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Lies, Damned Lies, and ‘Tax Cuts’

Confusing "tax cuts" with "rate cuts" often keeps us from setting the proper economic course.

by
Rand Simberg

Bio

January 31, 2009 - 12:00 am
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There’s been a lot of talk about “tax cuts” lately — well, actually, forever. It was supposedly one of the big campaign issues last year. In fact, Barack Obama ran on the claim that he was going to “cut the taxes of 95% of the American people.” Which, come to think of it, seems a little at odds with his recent decision to not emphasize tax cuts in the latest porkathon “stimulus package” because “I won.”

Anyway, when is a “tax cut” not a tax cut? Apparently, whenever it is discussed by a politician.

Both sides of the aisle continually make the mistake — though it’s no mistake on the part of the Democrats — of confusing a tax rate cut with an actual tax cut. Here is a commonsense, as opposed to the Alice-in-wonderland, definition of a real tax cut. It is a reduction in the amount of taxes paid. Conversely, a tax increase is an increase in the amount of taxes paid to — and revenue received by — the government.

That’s it. Almost too simple, isn’t it?

When a politician says that he’s going to either cut or increase your taxes, he is engaging, wittingly or not, in a conceit and a deceit. He says it as though he has the power to do any such thing, when in fact he does not. He has no power except to reduce or increase the rate at which you pay taxes, whether on property, income, or whatever.

Think of it as the difference between a joystick and a mouse. With a computer mouse, you can point directly to the place that you want to be on a screen. With a joystick, you can only control the rate at which you move toward it, and in so doing, the target may move, and it may move faster or in a different direction than you can keep up with using your rate control. Politicians talk about tax cuts as though they have a computer mouse that allows them to pass a law and a specified amount of revenue will roll in, but the reality is that they have a slow joystick, with a nebulous relationship to the eventual goal.

For instance, he can raise your top income tax rate from, say, thirty to ninety percent. Did he increase your taxes by that amount? Only if you’re as stupid as he is. More likely, you’ll just cut back on how much you work, settle for the lower bracket, or do more work off the books, and he’ll end up getting less in taxes from you than before. So did he increase your taxes? Nope.

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