Tax Cuts Are Fair And Compassionate; Soaking The Rich Is Not

“Mitt Romney, who has proposed new cuts to individual and corporate taxes, has lost his recent lead over President Barack Obama on the question of which presidential candidate would best handle taxation . . . ,” etc.  (“Romney’s Tax Plan . . . ”, news story on page A4 of The Wall Street Journal, 9/17/12).     “The fixes are blindingly obvious.  Economic theory, empirical studies and historical experience teach that the solutions are the lowest possible tax rates on the broadest base,  . . . ,” etc.  (Wall Street Journal editorial by George P. Shultz, John Taylor and other noted conservative economists, 9/17/12.)   From the disconnect in these dueling quotations, it appears that the virtues of low tax-rates must be escaping a lot of people.

One thing that is “blindingly obvious,” is that the only people who understand conservative tax policy are conservative economists.  Progressive economists do not get it – they are so invested in the Paul Krugman version of Keynesian policy that they appear to be operating on religious belief (and perhaps a need for an excuse for their compulsion to overspend), rather than on the track-record of that policy, and they are not likely to be converted to the Mitt Romney/John Taylor position, no matter how carefully and correctly articulated, until the apocalypse (if then).   Everyone else, including a great many Democrats and Independents whose votes might be winnable by Romney, apparently considers conservative tax-policy to be either incomprehensible or so counter-intuitive as to be ridiculous.   Think  George Bush the Elder (Reagan’s tax policy is “voodoo economics”),  or David Stockman (Reagan’s first budget director, who eventually used the term “trickle-down economics” as a pejorative nickname for his boss’s fiscal policies).

The point is, no one without a solid grounding in the teachings of Milton Friedman (or of John Taylor, Alan Reynolds, Robert Barro, John Cochrane, etc.) really understands conservative tax-policy.  Specifically, no untutored person can wrap his mind around the idea that lowering the RATE of taxes can eventually increase the REVENUES COLLECTED through taxes; likewise, no one understands that raising the rates can eventually decrease the collections.   Most people never get to John Taylor’s  argument that economic growth  requires tax-rate cuts, because they never get past the fallacy that rate-cuts make things worse by making fiscal deficits bigger rather than smaller.  Whether it is Joe Sixpack, Joe the Plumber, or Joe the Vice President, no Ordinary Joe gets it.  The whole idea that you have to lower tax rates in order to create the economic growth that eventually raises tax revenues just seems like a word game:  so totally illogical that people write the whole thing off as propaganda.

If the Romney campaign cannot figure out a way to get through to voters on this critical concept, they are likely to lose the entire argument on taxes.  Democrats have campaigned on the notion that they are the party of compassion because they want to raise the rates on the rich but not on the poor, and that the Republicans are the greedy and evil party that wants to cut the tax rates on the rich and that cares nothing about the poor and the needy.  The Democrats think the only way to escape a recession is to flood the economy with money and expect that device to tempt the business community back into growth mode; they scoff at tax cuts as an incentive to growth.  It is hard to see how the Republicans can win the election unless they can effectively counter the Democrats’ claims.

So, how do you get through to the voters?  It’s not all that complicated.  Here is how a job-creator (an entrepreneur or a business) decides on whether to create or expand a business:

  • What will it cost – time, effort, money?
  • What is the potential for profit or gain?
  • What is the likelihood of success?

How do taxes affect this analysis?  Simple:  the higher the tax rate, the greater the cost, the lower the potential for profit, and the less the likelihood of success.  If you want people and companies to create jobs, you cut their taxes.  (And, while you are at it, you also cut back on regulations that are not essential for public health and safety.)   This may not be “fair” or “compassionate” and it may favor the “rich,” but is that really the point?

Who can say what is a “fair” level of tax –  is it 15%?  35%?  70%?  99%?    How can we possibly know?   For that matter, why do we care whether the tax code is sympathetic or compassionate?   Shouldn’t a “fair” and “compassionate” level be defined as the one most beneficial to the country and its economy – the level at which tax rates entice people to build companies and create jobs and finally get us out of recession?    Which would an unemployed person rather have:  a job, or a chance to sock the rich with a tax increase?

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