Quick and easy rebuttals to fiscal cliff tax demagoguery

David Cohen Former Deputy Assistant Sec. of the Interior
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Once again, President Obama is using dishonest demagoguery to sell his policy agenda — this time with his insistence on tax hikes in any deal to avoid the fiscal cliff. And once again, Republicans are like Charlie Brown trying to kick a football with Lucy holding: falling for the same trick over and over again, appearing completely surprised and unprepared each time.

Predictably, President Obama is accusing the Republicans of protecting the rich at the expense of everyone else. And predictably, the Republicans are playing right into his hands. Obama is willing to make a deal to forestall the tax hikes scheduled to hit all taxpayers in January, but only if Republicans agree to raise income tax rates on (relatively) high earners. Republicans are holding out for a deal that doesn’t raise tax rates on anyone, but Obama twists this to his advantage: The GOP, he charges, is holding middle class taxpayers hostage to protect the “rich” from paying their “fair share.”

It appears that the public is buying Obama’s argument. The Republican counter-argument is that raising tax rates will slow growth and hurt the economy. That counterargument is correct, but the GOP must communicate it in a way that resonates with average people. “Growth” is an abstraction. “The economy” is an abstraction. Republicans need to talk about people, and how they would be hurt by the president’s proposals.

Democrats have been adept at labeling Republicans as folks who only care about the rich, and Republicans have been inept at fighting off that label. Republicans must explain why their philosophy promotes opportunity for all, and how the president’s proposals will hurt those he claims to want to help. With the media on Obama’s side, there may not be enough time for Republicans to significantly alter public perceptions before the year-end fiscal cliff deadline. But however this battle turns out, let’s stop losing the war. The substance is on our side, but we haven’t crafted a message that is worthy of our substance.

To that end, I offer this quick and easy guide to communicating our tax positions during the fiscal cliff debate and beyond. We should always emphasize how our policies will help the middle class and the poor. The GOP must be the party not only of the successful, but of those who aspire to be successful. It is with that latter group that we have the most work to do.

Why can’t the rich afford to pay more in taxes?

The rich can afford to pay more in taxes. If you raise their taxes, they’ll still be rich. We don’t need to worry about the rich. The reason that this is a bad time to raise taxes on the rich (or anyone else) is not because it would hurt the rich, but because it would hurt the rest of us.

How would raising taxes on the rich hurt the rest of us? Would we all start feeling emotionally depressed out of sympathy for the rich?

No, but we might feel economically depressed if the rich invest less in our economy. People are suffering now because there aren’t enough jobs. Higher taxes discourage business investment, which means fewer jobs for people who really need them. Ernst & Young has determined that President Obama’s proposals to tax the “rich” would cause our economy to lose 710,000 jobs — this at a time when all of us desperately need the economy to create more jobs. Ernst & Young further found that the president’s proposals would reduce wages, reduce investment, and reduce economic output. In other words, they would make us poorer. The rich can afford to be poorer; the rest of us cannot. And the poor can afford it least of all.

But Warren Buffett says that taxing millionaires and billionaires more will not cause them to invest less — and he’s the world’s greatest investor.

When President Obama says that he wants to increase taxes on millionaires and billionaires, he actually means $250,000-aires. (In fact, he actually means all of us, when you figure in all of the other taxes he would raise.) With all due respect to Warren Buffett, his success as an investor does not make him an economic policy expert. I put less stock in his off-the-cuff remarks than I do in Ernst & Young’s systematic economic analysis. Buffett’s world is far removed from that of the small business owner who must decide how many workers he can afford after Uncle Sam takes a larger slice of his pie. Like it or not, the people that Obama is targeting for tax hikes are the ones with the greatest ability and the greatest inclination to invest in our economy — including those who invest by starting and growing their own small businesses. Raising taxes on these people will leave them with less money to invest, to expand, to hire. It will also mean that they’ll have less incentive to invest the money they have, because they’ll get to keep less of the profits. The result will be fewer jobs, which is bad news for the people who need jobs.

But Obama just wants to return income tax rates on the rich to where they were in the Clinton years, and the economy was just fine back then. And the economy boomed after World War II, when tax rates were much, much higher.

Clinton’s economy benefited from the Peace Dividend and from the dot com boom, neither of which Clinton can take credit for (except that his vice president did invent the Internet). The economy was strong enough on its own to sustain higher tax rates. Similarly, the U.S. emerged from World War II with the only major industrial economy left standing. Our unchallenged industrial supremacy enabled us to thrive in spite of, not because of, higher tax rates (which most of the rich managed to avoid paying anyway). Obama’s economy, on the other hand, has been comatose for four years. When an economy is struggling to get on its feet — and when people are struggling to find work — it’s the worst time to raise taxes on job creators or anyone else. Don’t take my word for it; take the word of the 2009 version of President Obama.

Well if we don’t raise taxes on the only people who can afford it, how can we raise the revenues we need to reduce the deficit?

The most desirable way by far to raise tax revenues is to allow businesses to grow, providing more jobs for people who need them. Businesses will have more earnings to tax, and more people will become taxpayers rather than drains on the treasury. It’s harder for businesses to grow when they’re over-taxed and over-regulated. The second most desirable way to increase tax revenue is by closing loopholes. The most harmful way to raise revenue is the way that Obama is hell-bent on pursuing: raising tax rates. Unlike closing loopholes, raising tax rates reduces the incentive to invest because it reduces the return on each additional dollar invested. Less investment means fewer jobs, which means more poverty and misery for those who can afford it least. Obama’s proposed tax hikes are not a serious attempt to reduce the deficit — they would only raise enough revenue to fund the government for eight days, which doesn’t even account for the revenue decreases they would cause by inhibiting economic growth.

But what about fairness?

Obama’s policies have left over 20 million people struggling to find work. How is that fair? I’ll close with a question that I’ve posed before: If you desperately need a job to support your family, which would you rather have: (a) a job, or (b) the satisfaction of knowing that some rich guy you’ve never met will have to pay more taxes? If you chose (b), I feel sorry for your family — and you probably voted for Obama.

David B. Cohen served in the administration of President George W. Bush as U.S. Representative to the Pacific Community, as Deputy Assistant Secretary of the Interior, and as a member of the President’s Advisory Commission on Asian Americans and Pacific Islanders. He is the author of Left-Hearted, Right-Minded: Why Conservative Policies Are The Best Way To Achieve Liberal Ideals.