Liberals – Keeping More of Your Own Money Is Bad for America

George C. Landrith

Years ago, I was in a debate with a sitting Member of Congress who sat on the Ways and Means Committee. In defending his opposition to tax cuts, he concluding by saying, “We can’t afford tax cuts.” When my turn came, I said to the audience, “I can afford a tax cut. Can you afford a tax cut?” The audience made clear that they could afford a tax cut. I continued, “Did you notice when he said, ‘We can’t afford a tax cut,’ he didn’t mean you and me – the taxpayers. He meant the government. He thinks he represents the government, not us.”

This is typical of liberals. Their love of big government causes them to be more concerned about funding government programs than allowing families to fund their own needs. For example, if families can keep more of their own income, they can buy their first home, save for their children’s college tuition, pay for their children’s piano or dance lessons, pay for a family vacation, or save for retirement – to name only a few.

In the debate, I explained that I supported tax cuts because I was confident that families would spend the money better than big government would. Moreover, it is THEIR money. Why do liberals believe they have a right to the property of others? Why do they believe that they spend our money better than we can?

I realize it is axiomatic that as citizens of a free nation, we have an obligation to pay our fair share to fund the necessary and legitimate costs of a frugal government. However, the federal government spends well beyond this basic level of necessary spending. It spends more than $21,000 per household. Simply stated, the government does not have the right to spend money like a drunken sailor and then hand the bill to working families, demanding that it be paid as a matter good citizenship.

The premise of President Bush’s recent tax cut and jobs growth package is that when families have more of their own money to spend, families are better off and the economy will grow. What is surprising is how vehement liberals and some of the dominant media culture have been in arguing against the tax cuts.

Liberals evidently believe that families and individuals are benefited by paying a lot of taxes and hoping the government will then fund things that the family and individual would have wanted in the first place. But there can be no doubt that liberals prefer to fund government over families and individuals funding themselves.

Let’s examine some of the arguments that often surface whenever tax cuts are discussed and see which ones stand up to scrutiny and which ones are merely rhetorical devices.

Lower tax rates are key to a strong economy

First, taxing things discourages the behavior that is taxed. For example, every time another increase in the cigarette tax is proposed, we are told that it will discourage people from smoking. What then are we left to believe that high income tax rates will discourage? The answer – work and productivity. Do we really want a policy that discourages and punishes hard work, productivity, and entrepreneurship? Liberals do.

The fact is high tax rates are a price imposed by government on productive behavior – as a result, people will work less, invest less, be less productive, and be less entrepreneurial. An economy where fewer people are working, where there is declining investment and productivity, and where entrepreneurship is slipping is an economy in decline – either in a recession or depression.

Low tax rates do the opposite – reward and encourage work, investment, productivity, and entrepreneurship. This stimulates economic and job growth because the taxes on additional economic output is lowered. Some folks think that tax cuts “pump” more money in to the economy, but this is not the real benefit. The real benefit is that productive behavior is encouraged and rewarded. This will strengthen the economy year after year, not just shortly after the tax refunds are received.

It is not enough to simply give temporary tax cuts or rebates. Temporary rebates or credits do not lower the price of productive behavior (i.e. work, investment, productivity, entrepreneurship, etc.). If we want to stimulate the economy, we need to reduce tax rates so that we lower the penalty on productive behavior.

Even after the 2001 tax cuts, taxes were still very high

The average American family spends more on taxes (federal, state, and local) than on food, clothing, transportation, and housing combined. The median two-income family pays nearly 40% of its total income in taxes to federal, state and local government. Yet, the median family spends less than 16% on housing, 4% on clothing, 9% on food, and 7% on transportation.

Even after George Bush’s 2001 tax cut was passed, federal taxes consumed about one-fifth of the entire US economy. During World War II, we financed the free world’s defeat of the Axis powers and the reconstruction of Europe and Asia on less. Those who argue that taxes are low and do not need to be reduced are simply divorced from reality.

Do the rich pay their fair share?

One of the oldest and most worn out arguments liberals use against tax cuts is that tax reductions unfairly benefit the rich. Every time a tax cut is proposed, liberals complain that not enough of the benefit goes to the poor. However, when one reduces taxes, one would expect those who pay taxes to benefit. Those who pay more taxes could reasonably be expected to benefit more. Here are the facts. According to the IRS, the top 1 percent of income earners pay nearly 35 percent of the total federal income tax burden. Thee top 10 percent of earners pay 65 percent of the taxes. The top 25 percent of earners pay nearly 83 percent of the taxes. The bottom 50 percent of earners pay only 4 percent of the income taxes. Given these realities, there is no way to cut tax rates and not have it benefit those who pay the taxes.

Perhaps an allegory will explain this point. There were a group of five middle-aged men who were old high school football buddies. They ate lunch together every Wednesday at their favorite restaurant. One of the men was quite wealthy and he began picking up most of the lunch bill – about 80% of the tab. Two of the other fellows, who had good jobs, split the balance of the bill – each paying 10%. Since the bill was now covered, the remaining two friends paid nothing. This was how the other three wanted it, as they knew their two friends were not flush with cash. They kept meeting weekly for several months. One day, the restaurant owner, came to the table of these five friends and apologized for overcharging them the past many months and that he owed them a refund of $500. The owner laid five one hundred bills on the table.

The two men who had paid nothing all these months for lunch said, “Hey, this is great, we each get $100.” The friends who had actually paid the bill, said, “Come on, be serious, since we have paid the bills all these months, we should get the refund in proportion to what we paid.” The two who had not paid anything, became angry and said, “This is not fair, why should you benefit from the refund and we not share in the benefit? Why are you being so greedy?” Those who had graciously paid the lunch bill for months sat stunned that their friends who had paid nothing thought they should take an equal share of the refund and had the nerve to call them greedy.

And so it is with the federal income tax debate. The Left criticizes a tax cut on the basis that those who pay the most will see the greatest reduction. Like the two ungrateful friends, the Left seems to think that those who pay little should receive most of the refund. In essence, Liberals want tax cuts to be a welfare program.

Do the poor benefit from tax cuts?

Often liberals argue that cutting taxes only helps the rich and that the middle class and the poor are not helped. This is tried and true class warfare – pitting rich against poor and employer against employee. In making this class warfare argument, they ignore the fact that a rising tide lifts all boats. Census Bureau data show that income levels for all income groups – the rich, middle-class, and poor – move up and down together. When tax policy rewards work, thrift, investment, and entrepreneurship, income levels go up for everyone – rich and poor alike. When the economy slides into weakness, not surprisingly, all income groups see their income reduced.

The reality is that the poor have the most to gain and lose. When your income barely covers your basic expenses, an increase to your income makes a big difference. And a reduction in your income can be devastating. As a practical matter, the problem with class warfare is that it ignores a rather simple fact – when the rich have more income, they hire, invest and buy more. A poor man has never hired me. Those of us who want a job, had better hope that there are a few wealthy folks out there who can afford to hire others and pay them a fair wage.

Do tax cuts cause the deficit to increase?

Every time a tax cut is proposed, the Left argues that a tax cut will increase the deficit. However, the deficit is caused because of unrestrained, runaway spending – not because we pay too little taxes. When Reagan cut taxes, Democrats blamed the deficit on him, yet the federal tax receipts grew at an astronomical rate over 28 percent partly as a result of the tax cuts, but spending increased at an even faster pace. Thus, there was a deficit. If spending had increased at a more reasonable rate, there would have been huge surpluses. Yet to liberals, deficits are never caused because they spend too much, but because you and I don’t pay enough. Even the current budget deficit is caused primarily because of excessive spending and the economic slowdown that began in 2000. Very little of the current deficit was caused by Bush’s 2001 tax cuts. Yet, if you listen to the Left, you would believe that greedy middle-class Americans who are paying about 40% of their income to taxes are to blame for the deficit and not Congress who has been spending freely and excessively since the budget was balanced several years ago.

Conclusion

The bottom line is tax cuts are good for working families, good for the middle-class, and even good for the working poor. Liberals oppose tax cuts because those who love big government want more and more money to spend. Tax cuts limit their ability to spend our money on their priories. They don’t care that tax cuts increase our ability to fund our priorities – education for our children, retirement for our golden years, a new home. That is because the Left is not actually interested in regular folks. They are interested in their power and having more of our money to spend as they want gives them more power. Us having more of our own money to spend does nothing for their power, so the Left opposes tax cuts out of greedy self-interest. What adds insult to injury is that they tell us that those who support tax cuts are greedy. Why is it that when we oppose the Left’s efforts to take more and more of our money, we are called greedy, but when they take our money they are compassionate and generous?

###

Mr. Landrith is a graduate of the University of Virginia School of Law, where he was Business Editor of the Virginia Journal of Law and Politics. He had a successful law practice in business and litigation. In 1994 and 1996, Mr. Landrith was a candidate for the U.S. House of Representatives from Virginia's Fifth Congressional District. He served on the Albemarle County School Board. Mr. Landrith is an adjunct professor at the George Mason School of Law. He is recognized as an authority on constitutional law and jurisprudence, federalism, global warming, and property rights.

george@ff.org