Posted on 02/27/2004 7:24:30 AM PST by So Cal Rocket
The Democrats' mantra this election year is "tax the rich." Trouble is, taxing the rich amounts to eating the seed corn.
Take former Secretary of Labor Robert Reich's calculation that restoring the top income-tax rate to its pre-Reagan level of 25 years ago (i.e., 70 percent) would provide an extra $200 billion in revenues, which could be used for national health insurance, middle-income tax cuts, and the like.
Do Reich and other tax-and-spenders give any thought to the economic consequences of their policy prescriptions? Presumably, they anticipate no negative effects.
Even some Wall Street analysts (who will go unnamed) are dismissing the effect of higher marginal rates should President Bush lose in November. They maintain the recovery has sufficient momentum so that a tax hike wouldn't matter.
These analysts are as much in the wilderness as are most liberals when it comes to economics.
Frankly, Democrats haven't been able to fashion a credible economic policy since the Phillips Curve bit the dust. The Keynesian party now claims, for example, that balanced budgets (and not deficit spending) are the sine qua non of economic growth.
It's a ruse, of course. If the Democrats were serious about balanced budgets, they'd speak not only of tax hikes but also spending cuts. Instead, they are using the balanced-budget argument as a means of keeping money in Washington in the belief that the indefinite expansion of government, both in scope and size, is their surest way of securing and maintaining political power.
Copious tax revenues are vital to the Democrats' strategy, so they oppose any reforms that would allow Americans to keep more of what they earn. Furthermore, in an effort to disguise their true intent, they make such nonsensical assertions as the claim that raising tax rates somehow boosts economic performance.
Fact is, most Democrats are willing to sacrifice jobs and business creation in order to keep the federal government's take of the national economy large. Their income-tax policies actually aim to swell the federal treasury at the economy's expense.
An economy depends on the availability of financial capital to fund new ventures, transform ideas into reality, and raise productivity. Pumping in investment capital thus creates new jobs, boosts real wages, and ups living standards.
But Washington's tax-and-spenders ignore financial capital's crucial role. They treat this money as if it can be taxed away from individuals (and corporations) with impunity.
Nothing could be farther from the truth. The propensity to invest rises with income. Indeed, there appears to be a threshold level, perhaps around $70,000 a year, at which households seriously begin to invest significant amounts of earnings. Those making less money typically spend most, if not all, of their income on consumption.
But economic growth isn't driven by consumption; it's driven by production. And production requires two types of capital — i.e., labor capital and financial capital. When Washington siphons off significant amounts of financial capital through taxation, the economy is less able to employ the other form of capital, namely labor. Which helps explain why the U.S. slips into recession whenever the tax burden becomes too great.
Besides, it's not as if high-income households don't already pay their fair share of taxes.
In 2001, taxpayers with adjusted gross incomes of $200,000 or more accounted for only 2.0 percent of all tax returns, but they forked over 41.3 percent of the federal income taxes collected for that year, according to the latest Internal Revenue Service data. Similarly, taxpayers earning $500,000 or more represented just 0.4 percent of all 2001 tax returns but provided 26.1 percent of the federal income-tax revenue.
By contrast, Americans making less than $75,000 in adjusted gross income filed 84.7 percent of the 2001 tax returns, yet they accounted for just 26.7 percent of federal income taxes.
A willful misreading of the economic history of the 1990s is part of the tax-and-spend subterfuge. It's claimed that Clinton's 1993 tax hikes, the largest in U.S. history, produced the subsequent boom. But how exactly does raising tax rates propel growth? The precise mechanism by which this supposedly occurs has never been defined other than to make wild boasts about the purported benefits of retiring federal debt.
Fact is, the '90s boom was not the result of higher taxes but rather demographic and technological change. Many baby boom spouses re-entered the labor force as their children flew the nest. More important, though, was the IT revolution, with the proliferation of PCs and the emergence of the Internet.
As the benefits of new information technology became apparent, capital spending per worker soared — and productivity correspondingly climbed. Private nonresidential investment per civilian worker surged by a whopping 91.8 percent, rising from $4,830, in real terms, in the first quarter of 1992 to a high of $9,262 in the third quarter of 2000. During the same period, labor productivity, as measured by output per hour in non-farm businesses, increased 19.1 percent.
>b?The lesson of the '90s then is that the forces of technological and demographic change were so strong as to overcome the negative consequences of the 1993 tax increases. The economy boomed despite the tax hikes, not because of them.
By April of 2001, federal individual income-tax revenue was 120 percent above its pre-tax-hike level of 1992. Taxpayers, alas, weren't doing nearly so well. U.S. disposable personal income in April 2001 was only 55 percent above its 1992 level, meaning that federal income-tax revenue had risen more than twice as fast as America's post-tax income.
The increasing tax burden couldn't be shouldered forever, and the economy hit a wall after federal tax receipts as a percentage of nominal GDP reached a record 21.1 percent in the first quarter of 2000. (Since the end of World War II, the average has been 18.1 percent.) Year-on-year GDP growth fell from 4.9 percent in the second quarter to 3.5 percent in the third and 2.2 percent in the fourth quarter of 2000 — and continued sliding into the 2001 recession.
Higher tax rates don't grow an economy; high levels of investment do. And one is antithetical to the other.
— William P. Kucewicz is editor of GeoInvestor.com and a former editorial board member of the Wall Street Journal.
I agree. I would ratther have a national sales tax vs. a progressive income tax any day.
Let me suggest a point the opposition will raise. From the article:
Indeed, there appears to be a threshold level, perhaps around $70,000 a year, at which households seriously begin to invest significant amounts of earnings. Those making less money typically spend most, if not all, of their income on consumption.
Ahh..the liberals will scream, you are imposing a tax that mostly the "poor" will have to pay you heartless conservative!
How would you counter this?
I am not convinced that the size of a segment of earners matters either. Thoughts?
Just to stir things up abit ;O)
One argument as regards size of segment is representation ought to be proportionate to tax paid.
Looking from that perspective, rates should decline with income, as long as we go by one man, one vote rules.
- The rights of property are committed into the same hands with the personal rights. Some attention ought, therefore, to be paid to property in the choice of those hands. ``For another reason, the votes allowed in the federal legislature to the people of each State, ought to bear some proportion to the comparative wealth of the States.
- As far, therefore, as their superior wealth and weight may justly entitle them to any advantage, it ought to be secured to them by a superior share of representation. The new Constitution is, in this respect, materially different from the existing Confederation, "
An interesting exchange in the Constitutional Convention concerning representation vs taxation and the compromises that were made regarding the subject in the Constitution.
James Madison's Notes; Thursday July 12, 1787
Mr. Govr. MORRIS moved to add to the clause empowering the Legislature to vary the Representation according to the principles of wealth & number of inhabts. a "proviso that taxation shall be in proportion to Representation."
Mr. BUTLER contended again that Representation Sd.. be according to the full number of inhabts. including all the blacks; admitting the justice of Mr. Govr. Morris's motion.
Mr. MASON also admitted the justice of the principle, but was afraid embarrassments might be occasioned to the Legislature by it. It might drive the Legislature to the plan of Requisitions.
Mr. Govr. MORRIS, admitted that some objections lay agst. his motion, but supposed they would be removed by restraining the rule to direct taxation. With regard to indirect taxes on exports & imports & on consumption, the rule would be inapplicable. Notwithstanding what had been said to the contrary he was persuaded that the imports & consumption were pretty nearly equal throughout the Union.
General PINKNEY liked the idea. He thought it so just that it could not be objected to. But foresaw that if the revision of the census was left to the discretion of the Legislature, it would never be carried into execution. The rule must be fixed, and the execution of it enforced by the Constitution. He was alarmed at what was said yesterday, concerning the negroes. He was now again alarmed at what had been thrown out concerning the taxing of exports. S. Carola. has in one year exported to the amount of 600,000 Sterling all which was the fruit of the labor of her blacks. Will she be represented in proportion to this amount? She will not. Neither ought she then to be subject to a tax on it. He hoped a clause would be inserted in the system, restraining the Legislature from taxing Exports.
Mr. WILSON approved the principle, but could not see how it could be carried into execution; unless restrained to direct taxation.
Mr. Govr. MORRIS having so varied his Motion by inserting the word "direct." It passd. nem. con. as follows-"provided always that direct taxation ought to be proportioned to representation."
To remove taxation of the individual, is to remove the goad which assures accountability of government to the electorate. Federal tax rates are high because a majority of the electorate do not share proportionately in the burden their demand for largesse imposes on the minority of citizens.
The siren call for representation without taxation is the formula that got us where we are at today. The ability to hide or disguise taxation from the view of large sectors of the electorate allows the Congress to get away with the creation of the evergrowing monster that it fosters.
A government which robs Peter to pay Paul can always depend on the support of Paul.
-George Bernard Shaw
Liberty and freedom have a price, responsibility. If that price is avoided by any major segment of the population there are no brakes on the growth of government, the ultimate result is the end of freedom through creeping socialism.
Those making less money typically spend most, if not all, of their income on consumption.
Ahh..the liberals will scream, you are imposing a tax that mostly the "poor" will have to pay you heartless conservative!
How would you counter this?
The way the proposed NRST legislation in H.R.25 does, we recognise the need for a mechanism to take the place of the personal exemption of the income tax, at the same time it is necessary to assure everyone at least participates at the retail register level and there there be no exception as to what is taxed, the solution the Fair Tax authors came up with:
All legal residents will receive a FCA equivalent to the FairTax paid on essential goods and services. The FCA will be paid in advance, in equal installments each month. The size of the monthly FCA will be determined by the government's Poverty Level for a particular family size, multiplied by the tax rate.
Every year, the Department of Health and Human Services [HHS] determine the "poverty level" for each family size.
|
The 2001 "FairTax" Family Consumption Allowance Figures |
|||
|
Family Size |
HHS Poverty Level |
Annual FCA |
Monthly FCA |
|
One |
$8,590 |
$1,976 |
$165 |
|
Two |
$17,180 |
$3,951 |
$329 |
|
Three |
$20,200 |
$4,646 |
$387 |
|
Four |
$23,220 |
$5,341 |
$445 |
|
Five |
$26,240 |
$6,035 |
$503 |
|
Six |
$29,260 |
$6,730 |
$561 |
|
Seven |
$32,280 |
$7,424 |
$619 |
|
Eight |
$35,300 |
$8,119 |
$677 |
1) Federal Register: February 16, 2001, Pages 10695-10697).
[ The monthly FCA for each adult is .23 * (HSS poverty level for a single person)/12 to assure no marriage penalty due to the manner in which the poverty level is dependant on family size. The monthly FCA for each child is .23 * (the incremental increase of HSS poverty level for a family with one child over no child) ] A. Geezer
A family of four, for example, could spend $23,220 per year free of tax because they will have received over the course of the year rebates totaling $5,341. $5,341 is the amount of sales tax paid on $23,220 in expenditures. A family spending double the "poverty level" or $46,440 per year will effectively pay tax on only half of their spending and, therefore, have an effective tax rate of 11 ½ percent or half the FairTax rate.
The beauty of the FairTax is that you can control how much you pay in taxes. If you happen to save, invest or spend a portion on used [previously taxed] items, you can get your effective tax rate below 9%.
[71] To illustrate the plan's progressive nature we can examine the tax burden that a family of four will have at various annual income levels (or in this case, annual spending levels).
The only truly fair tax is for every person to pay exactly the same amount -- a head tax, so to speak. Anything beyond that gets a bit fuzzy. But some level of progressiveness is required for practical reasons.
Now, this is just crazy talk, but why shouldn't representation be proportional to the amount of taxes paid? One, person, one vote makes sense if each person has the same stake in the government, but the current system allows for those who take from what others put into the system control of that very system. What if your vote was multiplied by the amount of tax paid? Those who are most responsible for funding the system would have the greatest say in how the system is used. Isn't that fair?
On a smaller scale, anyone who receives money from the government except in exchange for a service (I'd find a way to exclude government employees, too, but that would be bad for the military, who should be allowed representation) should not be allowed to vote purely on a conflict of interest.
The only truly fair tax is for every person to pay exactly the same amount -- a head tax, so to speak.
You would be in for trouble from Jefferson and Patrick Henry I'm afraid :O)
[Montesquieu wrote in Spirit of the Laws, XIII,c.14:]
- "A capitation is more natural to slavery; a duty on merchandise is more natural to liberty, by reason it has not so direct a relation to the person."
--Thomas Jefferson: copied into his Commonplace Book.Patrick Henry, Virginia Ratifying Convention June 12, 1788:
- "the oppression arising from taxation, is not from the amount but, from the mode -- a thorough acquaintance with the condition of the people, is necessary to a just distribution of taxes. The whole wisdom of the science of Government, with respect to taxation, consists in selecting the mode of collection which will best accommodate to the convenience of the people.
Well, I wasn't really advocating that position, I was just going off a little on the concept of "fairness" in relation to taxes.
I was, however, a little more serious about people who just get entitlements from the government not being allowed to vote.
a little more serious about people who just get entitlements from the government not being allowed to vote.
That in itself is a good reason to go to a visible consumption tax. Participation at all economic levels is key to getting government under control.
An interesting side light on income as a measure of one's economic status in society.
If one defines poverty as incapacity to pay for necessities, the statistical link between low income and "poverty" is not as clear as some would like to believe.
I highly recommend studying the source table, especially as to what is included in the income number (it is quite complete including welfare payments, SS etc.).
Table entries excerpted from ftp://ftp.bls.gov/pub/special.requests/ce/standard/2001/income.txt
| Table 2. Income before taxes: Average annual expenditures and characteristics, Consumer Expenditure Survey, 2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Complete reporting of income a/ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Remember, some of us Freepers are government workers. When times are tight and other government workers are griping about no pay raises, I remind them that other people are losing jobs, not just not getting pay raises. I'm not free and loose with my money and I don't expect my employer (my fellow taxpayers) to be either.
If I can perform my job and do it well, I expect to be compensated, but not at the expense of those I'm working for.
What about flat tax of 10% across the board?(or 8 or 12 doesn't matter) No returns, no tax lawyers, no IRS, no writeoffs.
Hmmm, still an income tax, therefore there will be returns, lawyers and IRS. That is unless you want to end up paying taxes on loan principle, money you withdraw from savings, capital you use to buy materials for your business, ...
If you don't mind paying "income" tax every year on the latter then you could get rid of the lawyer maybe.
Even then you could only get rid of the individual income tax, and would still be saddled with SS/Mediscare, business taxes etc.
Here's how tax rates come out for the Armey/Shelby Flat Tax, a flat individual/corporate income tax, leaving all SS/Medicare, Federal Unemployment, excise taxes and tariffs in place and unchanged.
http://www.library.unt.edu/govinfo/subject/vital.html
- "The chart below shows a hypothetical set of flat tax rates and allowances that would result in revenue neutrality. This model, produced by the Congressional Budget Office shows that all federal income tax revenues could be fully replaced by a system with a flat tax rate of 13.1 percent and no deductions. Allowing total deductions for a family of four to reach $36,800 (more than double the amount allowed in 1995) would require a 19.9 percent rate."
Joint Economic Committee
Revenue Neutral Tax Rates for Alternative Allowances and Exemptions Under a Flat Tax Standard Allowances Option 1 Option 2 Option 3 Option 4 Option 5 Single $13,100 $13,100 $ 6,550 $ 6,550 $0 Joint $26,200 $26,200 $13,100 $13,100 $0 Head of Household $17,200 $17,200 $ 8,600 $ 8,600 $0 Dependent Exemption $ 5,300 $ 2,650 $ 5,300 $ 2,650 $0 Revenue Neutral Tax Rate 19.9% 19.4% 16.8% 16.3% 13.1% Source: Congressional Budget Office, 1995.
Under the Armey "flat" tax, as it is currently proposed,(HR1040 introduced 3/15/2001) a single person would pay:
7.65% ---- 7.65%(SS/Medicare) tax on wages/salary income below $13,600,
26.65% --- 19% + 7.65%(SS/Medicare) tax on wages/salary and other taxable income from $13,600-$75,000
20.45% --- 19% + 1.45% Medicare tax on wages/salaries and other taxable income from $75,001 up.
0% -------- on savings & bond income and stock dividends.
And that single person's business/employer pays,
19% ------ on earnings (Gross Receipts less allowed business deductions, exemptions and credits)
13.65% ---- 7.65% on SS/Medicare employment excises + 6% federally mandated unemployement excises levied on each employee's on wages up to $75,000.
7.45% ----- 1.45% on Medicare employment excises + 6% federally mandated unemployement excises levied on each employee's wages greater than $75,000.
Plus additional selective excises and tariffs dependant upon the nature of business engaged in.
Note: The base "Flat Tax Rate" is subject to meet revenue neutrality requirements under the Budget Enforcement act. The 19% rate stated in the Armey/Shelby Flat Tax proposal does not meet these requirements and would of necessity be adjusted upwards, and/or personal exemptions and business deductions be reduced to meet revenue neutrality criteria for enactment.
Because it's still a hidden tax in the costs of goods and services. Because it still requires a definition of "income" with the corresponding invasion of personal financial records.
This way there is no ability for congress to siphon money for pork barrel projects
LOL, has never stopped them before:
Constitution Article I, Section. 8.
The Congress shall have Power ...
To borrow Money on the credit of the United States;
It's called inflation, run the printing presses, just another way to tax.
Reich is a complete and utter boob.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.
