The Free Market 17, no. 10 (October 1999)
Opinion polls on taxes are the shabbiest of the lot. People are asked questions like: would you rather have Congress cut taxes or provide more essential government services? The results are invariably ambiguous. Reporters then claim that a surprising number of people are pleased with the amount of taxes they pay. Conclusion: there is no tax revolt.
Nonsense. If we really want to take an opinion poll on taxes, the easiest way would be make them non-mandatory for one year. Give everyone the choice of paying them or not paying, with no penalties or rewards either way. What would happen? Washington would quickly have to close up shop.
By definition, taxes are funds seized from private individuals by force of law. If people really wanted to pay them, they wouldn’t be taxes. Government would work like a charitable organization and try to persuade people to send in their money. I’m all for that solution, but so long as this is not the case, let’s have an end to opinion polls that pretend to tell us that people love paying taxes.
Through long and bitter experience, however, Americans have learned not to trust tax reform. Since early this century, taxes have been reformed about once every five years, and no ten-year period has passed without some overhaul. And what is the trend? Higher taxes, always. People are justified in expecting that any reform will lead to higher taxes, no matter what the politicians promise.
The details of the latest Republican claim to cut taxes bear out these fears. Their bill was a grab bag of gimmickry, some of it familiar and some of it new. It is a given that the bill didn’t deal with the largest of all taxes: the payroll tax. It takes a larger bite out of most households’ income than the income tax. But no one wants to talk about it because the programs the tax funds (Social Security, etc.) are perceived as popular.
But the major Republican ruse involved exaggerating the size of the cuts. At first glance, an $800 billion tax cut sounds enormous. A closer look reveals that it was to be “phased in” over ten years. This is fraudulent on its face. This Congress cannot bind a future Congress any more than this Congress feels itself bound by the budgetary priorities of the 1997 budget deal, which have just been violated (there are always “emergencies,” you know).
Given this, there’s no reason to restrain the propaganda. Why not claim to be cutting taxes by $10 trillion over the next fifty years? Why not announce a $100 quadrillion cut over 100 years? It sounds more impressive and makes just as much sense.
Under the bill, the first cut-effective in April 2002-comes out to about $42 for a middle-class family of four. True, the cuts are supposed to accelerate and culminate in 2010. But they are so backloaded as to be ineffective.
Also under the bill, taxes could only be cut if interest payments on the national debt are lower from one year to the next. If interest payments rise, any tax cut is canceled.
The award for the most brazen lie goes to the claims that the bill would eliminate the death tax. Certainly, it should be abolished, on both moral and economic grounds. But while the bill gives with one fist, it takes away with another.
At the end of ten years, estates would not pay a special tax, but would pay a regular capital gains tax on appreciated gains. The ratio of revenue lost to revenue gained: 1 to 1. Economist Bruce Bartlett, who discovered this clause, says that the new system would be even more brutal on heirs because of the horrendous record-keeping requirements.
A final act of treachery was performed by Alan Greenspan. He not only parroted the myth that Republicans were actually cutting taxes, he also told Congress that it’s not a good time to cut taxes, because that might unleash inflationary forces. But this is just the crudest Keynesian economics-big-government myths that attribute inflation to productivity instead of increases in the money supply.
Was Greenspan, in aping the Clinton line on tax cuts, being entirely honest? Well, he soon comes up for reappointment, so it isn’t a good time to irritate the Appointer-in-Chief. In the end, however, his testimony did not endanger an actual tax cut but a staged one. Meanwhile, as any man on the street could tell you, neither party-with the approval of the Fed-will do anything for average people that would take away money or power from the government.
Llewellyn H. Rockwell, Jr., is president of the Ludwig von Mises Institute in Auburn, Alabama.
