Wednesday, December 15, 2010

Refraining from raising taxes is not the same as cutting them

There's been a lot of talk about the 2001 and 2003 tax cuts, the fact that they expire at the end of the year and the President Barack Obama-Republican plan to extend them for two years while also providing an extension of federal unemployment.

The description many opposed to the extensions have used is 'tax cuts for the rich.' I've already blogged (insert link) about how it's not about the 'rich' but about small business owners...

But the rhetoric around this subject isn't just about the tax 'cuts.' It's indicative of general bureaucratic - big government thinking.

The key point to understand is that refraining from raising taxes is not the same thing as a tax cut.

If you are not charged more for your water usage, you are not getting your water bill cut - or reduced.

If a gas station fails to raise the price from $2.75 to $3.00, you have not had a 'cut' in your gas price.

If you continue to pay your babysitter $4.00 per hour instead of raising it to $4.50, you've not 'cut' her pay.

This is the same thing that is happening with the current tax rates. Yes, they were lowered - FOR EVERYBODY!!! - in 2001 and in 2003. But these rates have been in effect now for 10 years. If Congress doesn't raise them back up, they are not giving a tax cut.

But if you follow the failed logic of politicians and bureaucrats, you can understand why they may think so.

Too many times, we've seen this accounting gimmick. For example:

An agency or department has a budget of $100 million. For their next year's budget, they request $125 million. But members of the legislative authority (Congress or a state legislature or a city council), debate setting their budget at $115 million. All of a sudden, everyone is talking about the fact that they just can't live with a $10 million cut.

Now, if you paid close attention, you'll see that they're actually getting $15 million MORE than what they had previously. That's just common sense to anyone who bothers to note the starting point. Unfortunately, it works to the advantage of politicians and bureaucrats to try to portray the situation as a $10 million cut rather than a $15 million increase.

And, sadly, too many Americans go along with the non-logical reasoning.

This is what is happening with the 2001 and 2003 tax cuts. Those opposed are saying that government cannot afford NOT to have that money. But they've been 'going without' for 10 years now - and the lack of those funds in the hands of the government rather than in the hands of the people who earned it, really hasn't stopped Washington from spending recklessly or doing whatever they wanted anyway. And it won't change now.

The current tax rates should be made permanent - not just extended for another two years. All an extension does is move the discussion into the future and allow Congress to continue the status quo instead of addressing the real problems of their massive debt and failure to curtail spending as they should.

***Aside: The Ludwig Von Mises Institute also makes the same point about the correct description of the pending tax hikes not being a 'cut.'

1 comment:

-Sepp said...

Reagan cut taxes from the Carter rate, Clinton increased taxes from the Reagan rate, Bush cut taxes from the Clinton rate...and the democraps want to increase them back to the Carter rate in order to reenact the 1979 economy?

I say "let em".
Let them repeat the SAME mistakes that put 12 years of republican policy back at the helm and over 2 decades of prosperity in action.

Every so often America needs some epic failures to run the show and remind the nation of why the democrats shouldn't be in charge of even a garage sale.

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