Static scoring estimates merely look at the proposed tax rate change and calculate a corresponding increase or decrease in federal revenues. A static CBO score would estimate, for example, that a 5 percent income tax rate reduction would reduce federal revenues by the same 5 percent. The tax pushers then argue that the 5 percent tax cut will cause a budget deficit. Therefore, Congress can’t possibly pass the tax cut because it “costs” too much and we can’t “pay for it.”
The claim that reductions in tax rates have a “cost” is ultimately an argument that we all work for the federal government. Politicians who decry the alleged cost – in their minds, a reduction in federal revenues – either do not understand the positive economic impact of low tax rates on growing the economy, personal wealth and the federal coffers, or, they want to deceive the public. I think the latter.
At the 2006 Conservative Political Action Conference, Vice President Cheney stated that the 2001 and 2003 tax rate cuts contributed to an historic surge in federal revenues. Cheney was correct. The Heritage Foundation found that capital gains tax revenues doubled following the 2003 rate cut. Tax revenues in 2006 were 18.4 percent of gross domestic product, a percentage that is above the 20-year, 40-year, and 60-year historical averages.
Though Cheney is correct, he is, in fact, making the wrong argument for low tax rates. Supporters of low to zero tax rates on income are not necessarily fans of more taxpayer dollars poured into the congressional trough.
Big government advocates focus the argument on taxation levels and not on federal spending, which is the real root cause of budget deficits. Look at your personal finances. No matter your level of income, if you spend 100 percent of your money and max out your credit cards you have a personal budget deficit. If you spend only that amount of income needed for necessities, you run a personal surplus.
The problem is not in the amount of income, but in the amount of spending. When members of Congress argue that lower income tax rates will cause budget deficits, they are acting disingenuous to say the least.
The entire 20th Century is a testament to the folly of believing that the Marxist philosophy of “from each according to his ability, to each according to his needs” can outgain or outlast a governmental form that pledges to protect individual rights and the pursuit, but not the guarantee, of happiness.
Political rhetoric around the issues of taxation and spending, the two issues from which Congress derives its power, will be with us as long as politicians have to stand for election.
Deceptive rhetoric is a reality, but it can’t distort reality for truly informed voters. We just need more of them.
Herman Cain is the National Chairman of the Media Research Center’s Business & Media Institute. He is the former president and CEO of Godfather’s Pizza, Inc., and currently is CEO and president of T.H.E. New Voice, Inc., a business and leadership consulting company.
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