Thoughts on the Tax Rate Debate
By Doug Edelman
December 13, 2010
As the expiration of the Bush Era Tax Cuts looms and Congress debates what to do next, it is perhaps useful to revisit the facts, and some basic understanding of what they mean.
Let’s first establish the fact that the current issue is not one of tax CUTS. We’re talking about existing tax rates that have been in force for a decade. No one is talking about cutting taxes for the rich. The issue is whether to allow automatic tax increases to take place… and whether to shield anyone or everyone from these automatic increases. If these Obama Tax Increases take place, they will represent the largest tax hike in American History!
Conservatives take the position that it is unwise and unproductive (not to mention unfair) to raise taxes on anyone at all during a period of economic turmoil such as we are currently experiencing. Further, it would do damage to the employment prospects of the working classes if more of the income of those in a position to create jobs were to be confiscated in taxes!
Liberals take the position that only the so-called “middle class” deserves to have their tax rates preserved, and that the “rich” (defined as those earning over $250K annually) aren’t paying their fair share and should have their taxes raised.
Before going into the dry economic realities that are embodied in these diametrically opposed positions represent, let me first share a parable which has made the circuit of viral email. It very clearly and accurately portrays our “progressive” tax system in a way even a Liberal steeped in Academia and Leftist Propaganda can understand it.
Given the fact that 40% of American wage earners pay NO income tax, and in fact, some receive back money in credits that exceed any withholding contribution, we can see that the progressive tax structure already soaks the rich and executes a form of wealth redistribution!
Given the fact that the top 1% of wage earners pays almost 30% of the tax bill, and the top 10% pays nearly 60%... how can anyone argue they don’t pay their “fair share?”
Class warfare is simply jealousy combined with the Democrat fostered myth that the economy is a Zero Sum Game. For someone to have more, someone else must get less. This is patently untrue, but the myth feeds the narrative.
The other myth Democrats propagate is that tax rates are directly proportional to revenues. This has been disproven every time tax cuts have been tried! Tax rates affect economic activity. lowering tax rates spurs economic growth, and results in an increase in tax revenues. Kennedy proved this. Reagan proved this. Bush proved this. It happens every time it’s tried. Deficits are never a function of revenues; they are a function of spending. Under Reagan, tax cuts doubled revenues, yet the deficit went up because the Democrat-controlled Congress spent $1.84 in new spending for every $1 of new revenues!
It is essential to remember that it is the very populace the Democrats seek to slap with punishing tax increases that are the engine behind hiring and job creation. Whether the $250K+ person is a business owner, who will hold off expansion and hiring, or whether (s)he simply won’t hire a maid or buy a luxury item that wage-earners work to produce… jobs are dependent on the wealthy!
Let me give you a real-world example of how taxing the “rich” hurts the middle class:
During the 80s there was a “soak the rich” sentiment that resulted in a luxury tax being levied upon “yachts” – pleasure boats of a certain size that lawmakers deemed out of the reach of the middle class, and a conspicuous luxury “toy” of the hated rich.
The class warriors were pleased when this tax was passed. The “rich” would be punished for their extravagance.
But what happened?
The “rich” found other toys for their distractions. Instead of paying the higher taxes for their yachts, they stopped buying yachts.
Boat makers laid workers off. Marinas let workers go. Boat Sellers closed up shop. Boat repair shops lost business. Restaurants near marinas lost business. Once thriving communities, whose economic well being depended on the commerce generated by the yachting populace were all negatively impacted.
Oh, and there was also little in the way of additional tax revenue generated by the tax, as so few yachts actually sold!
Who wasn’t hurt? The rich! They simply found other ways to spend their money!
But those who were hurt complained, loudly, to Congress. The result? That failure of a Luxury Yacht Tax was repealed!
Congress must begin to understand that the power to tax is not given them to control people or to redistribute wealth. The constitutional power to tax is only to raise revenue for the legitimate expenditures on the legitimate activities of the Federal Government. And if it isn’t in Article II of the Constitution – it isn’t a legitimate activity!
Raising taxes ANY time is a bad idea. It does not enhance revenue. It puts an ankle weight on those who are the runners in our economy. But raising taxes on the engine of job creation during what could be argued as the worst economy since the Great Depression is suicidal.