Republicans, handed an opportunity for a slam dunk, instead boot the ball into the stands and strangle themselves in the net.
It's the easiest thing in the world to be a Democrat,but why does it have to be this hard to be a Republican?
Deflating the tax cut
Republicans hoped to make their tax-cut bill a key issue in the upcoming election. They expected it to be the symbol that would divide them from the tax-and-spend party. So far, however, the GOP has not been successful. There is no evidence of a grassroots support for their ballyhooed tax cut.
How can we account for this? The liberal media claim voters are back in love with big government, and happy to pay for it. But this is nonsense: taxes wouldn't be taxes unless they entailed force, which means coercing people against their will. The lack of voter enthusiasm is more likely due to a public intuition about what the experts are only recently discovering.
It comes down to this: the more you look at the tax bill, the more its supposed merits evaporate. I've already discussed the lie about its large size (it's a puny 1 percent over 10 years), its trick of backloading the tax cuts (you won't see them for many years), its recession-based escape hatches (an economic downturn voids the entire deal), and its non-binding legal status (the next Congress can repeal it on a dime, just as in the past).
But there's much more in the details that emerge from the conference committee, where powerful members are known to sneak provisions into the text that neither house voted on, and which usually slide through in final votes. The super-sleuth economist who has been digging through this is Bruce Bartlett, a senior fellow at the National Center for Policy Analysis and an adjunct scholar of the Ludwig von Mises Institute.
He's already exposed the "revenue-neutral" inheritance-tax caper at the heart of one of the most trumpeted aspects of the reform. It doesn't abolish the tax; it reconfigures it so that the heirs pay in other ways, through an accounting nightmare that may make people long for the days of a flat death tax. Republicans are supposed to get the credit for killing the estate tax even as they rip-off families in a more complicated fashion, so the government's income doesn't decline.
Bartlett's newest discovery relates to the equally trumpeted indexing of the capital-gains tax. Indexing, which already takes place for income taxes, is the GOP's consolation prize in its failure to abolish this wealth-destroying tax. It allows the taxpayer to adjust the tax owed based on the rate of inflation (yet another government-induced rip-off). But the catch comes with which measure of inflation the Treasury Department is entitled to use in figuring the rate of inflation.
Because there is no such thing as a scientifically measurable "rate of inflation," there are probably one hundred possible measures. The most common is the Consumer Price Index, which takes a smattering of consumer goods and measures their change over time. Through a series of statistical tricks (like adjusting prices for "quality"), Congress recently changed the measure so that it does not go up as fast as it used to. This means that tax brackets are not indexed as much either, meaning you pay more.
But now the Republican Congress has hit rock bottom in its use of these dirty tricks. Every economist knows that if you really want to disguise the rate at which prices are rising, use something called the GDP Deflator. For decades, the Deflator has shown a slower rate of inflation than the traditional CPI or the re-jiggered one the 105th Congress invented.
The reason is that the Deflator measures prices across the entire economy and at all levels of production rather than just what consumers pay. In addition, the basis of the measure is the GDP itself, which includes the capital stock owned by the government, which is not priced according to market standards. Because its scientific basis is so nebulous, the GDP is constantly being revised. That also means that the Deflator is constantly being revised, and usually in a downward direction.
So guess which measure the Republicans chose in conference committee to calculate capital gains in real terms? You guessed it: the Deflator, the one that will cause taxpayers to pay more and the government to get more. This is unprecedented. In no other case is the Deflator used for tax assessment.
That provision seriously compromises the advantages of indexing capital gains. But what happens when the Deflator is revised past the tax period? Will taxpayers who have paid capital gains on stocks receive annual bills from the tax collector in light of these revisions? Will billions more pour into the Treasury on the whim of some bureaucrat who decides to revise the figures?
Bartlett speculates that the use of the Deflator instead of the CPI was a slipup. But I doubt it. The pattern is too consistent. The Republicans claim to be cutting our taxes, but when you look more closely -- in every case -- a menacing devil pops up in the details. It must be deliberate; otherwise, why are all the "mistakes" made to the taxpayers' detriment?
Even without knowing all these technical details, voters can be forgiven for doubting that the Republicans are serious about cutting taxes. Instead, the party manufactures some new tax-cut scheme every couple of years, just before an election. The rhetoric does its job (electing them back onto the federal payroll), and then the scheme is dropped.
Voters aren't being cynical; they are being realistic. Look at elections over several generations and you see that tax cuts are a constant item on the agenda. But over the same long run, taxes only go higher.
No, the Republicans aren't going to save us from high taxes now any more than they did in 1994 or 1996. The final answer to curbing the appetite of the central state will come from strategies more far-reaching than any legislative gimmick.
Llewellyn H. Rockwell Jr. is president of the Ludwig von Mises Institute in Auburn, Alabama.
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