Tax Cuts - The Magic is Gone

The Republican tax cut mantra has been a political boon for more than 25 years. However, it has run it's course, but only because the Republicans have used it as a talking point rather than as a specific case which exemplifies a greater truth. As such, tax cuts are now a stale, tepid, policy program designed to buy votes.

This was most apparent when our Prez hi-jacked the Republican tax cut issue in the Election run-up. Noted by many commentators as proof that this conservative issue was still potent among the voters, it actually proved the opposite. Obama's proposed tax cut was designed to be a welfare like give-away without the onus attached to entitlements. As such, it performed the same function as any other entitlement program, to shoot money directly to various voting blocks.

However, this deconstruction of the political phrase "tax cuts" was made possible by Republican misuse of the term for more than two decades. The original conception of tax cuts by Reagan (and Kemp) was grounded on at least three fundamental ideas: (1) taxes were a gross appropriation of the people's property (income), and should not be higher than necessary; (2) people were much better equipped to decide what to do with their money than Government, and (3) tax cuts were an effective fiscal policy that would benefit the economy as a whole.

These premises lead the conservatives of the 80's to adopt a policy of broad-based tax cuts, reduction of "progressivity" and simplification of the tax code. At the time, I remember being amused that the Democrats only response was the oft-repeated mantra that Republicans wanted "tax cuts for the rich." This was as lame a response to a huge reduction in all tax brackets as there could be, and I felt that this showed the bankruptcy of ideas in the liberal community.

Increasingly thereafter, however, Republicans let the Democrats back in the game. More and more, Republicans began playing the liberal game of buying constituencies, by larding up the tax code with Christmas tree ornaments of child care tax credits, education tax credits, larger personal exemptions, various home ownership goodies, and the like. No longer did they have an over-arching view of what and how taxation should be structured. As a result, more and more Americans at the low-end of the income scale were paying less and less and those at the upper-end of the income scale were paying more and more. Today, something like 35% of the electorate pay no taxes at all. Thus, largely under Republican leadership, the tax code has returned to it's demonic roots as a redistributional program aimed at various constituences. And more fundamentally, the tax code more and more increased the marginal cost of moving from poor to rich in direct contradiction to conservatives supply side tenets.

The macro-economic effects of this became obvious, and so the Republicans turned to targeted tax cuts for business and investment to counter the negative incentives of the tax code: accelerated depreciation, investment tax credits, capital gains tax reduction, etc. Policy wise, most of these are good for business and investment and therefore good for the economy - and the people - as whole. But politically, they are precisely what the Democrats have been complaining about: they are tax cuts for the rich. They are Christmas tree ornaments for the supposed constituency of the Republicans. Although not a huge John McCain fan, this was precisely what he was saying in the early 2000's about the Bush business tax cuts, and in this, he was correct.

So, tax cuts are not an expression of a larger idea of American freedom, but simply one more way government pays off constituencies. Obama promises tax cuts to the masses, Republicans promise tax cuts to the wealthy. Liberals will win this arguement every time, and that is why I say the Republican tax cut mantra has run it's course. Everytime I hear a conservative today extol the political effectiveness of a program of "middle class" tax cuts, I cough up my coffee. Democrats can do that too, and their Christmas tree ornaments are always more beautiful than ours. So long as conservatives focus simply on the benefits to different classes of people of tax cuts, they are playing the Democrats game, and will always lose.

Conservatives need to return to tax simplification and general across the board tax cuts. The flat tax is such a program, which probably will never be politically palatable in its ideal form. But we can get somewhere close to it, and it will blunt the Democrats charge that we are the party of the rich as welll as benefit the economy - and the people - as a whole.

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revised 2/6/09 for grammar and clarity