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Republicans hoped to make their tax-cut bill a key issue in the
upcoming election. They expected it to be the symbol that would divide
them from the tax-and-spend party. So far, however, the GOP has not been
successful. There is no evidence of a grass-roots support for their
ballyhooed tax cut.

How can we account for this? The liberal media claim voters are back
in love with big government, and happy to pay for it. But this is
nonsense: taxes wouldn’t be taxes unless they entailed force, which
means coercing people against their will. The lack of voter enthusiasm
is more likely due
to a public intuition about what the experts are only recently
discovering.

It comes down to this: the more you look at the tax bill, the more
its supposed merits evaporate. I’ve already discussed the lie about its
large size (it’s a puny 1 percent over 10 years), its trick of
backloading the tax cuts (you won’t see them for many years), its
recession-based escape hatches (an economic downturn voids the entire
deal), and its non-binding legal status (the next Congress can repeal it
on a dime, just as in the past).

But there’s much more in the details that emerge from the conference
committee, where powerful members are known to sneak provisions into the
text that neither house voted on, and which usually slide through in
final votes. The super-sleuth economist who has been digging through
this is Bruce Bartlett, a senior fellow at the National Center for
Policy Analysis and an adjunct scholar of the Ludwig von Mises
Institute
.

He’s already exposed the “revenue-neutral” inheritance-tax caper at
the heart of one of the most trumpeted aspects of the reform. It doesn’t
abolish the tax; it reconfigures it so that the heirs pay in other ways,
through an accounting nightmare that may make people long for the days
of a flat death tax. Republicans are supposed to get the credit for
killing the estate tax even as they rip-off families in a more
complicated fashion, so the government’s income doesn’t decline.

Bartlett’s newest discovery relates to the equally trumpeted indexing
of the capital-gains tax. Indexing, which already takes place for income
taxes, is the GOP’s consolation prize in its failure to abolish this
wealth-destroying tax. It allows the taxpayer to adjust the tax owed
based on the rate of inflation (yet another government-induced rip-off).
But the catch comes with which measure of inflation the Treasury
Department is entitled to use in figuring the rate of inflation.

Because there is no such thing as a scientifically measurable “rate
of inflation,” there are probably one hundred possible measures. The
most common is the Consumer Price Index, which takes a smattering of
consumer goods and measures their change over time. Through a series of
statistical
tricks (like adjusting prices for “quality”), Congress recently changed
the measure so that it does not go up as fast as it used to. This means
that tax brackets are not indexed as much either, meaning you pay more.

But now the Republican Congress has hit rock bottom in its use of
these dirty tricks. Every economist knows that if you really want to
disguise the rate at which prices are rising, use something called the
GDP Deflator. For decades, the Deflator has shown a slower rate of
inflation than the
traditional CPI or the re-jiggered one the 105th Congress invented.

The reason is that the Deflator measures prices across the entire
economy and at all levels of production rather than just what consumers
pay. In addition, the basis of the measure is the GDP itself, which
includes the capital stock owned by the government, which is not priced
according to
market standards. Because its scientific basis is so nebulous, the GDP
is constantly being revised. That also means that the Deflator is
constantly being revised, and usually in a downward direction.

So guess which measure the Republicans chose in conference committee
to calculate capital gains in real terms? You guessed it: the Deflator,
the one that will cause taxpayers to pay more and the government to get
more. This is unprecedented. In no other case is the Deflator used for
tax
assessment.

That provision seriously compromises the advantages of indexing
capital gains. But what happens when the Deflator is revised past the
tax period? Will taxpayers who have paid capital gains on stocks receive
annual bills from the tax collector in light of these revisions? Will
billions more pour
into the Treasury on the whim of some bureaucrat who decides to revise
the figures?

Bartlett speculates that the use of the Deflator instead of the CPI
was a slipup. But I doubt it. The pattern is too consistent. The
Republicans claim to be cutting our taxes, but when you look more
closely — in every case — a menacing devil pops up in the details. It
must be deliberate; otherwise, why are all the “mistakes” made to the
taxpayers’ detriment?

Even without knowing all these technical details, voters can be
forgiven for doubting that the Republicans are serious about cutting
taxes. Instead, the party manufactures some new tax-cut scheme every
couple of years, just before an election. The rhetoric does its job
(electing them back onto the federal payroll), and then the scheme is
dropped.

Voters aren’t being cynical; they are being realistic. Look at
elections over several generations and you see that tax cuts are a
constant item on the agenda. But over the same long run, taxes only go
higher.

No, the Republicans aren’t going to save us from high taxes now any
more than they did in 1994 or 1996. The final answer to curbing the
appetite of the central state will come from strategies more
far-reaching than any legislative gimmick.

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