Candidates should be careful in describing tax cuts

By W. James Antle III
web posted January 24, 2000

As is the case with so much of what Republicans try to do, the Republican presidential candidates are setting up their own tax-cut proposals for attack and defeat.

Liberals contend that even the smallest tax reductions necessarily drain an excessive amount of money from the public sector, dooming important government projects so that the American people end up with everything from Social Security insolvency to melting polar ice caps.

This writer finds it difficult to fathom the mind set required to believe we are better served by such vast amounts of money being in government rather than private hands. But the argument is absurd even on its own terms. The tax-reduction proposals under examination generally aren't particularly large compared to the anticipated revenue stream and they focus on lowering rates. Tax rates should not be confused with tax collections, and lower rates do not necessarily produce lower yields.

President Ronald Reagan signed legislation lowering marginal tax rates 25 per cent across the board, yet this legislation cost less than one-third of the static projection. Between 1983 and 1989, inflation-adjusted personal income tax receipts increased by 5 per cent annually. Even though the top tax rate was 70 per cent in 1981 and 28 per cent in 1989, overall tax collections nearly doubled during that time period.

The point is, when people see the after-tax return on each additional dollar they earn change, they will likely alter their economic decisions. This ultimately effects tax collections.

Characteristically, the Republican candidates are working to reinforce rather than dispel the liberal arguments. George W. Bush touts his $483 billion tax cut. John McCain suggests his $250 billion tax cut would be more reasonable. Even Steve Forbes, who knows better, is getting into the act, claiming his flat tax is a $648 billion tax cut and as such is the biggest tax cut of them all.

Surely, the numbers are easier for voters to understand than setting forth all the details of each proposal and show just how darn big these cuts really are. But they are also ammunition for statists who oppose tax reduction under any circumstances. The economic case for lower rates, as opposed to the even more potent moral one, is that increased incentives will lead to faster growth and better living standards. What these rate reductions will ultimately do to tax collections is unknown and dependent on how fully Americans respond to the incentives.

Collections may increase. They will likely decrease, given that rates today are already much lower than when President Reagan took office. But there will certainly be a reflow of revenue back to the treasury from the enlarged tax base to at least partially offset what is lost from the rate cuts.

Forbes' flat tax is most vulnerable to this criticism. First, it was actually designed to be virtually revenue-neutral under any intelligent projections. The candidate is at variance with one of the most attractive aspects of his own plan. Hence, he gives credence to those who bleat about how we can't “afford” tax reform of such scope. Secondly, the flat tax will likely increase incentives and economic growth the most of the major plans, making it the most likely to actually increase revenues. Finally, we all know Forbes isn't proposing the biggest tax cut in the race anyway. Alan Keyes proposes abolishing the income tax altogether and returning to the tax collection system of the original Constitution.

All of this is not to say that reducing the federal Leviathan's income would be a bad thing. Indeed, Keyes is correct to both call for an end to the income tax and a restoration of the Constitution as traditionally understood. That is an authentic conservatism. But that sort of conservatism sadly will be too much to ask of the Republican nominee.

If we must settle for a smaller tax cut, then we should settle for one that passes rather than one that is defeated. The odds of such passage would improve if candidates would actually understand the arguments for their own policies and articulate them convincingly.

Antle, a Massachusetts native, is a former researcher for the Rhema Group, an Ohio-based political consulting firm. Comments may be e-mailed to Jimantle@aol.com.

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