Dems and Taxes: Trapped by Talking Points

Dems and Taxes: Trapped by Talking Points

Carl M. Cannon
April 15, 2011

In the aftermath of President Obama's big budget speech this week, liberals cheered while conservatives hissed. And Americans who are not partisan ideologues experienced an unhappy sense of déjà vu over the president's indignation over "tax cuts for millionaires and billionaires."

As if our problems were really that easy.

The mathematics of the enduring federal deficits? Yes, that part is so simple a fourth grader could master it: The U.S. Treasury will receive something just north of $2 trillion in taxes and other revenues this year, while the government is projected to spend nearly about $3.5 trillion. The estimated $1.4 trillion shortfall will have to be borrowed. And the government has been borrowing a lot lately. The federal debt is $14.2 trillion as of this writing. It will be larger by the time you read this.

So what must be done? Sooner or later, spending must be cut or revenues increased. Actually, the debt is so deep, both must happen: Taxes will have to be increased; some cherished government programs and handouts curtailed. And it makes sense to ask those who can most afford higher taxes to pay them. That's the fourth grade math part. But our politicians tend to treat voters as though they are less mature than school children.

Even the most careful listener would puzzle over calling new taxes on millions of American individuals and businesses "spending reductions in the tax code," as the president did on Wednesday.

That rhetorical ploy revealed the trap Democrats have set for themselves -- and which they keep getting caught in. For more evidence of this, take a look at how the president took on the issue of tax cuts.

After pretending to compliment congressional Republicans for their willingness to offer a deficit reduction plan, Obama launched into a spirited attack on that same plan, homing in repeatedly on "the $1 trillion in new tax breaks for the wealthy."

The most discordant word in his litany was that little word "new." It's misleading, for one thing, and it obscures what has happened in U.S. tax policy in the past dozen years.

Obama was presumably talking about a sweeping deficit-reduction plan proffered by Rep. Paul Ryan, a Republican congressman from Wisconsin. Ryan's ideas may be brilliant or they may be folly, but the president's characterization of them didn't shed much light either way. Ryan has proposed replacing the nation's massively complicated tax code with one that eliminates most of today's loopholes and exemptions and replaces it with a tax code requiring a 10 percent payment on the first $50,000 an individual taxpayer earns ($100,000 for a family) and a 25 percent bracket for the money earned in excess of that figure.

The president didn't delve into these specifics because it's not really Paul Ryan's plan that raises the Democrats' blood pressure. Obama didn't mention Paul Ryan by name, which is both fitting and revealing, because the tax policies he was really taking aim against were those of George W. Bush. These are the tax cuts that make Democrats, even the serious-minded among them, a bit cuckoo. They may not have made sound fiscal sense, but they aren't new. And, they are typically misunderstood and misrepresented.

A Risky Scheme

In 2000, as Obama noted in his speech Wednesday, the federal budget was in surplus. This should not have made any rational person sanguine. The national debt was still $5.7 trillion. But by then all Republicans were supply-siders. Cut taxes, spur the economy, watch the money roll in -- that was the GOP mantra. In other words, it was Ronald Reagan's political party and every other Republican was just living in it.

George W. Bush was all in. "Today our high taxes fund a surplus," he said after announcing his presidential candidacy. "The surplus is not the government's money. The surplus is the people's money."

To repatriate that excess money back to where he said it belonged, Candidate Bush unveiled a sweeping plan to kill the estate tax, double the child tax credit, increase deductions for college savings, reduce the "marriage penalty" -- while also putting every single person who paid federal income taxes into a lower bracket. Those in the highest income brackets would see their tax burden lowered from 39.6 percent to 33 percent but everyone else's would decline, too. The lowest rate would go from 15 to 10 percent, and millions of low-income Americans would pay no tax at all.

Democrats were slow to realize it -- many of them still don't -- but the genius of Bush's proposal was that it was both progressive and regressive at the same time. (That was its political genius. As fiscal policy, it threatened to blow a hole in the deficit, which is exactly what subsequently transpired.)

In 2001 Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001. Two years later, it passed the Jobs and Growth Tax Relief Reconciliation Act. These two bills gave the nation most of the tax relief that Bush had campaigned on in 1999 and 2003. Meanwhile, on the spending side, things were moving in the other direction during the Bush presidency: An attack on the nation, a huge new agency devoted to homeland security, two foreign wars, and vast increases in federal spending on everything from education to a Medicare drug benefit-coupled with a very stubborn recession brought about a deficit spending crisis.

Millionaires and Billionaires

In response, Republicans blamed war, recession -- and, eventually, Obama's stimulus package. Democrats blamed war, recession and George Bush's tax policies. Over time, the Democrats' distillation became simply "tax breaks to millionaires and billionaires." It was a talking point employed hundreds of times by Democratic officeholders. Vermont Sen. Bernie Sanders used that phrase in December while filibustering a tax compromise. Senate Majority Leader Harry Reid used it last week. Obama used it Wednesday.

"I see no justification for going into debt to foreign countries to underwrite and subsidize tax cuts for the wealthiest people in America," former House Speaker Nancy Pelosi said last summer. "I don't even know
why this is such a big discussion."

Maybe this was true -- perhaps Pelosi really didn't know why it was such a big discussion. If so, this shows the danger of memorizing talking points too well. This became clear at a Jan. 8, 2009 press conference when a reporter asked the speaker about the ire taxpayers would feel if the Bush tax cuts were allowed to expire.

"Let me just say that the tax cuts at the high end that you were referencing have been the biggest contributor to the budget deficit," she replied. "Don't take my word for it, that's the word of the Congressional Budget Office when the Republicans had control of the Congress."

Pelosi was mistaken. CBO had found no such thing. Its reports showed that although the well-off received a disproportionate share of the tax cuts (they also pay a disproportionate share of the taxes) many more working class people than rich benefited from the 2001 cuts, and that the middle-class share of the cuts had a greater impact on the deficits than the cuts to the top earners.



It was as if, over time, the Democrats really began to believe what they were saying about the Bush tax cuts. Reality hit home last November after they lost the House. The Democrats had never seriously tried to modify the Bush cuts to their liking in 2009 and 2010 when they had the chance. Suddenly, it was lame duck session time and the ascendant House Republicans said, "Sorry, we like the tax brackets just as they are. Go ahead and let the Bush tax cuts sunset -- if you dare."

They dared not, and the deal was struck to extend the current tax policies for two more years. At the White House, the feeling was that the administration had little choice. Letting the Bush cuts lapse would have meant that large tax bills would have come due to nearly every taxpaying American this very week, during tax time, and would have generated a ferocious backlash against the president and his party.

Instead, the administration compromised, and the deal to extend the Bush cuts produced immediate results. First, Obama's job approval ratings rebounded. Second, liberals came undone over this compromise, and began to assail the president. It is this criticism, rather than the approval of independents, that seems to have galvanized the president.

On Wednesday, he expressed misgivings about his previous show of pragmatism.

"In December, I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans," Obama said. "But we cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society ... And I refuse to renew them again."

The president sounds like a man making a principled stand. To make it stick, Democrats might want to lower the decibels on the class warfare rhetoric. They could start by acknowledging that George W. Bush's tax policies -- taken as a whole -- might just have been more progressive than those they replaced. And, if he really wanted to roll the dice, Obama could admit that although those tax cuts were nice while they lasted, we might not be able to afford to keep any of ‘em.

The Democrats will tell any lie, violate any law, scrap the constitution itself, to have their way; to grow government to ever more unsustainable levels; to enslave ever more Americans to government dependency; in order to realize their dream of turning a free-market constitutional republic into a "social democracy" with the state as benefactor-in-chief and the people as it's subjects.