Obama tax deal: Watch your language, tax cuts don't cost government a dime.

It’s the taxpayers’ money, not the government’s. That none-too-subtle distinction is at the heart of the language used to describe the proposed extension of the Bush-era tax rates.

And that distinction is important – from both an ideological and economic standpoint. When the money stays with taxpayers, especially through reductions in tax rates, the economy grows more rapidly. Workers and businesses face better incentives to work and produce, raising output and incomes – and ultimately tax revenues. In the end, the revenue loss from tax relief is significantly reduced by the revenue gained through a stronger economy.

That’s not to say that tax cuts pay for themselves. That’s rarely the case. But pro-growth tax cuts reduce revenues by a lot less than the typical “static,” or economically blind estimates typically driving debate in Washington suggest.

Bush tax cuts 101: Who will get what if Obama deal passes?

The alternative is for government to treat tax money as its property, claiming an ever-greater share, slowing economic growth, and thus actually cutting into tax receipts.

One Minute Debate: Should all the Bush tax cuts be extended?

Taxes dont 'cost' government

Another aspect of this distinction relates to the word “cost” in the context of tax policy. Many commentators have misused the word “cost” in commenting on the grand tax compromise between President Obama and the congressional Republican leadership. Language can be very revealing. When the President or, say, The Washington Post talks about lower tax rates “costing” money, they reveal a fundamentally erroneous view: that government somehow has first claim on our money – that it somehow “belongs” to the government, rather than the person who earned it.

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