Republicans must quit trying to appease liberals on tax reform. It is a battle they cannot win, in a war they must not lose. Simply, the left will never be satisfied with a broad income tax cut, because they view income taxes as mechanisms for wealth redistribution, as well as revenue generation.
H.L. Mencken defined a puritan as a person holding “the haunting fear that someone, somewhere may be happy.” Similarly American liberals fear someone, somewhere may be retaining too much of what they earn. Unsurprisingly, they are not predisposed to cutting taxes on these individuals.
Such predisposition serves well a left harboring the Occupy Wall Street movement and confronting a wealthy president. Liberals’ problem is their view that America’s tax code is rigged for the rich does not fit reality.
Even under a flat tax rate system, the individual making more pays more taxes – a person making 10 times as much as another, pays 10 times more in taxes – even with both paying the same tax rate.
However because America has a progressive tax code – taxing income at progressively higher rates at higher income levels – an increasingly larger share of income taxes is paid by higher income levels.
According to a 2017 Joint Committee on Taxation analysis, those making $40,000 or more pay 99 percent of total income taxes paid. Those making $100,000 or more pay 88 percent of all income taxes, and those making $200,000 or more pay 63 percent. Conversely, JCT shows those making below $40,000 pay negative income taxes.
It is hard for income tax cuts to not benefit those who pay income taxes. And with more income taxes paid – at increasing rates – by those making more income, it is hard for cuts to not follow suit.
This objective reality would not be such a stumbling block if the two camps did not have diametrically opposing views of taxes’ role.
Ben Franklin famously said, “in this world nothing can be said to be certain, except death and taxes.” His equation of the two captures the conservative view of taxes being a necessary evil. Cutting them is therefore good in itself. For conservatives, their reduction is also good economically because more revenue stays with the earner – a supply-side benefit where retained revenue is more productively used.
Liberals’ view is exactly the opposite. Rejecting that market forces lead to the best allocation – either most productive or fairest – of resources, they believe government is a better distributor. In order to increase government, liberals need more taxes.
However the left’s support of taxes goes beyond just the demand-side of funding government. They also see taxes’ value on the supply-side. Therefore taxes are not simply a necessary evil, but a positive because of their redistributive role. Taxing those at income levels the left deems to be high serves to level society’s “unfairness.”
Until Republicans understand the left’s view of taxes, they cannot grasp the futility of trying to address liberals’ reservations with tax cuts. For the right, taxes are a means. For the left, they are a means and an end.
Seeking to appease liberals on tax cuts will only cause Republicans to contort their product into bad politics and worse tax policy. Regardless of what they do, they will not win liberal support for a real tax cut. However in attempting to do so, they will divert a tax cut away from the economy it is needed to invigorate.
Instead of designing their tax cut to stimulate the economy, Republicans could mistakenly aim it at social policy for political purposes. This would equate to losing the war for the sake of an unwinnable battle. Such a move would have lasting repercussions, both on today’s economy and tax cuts’ political future.
After eight years of subpar growth, Republicans are poised to prove tax cuts’ efficacy like never before. It would be a shame, and have lasting political damage, to miss this golden economic opportunity for the fool’s gold of bad politics.
Published in Daily Times, November 6th 2017.