“MANY members of the other party believe that prosperity comes from the top down,” President Obama said in his Rose Garden speech Monday, “so that if we spend trillions more on tax cuts for the wealthiest Americans, that that will somehow unleash jobs and economic growth. I disagree. ... I believe our prosperity has always come from an economy that's built on a strong and growing middle class ...”
This passage, from a speech in which Obama advocated higher taxes on those making more than $250,000 per year, contains at least three important fallacies. But set aside for a moment Obama's misleading equivocation between lower tax rates and “spending trillions.” Also set aside the absurdity of this president, whose central economic planning has wasted billions on failed and failing solar power firms, complaining about a “top-down” economic policy. Focus instead on the straw man that Obama erects — that of so-called “trickle-down economics.”
Conservatives do not (or at least should not) mistake lower marginal tax rates for some kind of magic elixir. They do not support tax cuts because there is a massive public benefit, per se, to having the wealthy pay less. The argument for lowering marginal tax rates is that when such rates are too high, they become an obstacle to businesses' expansion and, by extension, hiring. By lowering marginal tax rates, lawmakers can remove at least one reason for business owners and investors to keep capital on the sidelines — which is where a lot of capital is right now.
The argument against Obama's plan to raise the top marginal tax rate is that it will come as a punch in the gut to small business — a very large and important part of the U.S. economy. Obama's proposed tax hike will apply to 53 percent of all business income, according to the nonpartisan staff of the congressional Joint Committee on Taxation, guaranteeing a lower rate of return on investment.