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Why the left is wrong on taxes and spending

February 17, 2006 | By Nathaniel Ward

 

You’ve heard it before from liberals, and you’ll hear it again. They continue to repeat the same tired arguments:

  • The wealthiest Americans are getting tax relief and the poorest Americans are getting the short end of the stick
  • Any spending cut, no matter how small, is devastating to the neediest
  • We wouldn’t need to make spending cuts at all if it weren’t for the tax cuts that were supposedly “for the rich"

This is all part of a liberal myth, one which Heritage’s Brian Riedl says is based on five factors:

  • The stereotype that Republican government automatically means less redistribution of wealth.
  • Automatic increases in entitlement spending on many programs, which means increases go unnoticed while attempts to trim the increases receive extensive media scrutiny since they need a separate vote.
  • Tax cut sunset laws that require Congress to pass a new tax bill merely to keep the current tax rates at the same level, which allows these bills to be misreported as “new” tax cuts.
  • The misleading focus on how tax relief saves wealthy taxpayers the most money while ignoring the mathematical reality that the bottom half of taxpayers cannot receive much tax relief because they already pay almost no income tax,
  • An erroneous belief that tax cuts for upper-income Americans substantially reduce the amount of tax that they actually pay. Indeed, there is little correlation between tax rates and taxes paid,

Riedl, Heritage’s Grover M. Hermann Fellow in Federal Budgetary Affairs, also points out that in the past 25 years,

  • The share of taxes paid by the wealthiest fifth of Americans has actually increased, from 56 percent to 66 percent
  • The share  of taxes paid by the middle three-fifths of Americans has declined from 41 percent to 33 percent
  • The share of taxes paid by the bottom fifth has declined from two percent to one percent—so the poor effectively pay no taxes

Meanwhile, the government has also substantially increased spending on social programs since President Bush took office. Yet, Riedl notes, “more money does not necessarily mean more progress. All too often, lawmakers measure compassion by how much money is spent rather than by whether a program actually improves people’s lives.”

This liberal myth remains dangerous. So long as people believe it, there will be pressure for tax increases that harm economic growth without substantially increasing revenue. Worse, America will not be able to enact the fundamental entitlement reforms it needs if liberals cannot even see past their own distortions.

States at the federal trough

Forty-nine states ran a budget surplus in 2005, and the fiftieth broke even exactly. Nevertheless, state governments are jostling for position at the federal troth to get even more money.

This is about more than spending. It’s about good government, too. “The more addicted to federal money state and local governments get,” Heritage President Ed Feulner wrote in his weekly column in The Chicago Sun-Times, “the less creative they become and the worse they govern.” If states can just pass off problems to the federal government, citizens lose accountability and state governments lose any incentive to improve what they do.

For example, the federal government’s gas taxes are redistributed around the country—but not where it’s needed most. “There's really no rhyme or reason to this income redistribution,” Feulner wrote. “Mississippi, the poorest state, pays more in gas taxes than it takes in. Connecticut, the richest state, gets more than it pays out.” There’s even a company that publishes a guide for governments who want to get federal tax money to pay for their local projects.

Since these states are so flush with cash, why not keep the money local in the first place instead of filtering it through Washington’s bureaucracy first? This fair and logical plan is exactly what Rep. Jeff Flake (R-AZ) proposed for the gasoline taxes in 2004: let the states manage their own tax money right from the start.

Why Britain and America need one another

Thatcher.jpgFormer British Prime Minister Margaret Thatcher, shown here addressing The Heritage Foundation's President's Club, epitomized the transatlantic Special Relationship.

Given the ineffectiveness of international organizations like the United Nations, America cannot rely on such groups to maintain international order, Britain’s Shadow Defense Secretary said Thursday in Heritage’s Lehrman Auditorium. Instead, America and Britain must work together and preserve the “Special Relationship” that has kept the two countries strong for the past several decades.

“Only America is taken seriously by tyrants and aggressors,” Liam Fox explained in the event sponsored by Heritage’s Margaret Thatcher Center for Freedom, adding that “Britain is America’s most reliable and effective ally.”

Fox’s Conservative might make Britain still a better ally in the war on terrorism. His party backs a strong British national defense (they oppose the defense cuts enacted by Tony Blair’s Labour government) and they support the continued deployment of British troops in Iraq and Afghanistan. And the Tories would be on America’s side against Iran, Fox said, since “it would be a huge and unacceptable risk” to allow Iran to develop a nuclear weapon.

Perhaps the greatest threat to the Special Relationship, he said, would be the integration of British national security into a European Union security policy. The goals of European institutions are not those of Britain—and could replace the Special Relationship “by stealth.”

As allies, he said, “America and Britain have helped remake much of the world in the image of freedom and liberty.” This unique cooperation should continue since “Britain and America trust one another, since we look at the world in the same way.”

In other news

Nathaniel Ward is the Editor of MyHeritage.org—a website for members and supporters of The Heritage Foundation.