- - Friday, April 15, 2011

Leisure suits, New Coke, plus-size spandex, opening Al Capone’s vault on live TV, jorts, boy bands, the mullet. We humans have no shortage of bad ideas, but now it’s official: Raising taxes on “the rich” has become the dumbest idea in America.

The power to tax, as Chief Justice John Marshall famously said, is the power to destroy, and politicians lusting for that power long ago found that ripping the fabric of America by waging class warfare can win votes. The Democrats’ snake-oil cure-all is, “The rich must pay their fair share.” It’ll cure whatever ails you. Of course, who is rich and what is fair will be determined later - just drink the elixir.

Politicians have built entire careers on blurring the line between tax rates and tax revenues. The tax rate is, of course, the percentage at which, say, an income is taxed, while the tax revenue is the total amount of money the government collects. Just as lower prices in a discount store can paradoxically generate higher total profits for a retailer, lower tax rates often generate higher tax revenues. The converse is equally true, with higher prices and higher tax rates yielding lesser benefits.

Throughout time, class-warfare politicians have learned this critical distinction between tax rates and tax revenues the hard way. Economist Thomas Sowell described yet another recently failed “tax the rich” attempt in the state that calls itself “America in Miniature.”

When Maryland passed a higher tax rate on people earning $1 million a year or more, which took effect in 2008, the number of millionaires living in Maryland fell from nearly 8,000 to fewer than 6,000. Although it had been projected that the additional tax revenue collected from the rich in Maryland would rise by $106 million, instead those revenues fell by $257 million.

It has become increasingly obvious that to balance America’s national budget, we must cut spending and optimize tax revenues. The challenge is to find the tax rate that will best yield the necessary revenue. Consider these obvious scenarios: A tax rate of zero percent would yield zero in revenues, while a tax rate of 100 percent would also yield zero in revenues because no one would work for nothing. Americans aren’t stupid. Clearly, then, simply increasing tax rates will not always increase revenues.

This economic reality spares no political party. When Democratic President Kennedy and Republican Presidents Reagan and George W. Bush reduced income tax rates, total tax revenues coming into the Treasury increased because, as JFK explained, “a rising tide lifts all boats.” When Democratic Presidents Carter and Clinton and Republican President George H.W. Bush raised income tax rates, total tax revenues fell. The same holds true for other types of taxes. Reagan’s capital-gains tax increase reduced revenues, while tax-rate reductions instated by Mr. Carter, Mr. Clinton and George W. Bush yielded increased revenues.

Economics 101 students have long understood this concept. In fact, even John Maynard Keynes himself, the Democrats’ high economic priest of big government, acknowledged that “taxation may be so high as to defeat its object.” In a 2008 presidential debate, when candidate Barack Obama was presented with these undeniable facts and asked why he would possibly still favor nearly doubling the capital gains tax rate, he replied, “… for purposes of fairness.”

It’s chilling to hear any politician, let alone a soon-to-be president, openly declare that he would sacrifice America’s fiscal well-being in order to impose his will. Sure enough, President Obama unveiled what his true notions of “fairness” really are with what health care economist David Catron calls his “dispensations”: Obamacare waivers for union friends and stimulus funds for cronies; in short, the unholy practice of government picking and choosing winners and losers among Americans.

These economic realities, as critically important as they are, are not new. So why has the issue of tax increases on the rich become the dumbest idea in America? Because the economic gravity finally has changed the political reality. In the past, politicians certainly knew that their class warfare was harmful to America, but at least, they rationalized, it garnered votes. It seems those days are changing.

President Obama, in addition to his new Obamacare taxes, now calls for tax increases on “the rich” - the very taxes he proudly prevented just four months ago. In a deeply dishonest speech, the class-warrior-in-chief proclaimed that “we cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society.” He repeated, “We can’t afford it.” First, Americans earning $200,000 are not “millionaires and billionaires.” Second, to claim we can’t afford to permit free citizens to keep their own earnings is to claim that those earnings belong not to the Americans who earned them but to the government that did not. And third, the “$1 trillion worth of tax cuts” is a flat-out fabrication. Tax revenues under President Bush were actually much greater than those collected under President Clinton - nearly $5 trillion more. Once again, economic reality makes fools of class-warfare politicians and their dishonesty about tax rates and tax revenues, but Americans are finally catching on.

According to a recent Gallup poll, Mr. Obama’s approval rating for the first time ever has fallen below 50 percent among the poorest Americans. This wasn’t supposed to happen. Perhaps those Americans, in the Obama era of 18 percent underemployment, understand that JFK’s rising tide really does lift all boats. Perhaps, too, those Americans understand something about true fairness as it applies to taxes (and everything else) that Mr. Obama does not: All Americans should play by the same rules and be judged by the same standards.

Dr. Milton R. Wolf, a Washington Times columnist, is a board-certified diagnostic radiologist and President Obama’s cousin. He blogs at miltonwolf.com.

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