Last Updated:July 30 @ 10:57 am

Sowell: Playing Chicken on the Cliff

By Thomas Sowell

One of the big advantages that President Obama has, as he plays "chicken" with the Congressional Republicans along the "fiscal cliff," is that Obama is a master of the plausible lie, which will never be exposed by the mainstream media-- nor, apparently, by the Republicans.

A key lie that has been repeated over and over, largely unanswered, is that President Bush's "tax cuts for the rich" cost the government so much lost tax revenue that this added to the budget deficit-- so that the government cannot afford to allow the  cost of letting the Bush tax rates continue for "the rich."

It sounds very plausible, and constant repetition without a challenge may well be enough to convince the voting public that, if the Republican-controlled House of Representatives does not go along with Barack Obama's demands for more spending and higher tax rates on the top 2 percent, it just shows that they care more for "the rich" than for the other 98 percent.

What is remarkable is how easy it is to show how completely false Obama's argument is.  That also makes it completely inexplicable why the Republicans have not done so.

The official statistics which show plainly how wrong Barack Obama is can be found in his own "Economic Report of the President" for 2012, on page 411. You can look it up.

You may be able to find a copy of the "Economic Report of the President" for 2012 at your local public library. Or you can buy a hard copy from the Government Printing Office or download an electronic version from the Internet.

For those who find that "a picture is worth a thousand words," they need only see the graphs published in the November 30th issue of Investor's Business Daily.

What both the statistical tables in the "Economic Report of the President" and the graphs in Investor's  Business Daily show is that (1) tax revenues went up-- not down-- after tax rates were cut during the Bush administration, and (2) the budget deficit declined, year after year, after the cut in tax rates that have been blamed by Obama for increasing the deficit.

Indeed, the New York Times reported in 2006: "An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year."

While the New York Times may not have expected this, there is nothing unprecedented about lower tax rates leading to higher tax revenues, despite automatic assumptions by many in the media and elsewhere that tax rates and tax revenues automatically move in the same direction. They do not.

The Congressional Budget Office has been embarrassed repeatedly by making projections based on the assumption that tax revenues and tax rates move in the same direction.

This has happened as recently as the George W. Bush administration and as far back as the Reagan administration.  Moreover, tax revenues went up when tax rates went down, as far back as the Coolidge administration, before there was a Congressional Budget Office to make false predictions.

The bottom line is that Barack Obama's blaming increased budget deficits on the Bush tax cuts is demonstrably false.  What caused the decreasing budget deficits after the Bush tax cuts to  suddenly reverse and start increasing was the mortgage crisis.  The deficit increased in 2008, followed by a huge increase in 2009.

So it is sheer hogwash that "tax cuts for the rich" caused the government to lose tax revenues.  The government gained tax revenues, not lost them.  Moreover, "the rich" paid a larger amount of taxes, and a larger share of all taxes, after the tax rates were cut.

That is because people change their economic behavior when tax rates are changed, contrary to what the Congressional Budget Office and others seem to assume, and this can stimulate the economy more than a government "stimulus" has done under either Bush or Obama.

Yet there is no need to assume that Barack Obama is mistaken about the way to get the economy out of the doldrums. His top priority has always been increasing the size and scope of government.  If that means sacrificing the economy or the truth, that is no deterrent to Obama. That is why he is willing to play chicken with Republicans along the fiscal cliff.

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Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His Web site is www.tsowell.com.

COPYRIGHT 2012 CREATORS.COM

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4 Comments

  1. mysticComment by mystic
    December 5, 2012 @ 1:39 pm

    Wonderful article… put so cleanly and precisely. What boggles my mind, is many on capital hill KNOW this information, and choose to spread the ‘lie’ anyway. My question is why?

    Nancy Pelosie (shiver) Harry Reid, the whole of the Obama Admin, Timothy Geitner, Axlerod…they all know what they are spewing is pure foolishness. So what is the real agenda here by using the fiscal cliff as their bludgeoning tool?

    Congress, by design, are the body of government that holds the purse strings. When at an en passe within that body, the Senate may revise and resubmit a budget proposal (Something Reid refuses to do since 2009 btw)that is then reworked, revised or taken on face value in the Congressional House..the final budget then going to the Presidents desk. This isn’t hard…it’s how we’ve done it for literally centuries.

    So why now? Why this lie? Why this huge push? As Rahm Emanual (sp?) used to say, “Never let a good crises go to waste.” I would truly be revolted to think that Obama and et al are merely playing some sort of political chess…hoping to gain their way like some simpering spoiled child forcing the issue.

    Republicans and Blue Nose Dems had better hold firm to their ideals. They are gonna need um to survive this next round of vollies by the Obama admin. Be sure to hold ‘their’ feet to the fire and make sure your voice is heard so that your representative knows, he or she votes for Obama’s plan at his or her political peril. Time for financial conservative to say ‘enough is enough’!

    ….and Obama thought the tea party ideology was scary…he ain’t seen nothing yet!

    ~M

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  2. wallybluComment by wallyblu
    December 5, 2012 @ 3:28 pm

    If Government control and taking over business decisions worked the USSR would control the world today.

    There has never been a successful socialist or communist country. Why does our President and the Democratic party not realize that? Our politicians can’t realize that because most of them have never run anthing but a campaign.

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    • BobinmsComment by Bobinms
      December 6, 2012 @ 1:57 pm

      Hard times bring the socialists and communist out of the woodwork. Historically most socialist and communistic governments are founded during period of economic strife. As for Obama, he is what he was raised to be. His grandparents were communists who raised his mother as such, who did the same with Obama. As the song says “its a family tradition”.

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  3. BobinmsComment by Bobinms
    December 6, 2012 @ 1:50 pm

    If you just look at the tax rates before Bush’s tax cut for the rich and the rates after, you can easily see that its Obama’s newly discovered middle class that benefited most. Here are the rates.

    Before After Change
    Lowest Rate 15% 10% 5%
    Mid rate 28% 15% 13%
    Top Rate 31% 25% 6%

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