David Strom

I used to think that liberals were mistaken, but well-intentioned.

Now, I am not so sure.

Of course I still believe that most liberals I meet are genuinely good people, not nefarious plotters out to line their own pockets and accumulate as much power as humanly possible. But I can’t get past the idea that liberals in the public policy world, who are presumably smart and well-informed have ulterior motives.

Why? It’s pretty simple, really. So many things that liberals argue about economics are simply and demonstrably wrong. But even when you prove beyond the shadow of a doubt that they are wrong, the liberals keep mouthing the same basic untruths.

A great example of this is the recent report put out by the Congressional Budget Office on the effect of President Bush’s Capital Gains Tax cuts of 2003.

At the time Bush proposed cutting capital gains taxes, the Joint Committee on Taxation came out with an estimate of how much doing so would cost the Treasury. You see, Congress still uses economic assumptions that changes in the tax rates have no economic impact, so every tax cut brings less money in, and every tax increase adds to government’s bottom line.

Liberals have used this ridiculous assumption to argue against capital gains tax cuts as “tax cuts for the rich,” as if reducing the government’s take on investment profits is somehow a plan to redistribute income from the poor to the wealthy. How many times have we heard the canard that Bush is a toady for a wealthy cabal trying to rape and pillage the economy while they can?

Well, the latest numbers released by the Congressional Budget Office put the lie to that notion. Since the 2003 tax cuts were passed, actual capital gains taxes collected outstripped the estimates by a cumulative $133 billion, or 68% more than was estimated originally. In the past 2 years the estimates were off even more dramatically—by over 100%. Those “rich” people Bush was supposedly selling out to are actually paying much more in taxes than they were before.

How is that possible that the estimates were so dramatically wrong? It’s not like we are talking about estimates many years out—the forecast was made in January 2004, and it was off by over 100% by 2006. Two years, 100% over forecast. Pretty spectacular!

The truth is that every reasonable economist could have told you that the Joint Committee on Taxation was going to be very, very wrong, because tax policy affects economic activity. Lowering the capital gains rate stimulates economic growth, and by extension increases tax revenue for the government. Capital gains tax collections go up as economic activity grows, and of course income taxes rise as incomes get bigger.

Lowering capital gains taxes increases wealth for everybody. As economic growth jumped from under 2% before the tax cuts to over 3%, unemployment dropped and the stock market began to soar. Those “tax cuts for the rich” made everybody in America better off.

Which gets me back to my original point: we’ve seen this movie before, and know the ending. Reducing taxes on income and capital helps to stimulate the economy. The tax cuts from Reagan onward explain why the American economy over the past 25 years has so outperformed our European competitors. When Ronald Reagan was elected, the top marginal tax rate was 70%; today it stands at 35%. And since Reagan’s election our economy has outperformed Europe’s by a large margin.

The evidence is so clear it can be said to be irrefutable. Yet liberals still advocate the false idea that wealth distribution, not wealth creation should be the most important goal of government tax policies. They argue that Europe, not America, has discovered the key to economic success.

Why?

I can only conclude that liberals continue to promote the false belief that the economy is a zero-sum game of the “people vs. the powerful” because it benefits them. The false notion that some cabal of wealthy people is raping the American working man helps liberals gain and keep economic and political power.

That’s why I can no longer believe that the smart and informed liberals are simply mistaken: they can’t be, because the evidence is so clear that “tax cuts for the rich” benefit the entire country. Liberals aren’t well-intentioned but mistaken; they are cynically promoting falsehoods in order to gain money and power.

All the while claiming that conservatives are selfish and liberals are selfless. 1984, anyone?


David Strom

David Strom is the President of the Minnesota Free Market Institute. He hosts a weekly radio show on AM-1280 "The Patriot" in Minneapolis-St. Paul, available on podcast at Townhall.com.

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