It’s tax time, so expect a ton of tax-related articles and op-eds over the next few days. Don’t worry. All interest in the subject will be gone by Thursday.
In the meantime, former Bush Press Secretary Ari Fleischer has a WSJ op-ed arguing that our tax collections are too skewed towards the higher end and that the the middle and the poor don’t pay enough. His argument is that it’s just plain bad that 50% of the population don’t pay income taxes — that they don’t have their skin in the game. That it’s fundamentally bad for democracy.
It’s pretty much the opposite of what Obama and the left are saying, that the key to raising revenue is to put an even greater burden on the few folks at the top of the pyramid.
According to the CBO, those who made less than $44,300 in 2001 — 60% of the country — paid a paltry 3.3% of all income taxes. By 2005, almost all of them were excused from paying any income tax. They paid less than 1% of the income tax burden. Their share shrank even when taking into account the payroll tax. In 2001, the bottom 60% paid 16.3% of all taxes; by 2005 their share was down to 14.3%. All the while, this large group of voters made 25.8% of the nation’s income.
When you make almost 26% of the income and you pay only 0.6% of the income tax, that’s a good deal, courtesy of those who do pay income taxes. For the bottom 40%, the redistribution deal is even better. In 2001, these 43 million Americans, who earn less than $30,500, made 13.5% of the nation’s income but paid no income tax. Instead, they received checks from their taxpaying neighbours worth $16.3 billion. By 2005, those checks totaled $33.3 billion.
Today, Mr. Obama and many congressional Democrats want the “wealthy” to pay even more so there is more money for them to redistribute. The president says he wants the wealthy to pay their “fair share.” Who can argue with that? But he never defines what that means. Is it fair for 10% to pay 70% of the income tax? Does he believe they should pay 75%, or 95%, or does fairness mean they should pay it all? It’s clever politics to speak like that, but it is risky policy.
Mr. Obama is adding to this trend with his “Make Work Pay” tax cut that means almost 50% of the country will no longer pay any income taxes, up from a little over 40% today. A certain amount of income redistribution in a capitalistic society is healthy, but this goes too far. The economic and moral problem is that when 50% of the country gets benefits without paying for them and an increasingly smaller number of taxpayers foot the bill, the spinning triangle will no longer be able to support itself. Eventually, it will spin so slowly that it falls down, especially when the economy is contracting and the number of wealthy taxpayers is in sharp decline.
As a matter of maths, Fleischer is probably right. The idea that we can continue to raise revenue, while shifting more of the burden onto fewer and fewer people is a pipe dream. Think of the grand scale of the government’s ambitions, from fighting wars to providing universal healthcare. Are we really to believe that all this can be done via a tax increase on the top 2%? That’s obviously hogwash. What’s more is that top 2% is getting sharply poorer fast, given the collapse of the financial industry.