Freedomnomics

Article published Thursday, December 9, 2010, at Fox News.

The Democrats Flip-Flop On Tax Cuts

By John R. Lott, Jr.

For years, Democrats have bashed Republicans over tax cuts. Tax cuts supposedly did nothing to encourage work and, thus, when President Bush cut tax rates across the board, it only lined the pockets of the wealthy.

This rhetoric repeated over and over for the last decade. But now President Obama's tax rate agreement is creating massive confusion among Democrats and many Senators will cast their vote tonight in contradiction to their previously stated positions.

In September 2001, a New York Times editorial summed up the received wisdom of Democrats: "the Bush tax cut wasn't designed to fight a recession."

The very same editorial noted that Larry Summers, presently Obama's chief economic adviser, also opposed Bush's lower tax rates as he claimed it wouldn't help the possible recession the economy was then suffering.

Well, that was then, this is now. On Wednesday, Larry Summers told reporters that failure to maintain the Bush tax rates "would stall [the economy] and we would have a double dip" recession.

This morning President Obama said: ďevery economist that Iíve talked to or that Iíve read over the last couple of days acknowledges that this agreement would boost economic growth in the coming years and has the potential to create millions of jobs.Ē Whether Democrats say that they like part of the tax rates more than others, they are now claiming that overall the rates are necessary to encourage economic growth.

The shift in class warfare rhetoric has produced other amazing Democratic flips. Over the last decade, virtually every Democrat, including Nancy Pelosi, Hillary Clinton, and John Kerry, described the Bush tax rates as benefiting "only the wealthy," "a sop to the rich," or something for which "only the rich need apply."

The theme was prominent in President Obama's presidential campaign, where he promised overturning the unfair tax cuts given "the wealthy."

Suddenly now Democrats assert that the current rates must be extended because letting them expire would primary hurt lower income people. Take Lawrence O'Donnell's discussion Monday night on MSNBC with Senator Kent Conrad (D-ND), the chairman of the Senate Budget Committee.

O'Donnell: When you look at the lower rates, many of which have been ignored in this discussion, since people are only talking about the top bracket. It turns out in that scenario the highest tax increase would occur from the 10 to 15 percent bracket.

The lowest brackets would end up being hit with the highest percentage tax increase, which they would be paying on day one in January. Isnít that what the president has in mind? . . .

Conrad: Yeah, I think that the president understands absolutely that the people who would be the hardest hit, who would get the biggest percentage tax increase, are the very most vulnerable in our society.

Ironically, Senator Conrad previously attacked the Bush tax cuts as a "reckless" tilt towards the wealthy.

In 2001, he described them as "totally skewed to the top brackets."

Anyway, the truth is that lower rates encourage work, which helps the economy grow. But the Bush tax cuts also made the tax code more progressive, meaning that the marginal tax rates were reduced much more for low-income earners. Thus, even though high-income earners gained more tax relief in dollars, they also ended up paying a larger share of taxes. Lawrence O'Donnell is thus right: the Bush tax cuts reduced the tax rates the most for lower income individuals.

Unfortunately, the Democrats' still donít really understand how incentives work. And the House Democratís vote this morning to oppose the tax plan shows they donít accept the administrationís new arguments.

Temporarily keeping tax rates at their current level and then threatening increases in two years wonít stimulate the economy. Increasing marginal tax rates now would indeed be bad. But Democrats just donít seem to be able to understand that actual tax cuts are necessary to get people working even harder than they are now.

John R. Lott Jr. is a FOXNews.com contributor. He is an economist and the author of "More Guns, Less Crime (University of Chicago Press, 2010), the third edition of which was published in May.".

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