Tax Cuts Are Not ‘Spending’

Posted on | July 28, 2012 | 26 Comments

Another reminder that they don’t teach economics at Harvard Law:

“Republicans in Congress and their nominee for President believe that the best way to create prosperity in America is to let it trickle down from the top,” said Obama. “They believe that if our country spends trillions more on tax cuts for the wealthy, we’ll somehow create jobs — even if we have to pay for it by gutting things like education and training and by raising middle-class taxes. They’re wrong.”

This little bit of economic disinformation sticks in my craw. Who would be “spending” these alleged trillions? According to Obama, it’s “our country,” which indicates that in his mind, “our country” is a synonym for the federal government, so that every penny of private income not collected by the federal government is said to be “spent” on whoever has that penny. Beyond promoting that distorted perspective, Obama’s weekly address completely misrepresents the issue at hand.

The Bush tax cuts are due to expire this year. The Democrat-controlled Senate passed a bill that would raise taxes on households earning $250,000 a year or more. Republicans oppose those tax increases, which is the basis for Obama’s bizarre accusation that the GOP plan “spends trillions more on tax cuts for the wealthy.”

Democrats want to raise taxes. Republicans don’t. Period.

Obama apparently believes that the federal government is the rightful possessor of all wealth, so that any reduction in taxes — or even opposition to tax increases — is morally equivalent to theft, taking from “our country” what is not rightly ours.

Furthermore, Obama’s belief that “our country” must “pay for” lower taxes by cuts to federal programs is demonstrably false, ignoring the dynamic understanding of economic growth, the so-called “supply-side” principle and the Laffer Curve.

Economic growth results in greater tax revenue to the government, because more people have jobs, earn more income, purchase more goods and services, and increase the value of assets. Just one tiny example: Much of the fiscal woe in California is a result of the collapse of real-estate values, with a resulting decline in property tax revenue. The only thing that can cause real-estate values to increase again is economic growth, and economic growth requires . . .?

CAPITAL!

This is the essential insight of supply-side economics that Obama’s ignorant class-warfare rhetoric and his sneering dismissal of “trickle-down” overlooks: You can’t make capitalism work without capital.

Capital is what we nowadays more commonly call “investment.” If you’ve got stocks or mutual funds in a 401(k) account, you’re a capitalist, like it or not. Your 401(k) money is invested on the basis of your speculative belief that the value of the assets — stocks, bonds, whatever — will increase over the course of time. You hope that by investing, say, $5,000 annually over the course of 20 years (for example) the accumulated profits will result in you finishing that period with an amount much larger than the $100,000 of capital you’ve invested.

Investment always involves risk, as many Americans learned during the 18 months when the Dow Jones Industrial Average plummeted from 14,093 (October 12, 2007) to 6,627 (March 6, 2009). Also, if you invested in Greek bonds, good luck with that, eh?

Income derived from investment is a reward for taking risks with your money. You could bury your money in a coffee can in the backyard, but instead you invested it in speculative ventures that make possible economic growth — Amazon, Wal-Mart, Microsoft, Apple, Ford Motors — and in the process provide employment for millions of people and the innovative production of goods and services.

Rich people own more capital than do poor people — this is obvious enough, right? The hobo sleeping on a park bench doesn’t have much use for a mutual fund prospectus. Not a lot of folks watching CNBC in trailer parks. Not many Wall Street Journal subscriptions are delivered to public housing projects.

Yet the best hope for the poor — in fact, the only real hope they have to improve their lot in life — is the success of capitalism.

Only through economic growth can the single mother in the trailer park hope that she and her children will some day be able to have a better life. Even the recipients of government aid and private charity — the hobo eating at the church soup kitchen, and the public-housing resident on food stamps and Medicaid — are dependent on the success of capitalism, because all the wealth taxed by governments or collected by charities ultimately derives from private-sector economic activity.

I believe in capitalism in the same way I believe in gravity.

Obama’s policy is based on a belief in something else — a belief that he cannot help but occasionally reveal in his rhetoric — and watching his policy in action is like watching a man attempt to disprove gravity by jumping off a cliff. We know he’ll hit bottom eventually because, as Margaret Thatcher famously observed, “The problem with socialism is, eventually you run out of other people’s money.”

No amount of rhetoric can obsure this truth. Look at North Korea teetering on the brink of mass starvation, and you see what happens to nations whose leaders mistakenly believe there is some feasible alternative to capitalism. Look at Greece circling the fiscal toilet and you see what happens to nations whose leaders encourage dependency on government as a “right.”

The tax increase on the “rich” that Obama is now promoting would hurt the prospects of economic recovery and do little to balance the budget. Ronald Reagan said it best: “The problem is not that people are taxed too little. The problem is that government spends too much.”

Still, Obama’s bad policy proposal is a relatively minor thing. It would not instantly turn the United States into Greece or North Korea. Yet it is a step in the wrong direction, and the arguments made on behalf of this bad policy suggest it will not be the last step in that direction.

The incessant class-warfare rhetoric of Obama and the Democrats betrays an implacable hostility to the free enterprise system. Politicians cannot routinely demonize the “rich” — i.e., the capitalists whose investments fuel economic growth — without eventually inciting voters to demand punitive action against these scapegoated villains. And this is why common-sense Americans took alarm when the President of the United States told business owners that their businesses are not really theirs: “You didn’t build that.”

Maybe Obama was merely pandering to the thievish mentality of the Democrat Party base, insincerely promising them a something-for-nothing gravy train of endless government giveaways that he knows full well he can never actually deliver. But with such rhetoric, Obama promotes economic ignorance and foments larcenous sentiments that threaten to destroy our economy and our freedom.

Like Rush Limbaugh said, I hope he fails.

Category: Barack Obama, Economics, Taxes

Comments

26 Responses to “Tax Cuts Are Not ‘Spending’”

DaveO
July 28th, 2012 @ 1:23 pm

Don’t forget: this is the longest Obama’s been employed at a paying gig. His first job was US Senator, and that’s not a place one learns the value of a dollar.
W2 Tea Party Patriots
July 28th, 2012 @ 1:29 pm

Linked, sir. Well done.
Adobe_Walls
July 28th, 2012 @ 1:31 pm

I suspect teaching economics is difficult when the students lack basic understanding of the meaning of the words in the English language. This obscure language is purported to be the same as the one spoken in the country where he was born.
JeffS
July 28th, 2012 @ 1:31 pm

This is a classic example of lefties trying to control the narrative by defining the terms. In their world, “up” = “down” if they say so.

The fact that it’s shamelessly transparent, stupid, and is eaten up by the Lame Stream Media is merely gravy.

Well done.
Harvard Law Doesn’t Teach Economics « An Ex-Con's View
July 28th, 2012 @ 1:49 pm

[…] Tax Cuts Are Not ‘Spending’ […]
Adjoran
July 28th, 2012 @ 2:06 pm

What has the Laffer Curve to do with anything? It was a calculated projection based on the specific rates and deficits 32 years ago.

Is there ANY “supply side” economist today who says we can grow our way out of deficits with tax cuts? Of course not.

Spending cuts are absolutely necessary. There are no two opinions on this.
robertstacymccain
July 28th, 2012 @ 2:29 pm

I knew I could count on Walla Walla.
robertstacymccain
July 28th, 2012 @ 2:32 pm

Absolutely correct: At current levels of federal spending, we cannot grow our way out of the deficit. But neither can we tax out way out of it, and the Democrats steadfastly refuse to confront that reality.
robertstacymccain
July 28th, 2012 @ 2:38 pm

Here’s the thing that frosts me, AW: I’m not rich and I didn’t go to an elite school. Journalism is not a profession whose practicioners are required to master advanced math. Nevertheless, I can understand basic economics, which suggests to me that damned near anybody ought to be able to understand it.

So why can’t Mr. Ivy League Genius understand it, huh?
Robert Bell
July 28th, 2012 @ 2:44 pm

“Furthermore, Obama’s belief that “our country” must “pay for” lower taxes by cuts to federal programs is demonstrably false, ignoring the dynamic understanding of economic growth, the so-called “supply-side” principle and the Laffer Curve.”

With all due respect, economists who *do* understand the dynamics effect do not believe they are of sufficient magnitude at the kind of marginal rates we have to offset the lost revenue effect:http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_2irlrss5UC27YXi

See, for example, here:
http://www.economics.harvard.edu/files/faculty/40_dynamicscoring_05-1212.pdf
Bob Belvedere
July 28th, 2012 @ 2:50 pm

This is the essential insight of supply-side economics that Obama’s ignorant class-warfare rhetoric and his sneering dismissal of “trickle-down” overlooks: You can’t make capitalism work without capital.

and

So why can’t Mr. Ivy League Genius understand it, huh?

Both of your statements, Stacy, assume he gives a good Goddamn about prosperity. Obama does not. He has learned from his Communist teachers and seeks nothing less than the destruction of American Society, and part of any successful effort on that part will involve eliminating the Free Market System.

Barack Hussein Marshall-Davis-Obama and his comrades know exactly what they’re doing.
Adobe_Walls
July 28th, 2012 @ 2:54 pm

He views economics through Marxist Deconstructionism.
John Rose
July 28th, 2012 @ 3:48 pm

How about this:

The very fact that he attended an ivy league school lends itself to a certain ingrained arrogance, and a devaluing of what we would call ‘common knowledge.’ That is to say, if a thing CAN be understood without such an education, it is thus of less value.So, the facts of basic economics MUST be wrong. Since a blue collar worker on an assembly line can figure out that if he does not MAKE more than he SPENDS he will not succeed, that knowledge is not worth as much as a contorted equation that produces a similar result, but needs years of training to wrap one’s mind around.

There are exceptions of course, but for the most part people like BHO have for years, even decades, been told they are THE smartest people in the room. I think it simply escapes them that there are some very fundamental rules, and that, in some cases, things REALLY ARE just that simple.

IMHO, of course.
Rich Vail
July 28th, 2012 @ 4:16 pm

But RSM, you didn’t built it…the government did!
JeffS
July 28th, 2012 @ 4:17 pm

Several points about that survey:

I. Question “A”, for with AND without the confidence weighting, is within the typical margin of error for surveys on “Agree” and “Uncertain”.

Which is to say, a statistical tie, and hence no clear agreement. It’s fair to say that a majority of those surveyed don’t agree with Question “A”, but that’s all. Check out some of the comments below the results, such as:

”

would lead to higher GDP in short term at 5 yrs, less clear &
depends on whether tax cuts are budget neutral. see fact 10 in below
link. -see background information here”

The question is pretty broad, naturally, but clearly has some ambiguity. Some of those economists might disagree because the question is not well written.

II. “Question B: A cut in federal income tax rates in the US right now would raise taxable income enough so that the annual total tax revenue would be higher within five years than without the tax cut. ”

The comments (and there aren’t many) for “B” indicate widely varying assumptions or opinions on “taxonomics”, or differing interpretations of the question. That’s reasonable, given the political spectrum.

But I question the question. One respondent noted that 5 years isn’t enough time for the capital to respond, begging the question of “How much is needed?” Not to mention, whenever conservatives discuss tax cuts, they mean, keeping capital in private hands. Because taking capital, in the form of higher taxes, most certainly impacts business growth by reducing it, which in turn impacts future revenue.

II. I am suspicious of argument by consensus (see “global warming”). Of which there is very little here.

All in all, I don’t think that survey supports your point, which seems to be “tax cuts don’t increase tax revenue, so we shouldn’t have tax cuts.”

Add on the fact that Stacy’s post is titled “Tax Cuts Are Not ‘Spending’“, and I think you need to improve your reading comprehension.
‘Raaaaacism’ Is Just Another Word For Nothing Left To Lose « The Camp Of The Saints
July 28th, 2012 @ 4:43 pm

[…] disdain for the Free Market is an actual hatred of it. Many people [including, it seems, Stacy McCain — well…I never said he was a god, only a demi- version] assume he gives a good Goddamn about […]
scarymatt
July 28th, 2012 @ 5:00 pm

When you get paid a salary…You don’t own that!
scarymatt
July 28th, 2012 @ 5:02 pm

I’m not sure that’s even the problem. I think you’re begging the question that progs are even interested in the economic aspects of tax policy.

Why deal with the dismal science when you can work for Social Justice?!
Finrod Felagund
July 28th, 2012 @ 5:17 pm

Most basic economics is applied common sense, which is less common on the liberal side of the aisle; they seem to think that there’s a magic wand you can wave to become rich, and greedy Republicans that found the wand don’t want to share.
DaveO
July 28th, 2012 @ 5:33 pm

It’s not the school, it’s the environment.

When you look at Obama’s closest advisors inside and outside of government, they are very homogenous – including the interesting fact that they inherited their money.

Valerie Jarrett, Giethner, the terrorists Ayers – all inherited their wealth. Their parents hired other people to continue building that wealth. These enablers, like Tony Reszcko (sp?) perform the same function for Obama.

And these folks have always had money. Like air, they don’t notice and are so wealthy that any tax is absorbed with less trouble than inhaling with a set of healthy lungs. If they gave the majority of their wealth, they’d never notice the difference in their quality of life.

Ergo, when Obama says ‘you didn’t build that’ he and the people who are his environment have never built wealth – others have. These folks have no respect for the dollar because they do their daily business in millions of dollars.

Because of Obama’s future status as ex-POTUS, he’ll be pulling in millions every year in speaking, writing, and other engagements. He won’t have to seriously hustle for the Benjamins.

Harvard, or G-d Almighty could teach Obama economics – but to him it’s never been real, and never will be.
Econ 99 | hogewash
July 28th, 2012 @ 6:33 pm

[…] Prof. McCain has a Econ 99 class session posted for politicians who believe that not taxing someone is a form of government spending. Obama apparently believes that the federal government is the rightful possessor of all wealth, so that any reduction in taxes—or even opposition to tax increases–is morally equivalent to theft, taking from ”our country” what is not rightly ours. […]
Todd Mullen
July 28th, 2012 @ 6:43 pm

I disagree. Barack Obama strongly believes in capital. However, he clearly believes that capital controlled by the government is more effective than capital in private hands. The less capital in private hands, the better. Ergo, we need to raise taxes on those with capital to invest.
Ann Marie Buerkle Understands Basic Economics, Dan Maffei and Barack Obama Don’t | The Lonely Conservative
July 28th, 2012 @ 9:50 pm

[…] why did the economy grow at a sluggish 1.5% last quarter? If Obama and the Democrats get their way, we’ll be looking at the last quarter as the good old days.The tax increase on the “rich” that Obama is now promoting would hurt the prospects of economic […]
CPAguy
July 29th, 2012 @ 12:01 am

GOAT post, RSM.
Adjoran
July 29th, 2012 @ 1:16 am

Agreed – but it still has nothing to do with the Laffer Curve, which showed how marginal rate cuts could overcome deficits with growth, but only deficits at a much lower level than today’s.

Raising taxes on “the rich” surely kills the incentive to take risks in investing, but the rates which have been in effect for 10 years aren’t “cuts,” either.

Real tax reform would have some stimulative effect by eliminating the deductions, credits, and preferences which artificially misallocate capital, but the only solution to our fiscal crisis must include entitlement reform – AND repealing the giant sucking hole that is ObamaCare.
They Don’t Teach Economics at Harvard Law « Obi's Sister
July 29th, 2012 @ 4:47 pm

[…] boy, does it show. Read it all. I’ll […]