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Tax Cutting, Washington-Style

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The House Republicans’ proposed tax cut, which looks doomed in the Senate, is an outrage. It’s so small it would barely show up on the budget radar screen. This makes absolutely no sense. If President Clinton is determined to veto a tax cut, as he says he is, at least make him veto a real cut. There’s no point going to the barricades for crumbs.

The House passed an $80 billion tax-reduction package. But that’s stretched out over five years. That means the annual reduction in revenue is a mere $16 billion–less than 1 percent of the $1.7 trillion the federal government plans on raking in. They call that a tax cut? Even so, the Senate is having trouble coming up with enough votes and is talking about a microscopic $6 billion package.

The House GOP would achieve its “cut” through a variety of devices. For example, the package would reduce the “marriage penalty,” permit the self-employed to deduct all of their health insurance costs, and exempt some interest and dividends. Well, okay. That would save some people a bit of their own money. But it smacks of gimmickry. The rest of the House bill confirms the suspicion. It’s filled with manipulative tax exemptions and credits. For example, it extends tax credits currently available to employers who hire former welfare recipients or people from so-called targeted groups, such as veterans.

The Republicans should be ashamed of themselves! They used to denounce use of the tax system to achieve “social objectives.” Yet here they are doing it themselves all over the place. It’s right out of the Clinton playbook. It was Clinton who came into office declaring “no more something for nothing,” by which he meant there would be no more tax cuts without strings. All of his “tax cuts” have been along those lines. Jump through government hoops and the politicians let you keep a little more of your hard-earned money.

Clinton apparently has spooked the Republicans. In his state of the union address, he said the anticipated budget surplus should be used not to cut taxes, but to save Social Security. Of course, he also proposed lots of new spending.

The president glosses over a number of inconvenient facts. First, the surplus is illusory. The federal debt continues to climb. Economist Roger Garrison of Auburn University points out that the alleged surplus was achieved by an accounting trick–shifting the temporary Social Security surplus to the general account. Second, even if there were a real surplus, it would largely be the result of the surge in tax receipts in recent years created by the American people’s productive activities. The government is taking the highest percentage of GDP it’s taken in many years. It’s our money and we should have it.

As for Social Security, we shouldn’t be trying to save it. People can best look after their own retirement if they are free to make decisions in a booming economic environment. The way to bring that about it is to scrap the doomed “pay as you go” government pension plan, lift the burden of government, and let people invest their money where they can expect a real return.

The tax-cut issue has been poisoned by the erroneous belief that cuts must be paid for. The House Republicans fall prey to this fallacy.

Where did we get this idea that it costs money to let the taxpayers keep what they have earned? Tax cuts are free. Just leave the money in the taxpayers’ pockets.

Of course, government programs cost money. But most of what the federal government spends money on does harm to us and our economic activities. So cutting–better yet, repealing–taxes gives us a double benefit: the money and the elimination of inane spending programs.

Let’s face up to it: the Republicans and Democrats are both big-government parties. If either of them really supported freedom and prosperity, they’d be pushing not for minuscule tax reductions but for repeal of the confiscatory and inquisitorial income tax.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.