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Obama Understands Economics in Spite of Himself

It turns out that Barack Obama understands the economic good sense of the so-called “tax cuts for the rich.” How do we know this? From reading the following in today’s New York Times: “President Obama is considering whether to push early next year for an overhaul of the income tax code to lower rates and raise revenues in what would be his first major effort to begin addressing the long-term growth of the national debt.” Did you catch that? “[T]o lower rates and raise revenues.” It is the reality of that negative correlation — and not a desire to comfort the rich at the expense of the poor — that lies behind the proposal to keep the Bush tax cuts in place on higher incomes. Lowering tax rates does not mean lowering tax revenues.

Many conservatives understand that by lowering tax rates on the rich, you can raise tax revenues, because this makes people with higher incomes more likely to invest capital in taxable ventures. In fact, this happened under Coolidge, Kennedy, Reagan, and George W. Bush. What’s news is that Obama is, at least in principle, aware of it.

However, as evidenced by his reluctance to let this happen among those earning $1 million or more a year — where it would do the most to pay off the debt and stimulate the economy — he seems to think the fundamental rules of economics change when applied to rich people. At that point, something called “fairness” kicks in, like quantum physics, to change the understood workings of the universe. “Republicans are going to have to explain to the American people over the next two years how making those tax cuts for the high end permanent squares with their stated desire to start reducing deficits and debt,” he said. To paraphrase a great campaigner, his own explanation is the one he’s been waiting for.



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