Government doesn't give tax cuts, it takes more or less taxes

Government doesn't give tax cuts, it takes more or less taxes

Wednesday the President spoke to a college crowd in favor of raising taxes on the rich to subsidize low interest rates on student loans. His comments provide an opportunity to explain the signficance of how one talks about taxes.

THE PRESIDENT:  How can we want to maintain tax cuts for the wealthiest Americans who don’t need them and weren’t even asking for them?  I don’t need one.  I needed help back when I was your age.  I don’t need help now.  (Applause.)  I don’t need an extra thousand dollars or a few thousand dollars.  You do.

Let’s assume you agree with the President — that a college student has a greater need for an extra thousand dollars than a rich person.  By itself that judgment does not mean that raising taxes on the rich to further subsidize student loans is good policy.  To make a balanced decision you also need to incorporate the harm done by taking money from someone, a factor the President’s quote ignores because it treats tax cuts as given rather than taxes as taken.

The President’s language assumes this thousand dollars originates with the government and that policymakers must choose either to give it to students to help pay for college or to give it to rich people.  Under this logic since we agree that the college students have a greater need, government should give the money to them.  In this framework resources belong to the government, the government should allocate those resources according to need, and the government gives tax cuts to people only when government officials determine these people need them.

This approach ignores that government gets this thousand dollars to spend only by taking it from someone.  This act of taking has costs — it harms the person from whom the government took the money and it weakens incentives to work and invest.

Am I drawing too strong of an inference from a single Presidential comment at a rally with a bunch of college kids, in which he doesn’t even say “give,” he says “maintain”?  I don’t think so.  A search of whitehouse.gov for “give tax cuts” turns up 171 hits.  Throw in “giving tax cuts” and you get another 77.  Yesterday’s Presidential remark emphasized the need comparison, while the giving tax cuts approach is a common Presidential refrain and one of his frequent underlying themes.

You may still think the President’s proposed policy makes sense — that the harm done to the rich guy by taking his money, combined with his need for it, is less than the college student’s need.  I’m OK if you reach this conclusion since you included in your evaluation the harm done to the person from whom the taxes were taken.  Maybe you assigned little value to it, but you did not ignore it completely.  President Obama appears to ignore this cost.  The same is true every time you hear an elected official refer to “giving tax cuts” to someone.  If  we accept that government gives tax cuts, then when government does not give tax cuts, no harm is done since no action is being taken.  If instead we acknowledge that government is taking more from someone, we must recognize the cost of that taking in our decision.

Government doesn’t give tax cuts, it takes more or less taxes.

The President’s language puts us on a slippery slope. Under this approach we treat all tax revenues as if they originate within the government.  We create moral parity between giving tax cuts and increasing government spending.  We trust government officials to reallocate society’s resources to those whom they determine most need it while ignoring the harm done by the taking.  By ignoring this harm we set no limiting principle on the government’s ability to take that which we earn and own and give it to others.  We make the rich pay more since they have greater ability to pay and less need.

At the end of this slippery slope we find a general principle:

From each according to his ability, to each according to his needs.

Karl Marx (Critique of the Gotha Program, 1875)

(photo credit: White House photo by Chuck Kennedy)

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