, which will result in an already stagnant economy deteriorating further.  Obama may be philosophically at odds with extending tax cuts across the board, but it is imperative that he does so.  The alternative is to exacerbate our economic problems to a point where the economy will never recover.

J.D. Thorpe has worked at The Patrick Henry Center for Individual Liberty and at George Mason University’s Institute for Humane Studies.