“Even victors are by victories undone.”
— John Dryden
WASHINGTON — Democrats not allergic to arithmetic must know the cost of their “fiscal cliff” victory. When they flinched from allowing all of George W. Bush's tax rates, especially those on middle-class incomes, to expire, liberalism lost its nerve and began what will be a long slide into ludicrousness.
Those temporary rates were enacted in 2001, when only 28 House Democrats supported them, and in 2003, when only seven did. But with the “American Taxpayer Relief Act of 2012” — did liberals think about that title? — 172 House Democrats voted to make the Bush income-tax rates permanent for all but 0.7 percent of taxpayers — individuals earning more than $400,000 and couples earning more than $450,000.
Liberals could have had a revenue increase of $3.7 trillion over 10 years. Instead, they surrendered nearly $3.1 trillion of that. They cannot have repeated bites at this apple. They cannot now increase government revenues as a share of GDP through tax reform because Republicans insist that the Taxpayer Relief Act closed the revenue question. And because tax reform is dead for the foreseeable future, so are hopes for a revenue surge produced by vigorous economic growth.
No numerate person thinks today's entitlement state, let alone the steady expansion of it that is liberalism's aspiration, can be funded by taxing the income of the 0.7 percent of taxpayers whose rates were just raised. Or the 2 percent whose rates would have been raised had liberals and their president simply allowed the automatic increase of rates for individuals earning more than $200,000 and couples earning more than $250,000.
Because 82 percent of American earners pay more in payroll taxes than income taxes, no politically conceivable or economically feasible middle-class tax rate can fund the entitlement state. And America's political culture rules out funding it with new consumption or energy taxes. By rescuing almost everyone from restoration of Clinton-era rates, liberals abandoned any pretense of paying for their program of ever-expanding entitlements. Instead, they made trillion-dollar deficits their program.
From 1950 to 2000, economic growth averaged 3.6 percent; since then it has averaged less than 2 percent. Liberals think today's correlation between the slow economic growth and rapid governmental growth — including under George W. Bush — is a coincidence. Conservatives do not. And they note some recent actions, done in December's bright light of public attention and fiscal anxiety, which indicate that this government's indiscipline is incorrigible and shameless. Consider one detail in the Taxpayer Relief Act, and an issue pertinent to the aftermath of Hurricane Sandy.