When does a tax cut stop being a tax cut and become the existing tax rate? Apparently never. Ten years after President George W. Bush signed his 2001 tax cuts into law and more than three years after he left office, we continue to view the current federal income tax rates as a temporary diversion from the norm.
Because the current rates are set to expire at the end of the year, resulting in the reinstatement of the 2001 rates, perhaps it is fair to continue to refer to the current rates as a product of cuts. But from the point of view of taxpayers, reinstating the pre-Bush rates will be a tax increase — which is why those who support higher taxes like to use the term “Bush tax cuts.” It’s more politically advantageous to present tax hikes not as tax hikes but as the repeal of tax cuts enacted by a profligate former president. Voters who are also taxpayers (not all voters are taxpayers) should be wary of this political sleight of hand.
Of course, there is also a political explanation for why, absent action by Congress, the 2001 tax rates will be automatically reinstated on January 1, 2013. President Bush and his tax-cut allies could not get the needed votes in Congress to pass the tax cuts without agreeing to make them temporary. That way Democrats could get political credit for supporting both lower and higher taxes. Hopefully Republicans have learned a lesson from agreeing to this devil’s bargain under which higher taxes become the default — higher tax rates are established as the norm.
Some people might compare a temporary tax cut to a sunset law under which a regulatory program expires unless affirmatively extended by Congress. But the two are in no way comparable.
Under a sun-setting provision, the default is the absence of regulation. Regulation is treated as an intervention in private affairs that should not continue without affirmative action by Congress. The prospect that a law will sunset forces supporters of the law to demonstrate that it is effective.
A temporary tax cut has the opposite effect. Proponents of higher taxes have no burden to show that higher taxes are needed. They can simply do nothing and taxes will automatically revert to their prior, higher levels. But proponents of less government intervention (in the form of lower taxes) have the burden of demonstrating that freedom from government interference in private affairs is the better option.
In a free society under a constitution founded on the principle that government’s primary responsibility is to preserve individual liberty, the default should always be more freedom and less government intervention. The burden should always be on government to justify its impositions on individual liberty. The Supreme Court has long recognized this basic understanding in the form of what it describes as strict scrutiny of laws that limit fundamental constitutional rights. Under strict scrutiny, the burden is on the government to justify constraints on liberty.
Although the Supreme Court has created a false distinction between personal and economic liberties by way of lessening the burden on government to justify economic regulations, members of Congress committed to liberty should hold themselves to a high standard in justifying both regulatory and tax impositions on those they represent. Sun-setting regulations promote liberty. Temporary tax cuts threaten liberty.
By agreeing to temporary tax cuts, Republicans effectively transformed government’s burden of justifying restraints on freedom into a burden on voting taxpayers to justify their right to be free from government interference. Of course, there is no constitutional prohibition on ill-advised political bargains. But next time the proponents of bigger and more expensive government suggest that they will agree to tax cuts only if higher taxes are the default to which we must sooner or later return, defenders of liberty and limited government should reject the bargain.
A tax cut is a tax cut. After that, any increase in tax rates is just that — an increase in tax rates. Proponents of higher taxes should not be granted the political cover of insisting that the only thing they want to do is restore the norm. When it comes to regulation and taxes, the norm should always be the maximum amount of liberty consistent with equal liberty for all.
Jim Huffman is the dean emeritus of Lewis & Clark Law School, the co-founder of Northwest Free Press and a member of the Hoover Institution’s De Nault Task Force on Property Rights, Freedom and Prosperity.