Lessons From the Lame-Duck Tax Rates Battle

[Geee]

American Spectator:

In the recent debate about ending or prolonging the Bush tax rates, the Democrats subtly staked out a new fiscal doctrine -- not increasing tax rates costs the government money and increases the deficit.

What we heard ad nauseam from President Obama and congressional Democrats was that keeping the Bush rates in effect for those earning more than $250,000 will "cost" the government $700 billion in lost revenue over the next ten years and increase the federal debt by the same amount. That supposedly is the difference in revenue generated by the top income Bush rate (35 percent) relative to the Clinton era top rate of 39.6 percent.

The Bush tax rates had been in effect for seven years and represent what had become the status quo. Although they were originally passed with an expiration date, that hardly makes them unique in any meaningful sense. Since tax rates have been increased and decreased numerous times in the past, no one could assume they are ever permanent, whether they have built-in expiration dates or not.

The top rate decreased under President Reagan (from 70 percent to 28 percent), increased to 31 percent under President G.H.W. Bush, increased to 39.6 percent under President Clinton, and decreased to 35 percent under George W. Bush.
If we are going to calculate revenue lost when tax rates are not increased by 4.6 percent, why stop there? Following the Democrat logic, it "costs" the government money whenever taxpayers are allowed to keep any of their earnings. Accordingly, any tax rates below 100 percent on everyone are costing the government money and adding to the national debt.