Democrat Mythology, Part I: Tax Rates and Revenue

One of the amusing things about watching the Left go to war against itself is the angry chaos as they settle on which fairy tales to believe.  A Democrat Party that used to become purple with rage over being called “socialist” just embraced openly-declared socialist Bernie Sanders of Vermont as its new spokesman and folk hero, after he delivered a filibuster against the tax deal that dragged on for longer than the theatrical release of The Lord of the Rings trilogy… and I’m talking about the whole trilogy, not just Return of the King, although the director’s cut of the Sanders speech will restore the scene where the Witch King appears on the House floor and breaks his staff.

On the same evening, Barack Obama effectively resigned the Presidency, turning it over to noted “Third Way” triangulator Bill Clinton, who assured Democrats that the agreement between his predecessor and congressional Republicans was a “good bill” that will “really help America over the long term.”  It is impossible for any Democrat to hold a consistent set of beliefs and agree with both Sanders and Acting President Clinton.

Of course, the key insight to Democrat Party economics is that it begins with three truly immutable core beliefs: (1) successful people who are not loyal Party members are evil and must be punished; (2) government spending is both morally and practically superior to free choice; and (3) “progress” means perpetual growth in the size of government.  Everything else a given Democrat believes is reasoned backward from these foregone conclusions.  They stop being Democrats at the precise moment this is no longer true.  I thought it might be useful to review a few of the lies being told about the Clinton tax deal with the Republicans, in the hopes it might prompt a few more people to stop being Democrats – which, to quote the Acting President, “would really help America over the long term.”

First and most importantly, you can dispense with the sanctimonious balloon juice that Democrat politicians care about the federal deficit.  Senate Democrats obviously don’t, since they insisted on larding the Clinton tax compromise with all sorts of targeted tax breaks for favored constituencies, after weeks of bleating that refusing to raise taxes was “irresponsible” because it would increase the deficit.  No one who paid the slightest attention to the actions of Democrats since they took control of Congress in 2006 would believe they view deficit reduction as a priority, but here’s a fresh reminder.  The deficit is only meaningful to the Left when they can use it as a club to beat down resistance to tax increases. 

This leads to the important myth about tax reduction causing deficits.  No belief is more crucial to the Democrat voter.  It’s a lie, and giving it up is like unplugging themselves from the Matrix.  There have been four major tax reductions since the implementation of the income tax, and every one of them has been followed by increased tax revenue.  Yes, that includes the unspeakable Bush tax cuts, as reported in such right-wing propaganda rags as… The New York Times.

In a July 2006 piece, Edmund Andrews of the Times writes, “An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.”  Tax receipts after the Bush cuts were about $250 billion over the previous year’s levels.

Revenue increase after tax relief is strongly influenced by who gets the tax relief.  Here’s where the 2006 revenue surge came from, according to the New York Times: “Corporate tax payments are expected to exceed $300 billion, up from $131 billion three years ago.  The other big increase is an extraordinary jump in individual taxes that were not withheld from paychecks, usually a reflection of taxes on investment income and executive bonuses.”  That’s right, kids – corporations, investors, and executives.  In other words, The Evil Rich.

This is not difficult to understand, for anyone who isn’t blinded by ideology.  It’s true that cutting taxes below a certain point truly would reduce revenue.  Obviously, zero taxes would bring in no revenue at all.  Increasing tax rates become counter-productive when they trigger avoidance behaviors – not merely aggressive exploitation of tax exemption, but wholesale shifts in economic behavior which contract the economy, giving the government a larger percentage of a shrinking total.  There is a point of equilibrium at which taxes bring in the most revenue, with the least drag on economic activity, and a review of recent history makes it clear that point is below where the Bush tax rates left us.

Every now and then, you’ll encounter a liberal polemicist who tries to “disprove” the truth of increased revenue after tax cuts.  They do this by cooking up a ridiculous total that tax revenue “should have been,” then declaring actual revenues – while higher than they were before the tax cut – fell short of this magical figure.  The preferred method is to take the last month of a boom cycle, assume higher tax rates would have no effect on long-term economic behavior, and ignore every other aspect of dynamic analysis, thus producing a pocket-calculator amount the government had a sacred right to collect.

The deficit is mostly a result of spending, which is responsible for eighty to ninety percent of the deficit.  There is simply no way to bring the federal budget under control without massive spending cuts.  There will never be a way to extract enough tax revenue from the rapidly shrinking “free market” to pay the bills big spenders – both Democrats and Republicans – have racked up.  The Republicans show promising signs of understanding this.  The Democrats show absolutely none at all, preferring to push lies on a confused and angry base they know will abandon them in droves when it starts thinking clearly about what needs to be done in order to secure American prosperity, and exactly who is standing in the way.  The Left likes to shift between moral and practical arguments for increasing State power, whichever they think will work for them.  Both the moral and practical cases for punitive taxation are rubbish.