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Lies, Damned Lies, and Revenue Enhancements

Another way that revenues can be “enhanced” is to reduce or eliminate “tax expenditures” (a euphemism for allowing people to keep more of their own money). Otherwise known as “tax breaks” or often simply deductions or credits, many of these could in fact be eliminated with not only no harm, but to the betterment of the republic (ethanol being a shining example). But many of them (including the dreaded “corporate jets” that the man with the biggest corporate jet in the world lectures us about tirelessly) are legitimate business expenses.

For instance, consider an example that many use to demonstrate the absurdity of deductions: a pole dancer who is allowed to deduct the cost of mammary enhancement before paying taxes on her tips. But in fact, it may very well be that absent such an inducement to revenue enhancement on her own part, she wouldn’t be able to make a living, given all of the unenhanced competition continually coming into the market. In general, if one redefines “profit” to the point that one is not allowed to deduct from it the things that allow one to generate the income, then a business will not survive for long, and raising “revenue” by taxing a company out of business is counterproductive.

The best way to enhance revenue is in two ways. First, grow the economy, and increase everyone’s income. This is done not be spending ourselves into oblivion (the failed and misshapen Keynesian theory to which Obama, Pelosi, and Reid cling), but by ending the war on the job creators, in terms of both tax rates and regulations. The second is to increase the number of taxpayers by both putting them to work, and including them in the system (see the comment above on de Tocqueville) by flattening the rates. This has another salutory benefit on the outlay side, as Epstein says:

Human nature what it is, most ordinary citizens will be tempted by government largesse, despite the potential losses from hamstringing the economy with higher taxes. It is for that reason that whenever there is a revenue shortfall, political forces now clamor to “tax the rich.” In the end, this is a plea for steeper progressivity, which in turn cuts deeper into long-term economic growth.

The willingness to call for tax increases is dulled, however, when rates are flat. Then, the proponents of tax increases know for certain that they will have to foot their part of the bill for each new program.

In short, the Democrats’ “progressive” class-warfare nostrums depress revenue as they increase government spending, while the solution is to actually increase revenue and reduce spending by moving to a flatter system in which everyone has a stake. This is the battle that the Republicans seem to be winning for the moment, but only because we are on the verge of fiscal catastrophe. If this really is their Gettysburg moment, they shouldn’t let up now.