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AT ISSUE
- September 2003
Who's Rich? Congressman Patrick Kennedy, a Rhode Island Democrat, recently declared, “I don’t need Bush’s tax cut” and added that he had never worked a day in his life. Whatever political points such rhetoric may score, it confuses issues that are long overdue to be clarified. One of the most basic confusions is between income and wealth. You can have high income and low wealth or vice versa. Income tax cuts apply to income, not wealth. High tax rates hit people who are currently earning high incomes – usually late in life, after having worked their way up in their professions. Genuinely rich people who have never had to work are unaffected by income taxes, except on what they are currently earning, which may be a fraction of what they own. Even estate taxes can be minimized by hiring ingenious lawyers and accountants. In other words, soak-the-rich tax rates do not soak the rich. They soak people who are currently earning the rewards of having contributed to the economy. One of the enduring political myths of our generation has been the claim that the rise of federal deficits during the 1980s resulted from President Ronald Reagan’s “tax cuts for the rich.” Tax rates were cut. Tax revenues were not. More tax revenue was collected during every year of the two Reagan administrations than had ever been collected in any previous year in the history of the country. When Kennedy cut tax rates during the 1960s, tax revenues also went up. The whole point was – and is – to encourage more economic activity, and more activity generates more tax revenues, even at lower rates. The same thing happened back in the 1920s. Why then were there federal deficits during the Reagan administration? Because Congress spent even more money than the rising tax revenues brought in. Although these were christened “the Reagan deficits,” all spending bills originate in the House of Representatives. Only after the Republicans gained control of the House in 1994 were there budget surpluses – for which Bill Clinton took credit. It is fascinating to see Congressional Democrats, who have for decades been spending the country into growing deficits, suddenly expressing shock at the current deficits that have occurred while George W. Bush was in the White House – and the country was at war. How serious are
these deficits? As with all debts, the burden depends on what your income
is. As a percentage of national income, today’s deficits and national
debt are far below what they were when Democrats were doing the spending.
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Copyright 1996-2003, by Kentucky Business Online. All rights reserved. Editorial content
is copyright 2003, Lane Communications Group The Lane Report is a trademark of Lane Communications Group. All other trademarks are the property of their respective owners. |
