Thursday, May 11, 2006

It is very reassuring that Republican negotiators in the House and Senate have reached an agreement to extend President Bush’s cuts in tax rates on dividends and capital gains.

Equally reassuring, the negotiators plan to liberate as many as 15 million middle-income Americans from the impending burden of the alternative minimum income tax. Now the unparalleled economic growth that has characterized the U.S. economy since the early 1980s can proceed. My only question is why?

Why did the Republicans extend these tax cuts? Many are the same solons who offered the embarrassing quackery of a $100 rebate to ameliorate high oil prices. I doubt politicians who think a $100 rebate is a sound economic response to an oil price increase reflecting the scarcity of oil really understand the value of marginal tax cuts. They put me in mind of President Jimmy Carter offering Americans rebates as a response to his opponent’s offer of tax cuts in the 1980 presidential race. Such politicians have enjoyed enormous economic growth since Ronald Reagan’s tax cuts that followed his election but apparently do not know where the growth comes from.

We saw the growth rev up again early in the Bush administration following his tax cuts, the ones now extended. The president says we cut taxes to “put money into the tax payers’ pockets.” But there is more to it. We cut taxes to increase economic activity, to reduce the burden of taxation on workers to encourage their increased output.

We cut taxes on investments, stocks and dividends to increase investments, stocks and dividends — to increase wealth. That is what has been happening — for two decades.

Democrats — and I fear many Republicans — think we cut taxes to reward the rich. Democrats would raise taxes to punish the rich and to increase tax revenue for their favorite projects. Perhaps they could find some other way to punish the rich. Their demagoguery impedes economic growth and — in their phrase — “revenue enhancement.”

Those of us who favor tax cuts can now look proudly at the recent record of tax payments. According to the Treasury Department’s monthly report, tax receipts were up 11.2 percent for the first seven months of fiscal 2006. That is $137 billion. In fiscal 2005, tax receipts were up 14.6 percent, which is $274 billion.

These increases are a great surprise to those Democrats and Republicans who insist tax cuts cause deficits. Holed up over at the Congressional Budget Office (CBO), their minions after tax cuts issue predictions of puny revenue growth that are always gloomy and always wrong. The CBO’s recent predictions for fiscal 2006 were $76 billion for the whole year for individual tax receipts and $24 billion for corporate receipts. Seven months into the year the respective figures are already $56 billion and $40 billion.

Unburdened by high taxes, the rich paid more in taxes. By lowering marginal tax rates, we have encouraged economic vigor and put more money in the government’s hands. This we call Supply-Side Economics. Yet many Republicans remain agnostic and many more Democrats are contemptuous of it. This is a cultural problem. In the culture of economic ideas, many on Capitol Hill will not look at the evidence of the last two decades. They live in an era of great prosperity and do not know how they arrived at it.

There is a bigotry against the term Supply-Side Economics. That is the only way to explain it. The prejudices of those who for decades have believed what is best for society is a government that taxed and spent restrain them from reviewing the mounting evidence to the contrary.

Prejudice and bigotry are not all that unusual in the human condition. In modern governance, however, it is unusual to see an orthodoxy remain influential so long after proven false. That the orthodoxy of tax and spend is still dominant on Capitol Hill I have no doubt. This is why for me the Republicans’ extension of the tax cuts is a kind of miracle.

R. Emmett Tyrrell Jr. is the founder and editor in chief of the American Spectator, a contributing editor to the New York Sun, and an adjunct scholar at the Hudson Institute. His latest book is “Madame Hillary: The Dark Road to the White House.”

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