Lies, Damned Lies, and ‘Tax Cuts’
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.
Similarly, he could cut your rate, and you might be motivated to go out and earn even more, perhaps enough more that you pay more taxes, even at the lower rate. So did he cut your taxes? No. But the wealth of the nation — including your own — was increased.
When the “cost” of a tax rate reduction is “scored” by the Congressional Budget Office, they do a “static” analysis, which means that they assume that the change in rates will have no influence on the behavior of the taxed, which is arrant nonsense. When a politician tells you that he knows how much revenue a tax change will result in, he is either lying or deluded.
Which brings us to the other myth of tax cuts. Leftists (I refuse to call them liberals) view “tax cuts” very differently than do I — and, I hope, you.
I view a reduction in my income tax as more of my own money, which I earned, that I am allowed to keep. Leftists start with the implicit assumption that all wealth, regardless of who actually earned it, is the property of the state, and any amount that we have after taxes is viewed as a gift from the state.
This bizarre worldview results in equating, in their minds, actual tax cuts and government expenditures. It’s all the same to them — it is a “cost” to the government to let you keep your own money. Well, actually, it is not all the same. They vastly prefer an expenditure by the government that funds something that they stipulate — generally to favor some political constituency — to an “expenditure” by the government that allows you to decide what to do with it, and over which they have (so far) no control. This explains why they don’t have any cognitive dissonance with the nonsense that you can give a tax cut to someone who pays no income tax, which seems to be one of the “features” of the so-called stimulus plan. Since they view all “tax cuts” as gifts of the beneficent state, there is no difference in their mind between letting you keep your own money and handing you a check.
But there is a difference, and it is a crucial one: the way in which individual behavior is influenced. As noted above, if I get a reduction in my tax rate — which, remember, is not a “tax cut,” even though almost everyone mistakenly calls it one — I am motivated to go earn more money, because I’ll get to keep more of it on the margin. If, on the other hand, I am simply handed a check, which has no relationship with either past or future effort, there is no reason that it will change my behavior or productivity. That is why the former (a tax rate cut) actually stimulates, while the latter (a no-strings handout) does not. He might go out and spend it, or he might pay off debt, or he might save it. But there’s no particular reason to think that it stimulates the economy, though it may stimulate the recipient into voting for those who granted him the unwilling largess of those actually paying taxes.
Which, of course, is the whole point of this charade, isn’t it?
You make some good points in the later parts of the article, but the beginning is flawed. They call it a tax cut, because, in typical human fashion, we shorten things we say. A cut in the tax rate becomes a tax cut. The original meaning does get a little lost to those who don’t understand the original assumptions of the phrase.
You are guilty of this. You assume that when they say tax cut, you think the phrase means overall cut in taxes. It simply means a cut in the tax rates. That’s all. You’re nitpicking from a flawed premise.
While we’re nitpicking… There is no such thing as unwilling largesse. Largesse means generosity of spirit or attitude in giving; a liberality. One can’t be unwillingly generous. Generosity is a choice. Try not to split linguistic hairs. You’re not qualified.
Still, I like your point about the worldview of the Left that it all belongs to the state. I’ve tried so hard to explain to the occasional Lib that it’s not their danged money. Deaf ears, pearls before swine, and all that. Your way seems better.
The same phenomemon occurs when discussing budget “cuts.”
Here’s how it works:
1) Last year, the state spent say … $4 billion.
2) This year, the budget is $5 billion.
Oh Noes! Recession! We have to cut the budget! So we’ll cut the budget by $500 million. Hurray! We’re heroes!
Thus, government spending goes up $500 million and everyone is deluded into thinking that a budget was cut.
Voila! Instant fiscal responsibility.
Why bother arguing sematics?
http://www.losthorizons.com/tax/MoreVictories.htm
They do have the power, as they are demonstrating right now with the Pelosi-Reid “stimulus” B.S., to make whatever money we make, worth less in purchasing power, or even worthless, by their actions.
Mark,
You said “you think the phrase means overall cut in taxes. It simply means a cut in the tax rates.”
T’aint so.
Tax 101: Many of the “tax cuts” favored by liberals consist of credits and deductions, which don’t affect tax rates at all, but do affect the overall amount of tax paid by the people eligible for the credit or deduction. The stimulus package under consideration creates at least one “refundable credit”. The “American Opportunity Tax Credit” will result in up to $4000.00 being paid to anyone (whether or not they have paid any tax at all) who pay tuition for college, files an income tax return and performs “community service”. See http://en.wikipedia.org/wiki/American_opportunity_tax_credit
I don’t know the details, and I am sure that there are lots of income limitations and similar items. But this is how a non income taxpayer can be said to receive a tax refund. And it is precisely what Simberg is complaining about.
No nits have been picked in connection with this posting.
As to the existence of unwilling largesse: What would your reaction be if you were forced by law to purchase a car for me? The people who got such a law passed would be correctly viewed as being generous. Since it would be your money they were being generous with, you could be said to be generous as well, just not willingly. Remember, the hypothetical law *forces* you to purchase that car. You might have decided to do so on your own in the absence of the law, but you did not. The enactment of the law removed any aspect of voluntariness from your action. Hence, unwilling largesse.
Here’s the government paradigm for wealtyh confiscation:
Let’s say that labor, capital and ingenuity improve the human condition every year by 4%. The government realizes that if it steals 3.5% of that, the average person will still be better off than they were the year before.
So the government’s goal is to steal the greatest percentage of annual human progress it can get away with without making that number zero.
This way they can retire with lifetime benefits at 50 while you slave until age 70.
I have to agree with Simberg as to the “unwilling largess”.
Whenever the Left has a new spending program, it is invariably couched in terms of “helping”, “fairness”, “for the children”, or some such heart-tugging rhetoric. And the merits of the legislation are usually irrelevant. In it goes, and “contribute” you must.
But one of the subtle points of this technique that was left out is the separation of the recipient of such largess from the “contributor”. In a normal charity situation, the giver and recipient are connected, with the giver deciding on the worthiness of the supplicant and the size of the gift. The recipient is connected to the giver by gratitude and, for healthy individuals, a desire to repay.
Under the Leftists, charity is completely rent asunder. The giver has no choice on who receives the fruit of their labors, or how much will be given. Instead, it is handled through an impersonal bureaucracy who, in the final analysis, could care less. For the recipient, the gift is transformed into a payment or entitlement. Any sense of gratitude to those who labored long and hard to produce the gift is gone, and the concept of repayment is never entertained.
The only issue for the recipient of largess is making sure it comes on time, and how do they get more.
And, of course, the answer to that is to vote for those who are willing to use the police power of the State to extract money from the unwilling to give to the unworking.
I have a Better Idea for the Bail-Out
Instead of bailing out banks and auto manufactures,and starting make-work projects which cost the Americans Trillions in taxes.And it’s unknown how the money is spent…..
Give $50,000 to each tax-filing American……..those who are self employed also and those who had a job last year.
This would allow people to pay their debts down the banks would get money,
auto manufactures would get money,people would start buying houses,all of which would help the economy going again.
This WOULD have an instant effect on the economy……….THINK ABOUT IT!!!
I wonder if Obama will take my advice!!!!!!!!!!
Excellent article that applies in spades to capital gains tax rates. Politicians forget that it’s the individual who decides when to take a capital gain (when they sell the asset) and is heavily influenced by the tax rate. The 1986 tax law increased the capital gains rate from 20% to 28% with the result that the government’s take fell from $575B in ’86 to $246B in ’89. (Static analyses of course predicted an increased take.) The rate increase caused many to hold onto their appreciated assets, whether they really wanted to or not, just to avoid the tax.
There’s a good reason to encourage capital gains: the buyer of an asset will probably work harder to increase its value than the previous owner would. And that previous owner will likely use his gain to purchase an undervalued asset and try to improve it.
You can find more on capital gains taxes here: http://www.econlib.org/library/Enc/CapitalGainsTaxes.html
Cathy: i like your idea, i think i could find ways to stimulate the economy. for instance, the airlines need help so i would book myself a flight to Tampa Bay and hang out in the warmer weather. the hotels, waiters, restaurants, bars, taxis,and ticket scalpers would all benefit. i forgot the check won’t get here until Monday.
Well, Obama’s agenda is NOT to help the economy or tax-paying citizens. He could care less. The Dems and Obama, et al have only ONE agenda–to increase the size of the govt and its bureaucracies and their power. Pure and simple. These people are fascist, bottom line. They all are Keynesians and think of the “government” as the only means of securing the most good for the most people. Trouble is that this is becoming a self-fulfilling prophesy as the govt. is the largest employer of the largest amount of people in this nation. These people would rather reign over Hell than serve in Heaven. A goodly percentage are athiestic or agnostic and they certainly are all “humanists,” placing the human being on the top of everything. They are a mass of contradictions.
Those who really want change should band with those of us who are supporting the disbanding of tht IRS and the enactment of the Fairtax. It is really the only possible cure to the endemic poison and corruption that Washington and the elite east coast are soaked in.
The very idea of taking money from the fruits of people’s labor should be abhorrent to any honest human being on this earth. It is nothing more than outright theft.
T In answer to Gwyn…..
So sorry you feel that way I hope your are wrong about that
Hey John from Cinnncinatti………..YEAH RIGHT!!!!LOL
The Real Tax Burden
Excerpt:
The amount of tax that a government imposes is the amount it spends. The timing and amount of tax collections is merely finance.
If the government cuts rates or gives rebates, but also increases the size of government, then real taxes are higher. Government is taking a bigger share of the economic pie leaving less for private use or investment.
Milton Friedman pointed out that the burden on the private sector is bigger when the government grows as a percentage of the economy. Focus on government spending, not on how government is financed, whether it’s out of current taxes or future taxes.
Nice try, Marc Malone, but I ain’t buyin’ your implied claim that the pols are speaking honestly when they speak of tax cuts that are really tax rate cuts and any appearance of equivocation is the uneducamated rubes’ fault.
If the kleptocrats (of all parties) genuinely mean “tax cut” to be an abbreviated form of “tax rate cut” they wouldn’t immediately follow their blather about tax cuts that aren’t ’cause they’re really tax rate cuts with prattle about how working Americans will be keeping more of their own money blah blah blah.
No, Marc Malone, America’s only native criminal class is deliberately indulging in bamboozling us by steeping their rhetoric with the fallacy of equivocation (among many others) and hoping that marks like you don’t notice you’re being lied to, or the crooks under the big white teat that tops the capitol building have been so effortlessly equivocating for so long that they’ve formed the habit of misusing language and truly don’t know what they’re talking about any more.
So, they’re liars or idiots. Choose one or both, Marc, and you must choose.
Mr. Simberg’s article would have been much shorter if he’d pointed out that the “tax cut” conflation is rooted in the Fallacy of Confounding the Derivative with the Function.
Leftists, who Mr. Simberg rightly refuses to call “liberals,” are often the sort who fret that those of us who took the calculus didn’t leave any for them.
One more note about calculus and the economy: income is a derivative, wealth is a function. The derivative of wealth is savings (income minus expenses) plus net capital gains.
I view a reduction in my income tax as more of my own money, which I earned, that I am allowed to keep. Leftists start with the implicit assumption that all wealth, regardless of who actually earned it, is the property of the state, and any amount that we have after taxes is viewed as a gift from the state.
How in the world did the country manage until the 1913 (“pre thievery”) passage of the Sixteenth Amendment, giving the Congress “power” to levy taxes on income ?
Now we are muddled in boatloads of ignorance, and generations in the gubbmint schools have been conditioned to think it’s all the gubbmint’s money. Joe Biden recently said it’s “patriotic” to pay taxes. (Geithner & Daschle apparently didn’t get the memo)
U.S. Constitution: Sixteenth Amendment
I agree that SOME pols are not speaking honestly when saying “tax cuts”, but this is a recent trend, and only among those on the Left as they try to disguise their massive spending agenda. Those on the Right have been protesting this subterfuge calling it welfare. It is still understood that tax cuts mean tax-rate cuts, efforts to twist the phrase notwithstanding.
Furthermore, it is not largesse on the part of those forcing the “donation”. There exists no generosity on their behalf, because it’s not their money. If you start calling this theft largesse, then so can they! They can start touting how “generous” they are. Do you really want to start abetting their thievery? If you are forced to “donate”, then it is not largesse on your part, either, as there exists no generosity. So, no such thing as unwilling largesse.
I stand by my critique.
Marc Malone:
I disagree with your assertion that the conflation of rate cuts and tax cuts is a recent trend. Only very rarely in 25 years have I heard any pol or reporter provide a statement clearly differentiating between rate cuts and tax cuts.
The left mystificate the tax system to the greatest extent they can, as they do with so many of their policies that cannot withstand the clarity of honest discussion.
It is also possible that “unwilling largesse” is ironic. Like Shakespeare, The Colbert Report, “Frank Burns is a good doctor and a fine human being,” and whatnot.
#19 Troll Feeder – Love your moniker! Ha!