The Democrats now controlling the executive and legislative branches of government in Washington are in a bind, but it’s one of their own making.
Faced with budget deficits three times the largest ones run up during the previous administration, they have an election coming up in which the party’s prospects do not appear all that good (if you define “not all that good” as approximately the outlook faced by Lt. Col. George Custer at the Little Big Horn).
So, looking for ways to assume the appearance of having the image of creating the aura of seeming to be fiscally responsible, the authors of the budget-busting jobs bill, the budget-wrecking finance reform bill, the budget-destroying stimulus bill and the hold-the-budget’s-head-in-the-bathtub-until-it-stops-struggling health care bill are casting about desperately for something to toss out to voters to blind them to reality.
And their aha! moment of inspiration has come with realizing that the across-the-board cuts in income tax rates passed during the first term of George W. Bush are expiring at the end of the year.
Now, there’s not much chance that the wave of faux fiscal fundamentalism that the majority party is donning like a Potteresque cloak of invisibility will lead them to actually support letting tax rates rise all across the board when Jan. 1, 2011, rolls around.
Voters will see the hike coming and cast ballots accordingly on Nov. 2, so cuts at lower levels (plus the annual temporary “fix” to the Alternative Minimum Tax, set to soak 28 million taxpayers this year unless compensated for) appear safe.
Instead, they intend to do the minimum they think they can get away with, using that old progressive standby, class envy. They are saying that the cuts at the highest income levels can be foregone because “the rich” don’t pay their fair share of taxes anyway and besides, they can afford it.
Well, maybe they can. But it’s worth noting a few facts first.
The first thing is that, after the tax cuts passed, taxpayers at the highest income levels were paying more as a percentage of the total tax burden than they were before. That is, though their rates were cut, their taxes were reduced by a smaller proportion of income than lower-level taxpayers enjoyed.
Second, people who make a lot of money tend not to stuff it under their mattresses but invest it, creating real (i.e., productive) private jobs instead of buying signs saying how lucky we are that our taxes were used to — buy all these signs.
Third, if tax burdens on the rich get too high, they have many legal ways to defer or avoid them — and thus keep their incomes from helping the rest of us find work.
And finally, the whole progressive rationale for taxing the rich disproportionately harms incentives to growth and thus effectively punishes success. And when you punish someone, they tend not to pursue the activity that drew the punishment.
That’s a recipe for slower growth, fewer jobs and worse deficits. You’d almost think that was the Democratic plan. Hey, wait a minute. Today we offer a pair of views on the question, “Should the Bush tax cuts for higher-income taxpayers be allowed to expire?” written by our two editorial writers.