April 16, 2009 | Commentary on Taxes
A very rich man once told me how much he paid in income taxes the prior year. It was over $200 million. When I recovered my jaw from the floor, all I could think to say was: "Thank you!"
While the political left condemns the gap between rich and poor, there's a better way to assess what divides many Americans: it's the gap between those who pay taxes and those who do not. It's a troublesome gap. As former Sen. Phil Gramm likes to say, "There are more people riding in the wagon than there are pulling the wagon."
As Tea Party protests hit the streets, some wonder why it's a big deal. After all, there's no outrage among the growing numbers who pay no income taxes.
New York Mayor Michael Bloomberg let the cat out of the bag when he announced that half the city's income comes from 42,000 of its residents. That's in a city of 8.2 million. Less than half of one percent carry 50 percent of the burden.
The Tax Foundation reports that the top 1% of American tax filers paid more taxes in 2006 than the bottom 90%. The numbers were $408-billion paid compared to $299-billion. Of 136 million returns filed that year, a mere 1.4 million Americans paid more than this other 122 million combined.
The left considers this unfair. Because they want that group to pay more! The Heritage Foundation calculates that President Obama's budget proposal would raise taxes by another $1.4 trillion, mostly from this group.
For Bloomberg, Obama and others, their wacky solution is to raise taxes. California has already raised its income taxes to 10%, and 10 more states are poised to follow. New York wants to push its top rate to 9%, plus 12.6% in New York City.
Why take so much from so few? Tax cuts during the Bush presidency removed 18 million Americans from the ranks of income tax payers. So many people are now exempted from any income-tax liability that those who are hit hard have become a small minority whose voices can be drowned out. Big spenders feel emboldened to demonize them as "rich" so they can victimize them with impunity.
But beware. Once the rich are soaked, everybody else may at least get damp. The Wall Street Journal describes the New York State plan: "The new budget raises another $2 billion or so on top of the $4 billion in income taxes with some 100 new taxes, fees, fines, surcharges and penalties to be paid by all New York residents. There are new charges for cell phone usage, fishing permits, health insurance (the "sick tax"), electric bills, and on bottled water, cigars, beer and wine."
Who benefits? Start with government workers. As USA Today recounted last week, "The pay gap between government workers and lower-compensated private employees is growing as public employees enjoy sizable benefit growth even in a distressed economy . . . Overall, total compensation for state and local workers was $39.25 an hour -- $11.90 more than in private business. In 2007, the gap in wages and benefits was $11.31." Oddly enough, this Left never wants to talk about this wage gap.
Also benefiting are those who pay nothing in income taxes. Many of them file a return just to get a check, the Earned Income Tax credit which last year sent over $46 billion to 23 million Americans who paid zero in income taxes. And movements are afoot to relieve that group of the remaining taxes they still pay: Social Security and Medicare taxes, sales taxes, property taxes, etc. About the only opposite trend is the increasing reliance by states on lotteries and gambling dollars, which disproportionately come from lower income groups.
How many Americans are pulling the wagon? The top 10% of income tax filers pay 70% of the taxes and earned 47% of the income.
So who's being greedy? Those who pay and gripe? Or those who don't pay but receive the benefits? The Tax Policy Center describes that the bottom 40% of income tax filers not only don't pay anything, but get money back anyway, with "negative income tax rates" thanks to federal tax credit programs. This is what politicians are talking about when they describe "refundable tax credits." That's code for a government giveaway.
What's the point of no return, when this trend becomes
irreversible? If we're not at a tipping point, we soon will be.
Backed by a friendly, left-leaning Congress, the administration
seems ready to rumble, with proposals that would:
A noble few still understand that raising taxes casts the economy into a death spiral, while lowering taxes (and regulatory burdens) stimulates economic growth. The American Option bill, introduced in the Senate by Jim DeMint (R-S.C.), would have reduced business taxes from 35% to 25%. That's an approach calculated to spur rapid growth in wages, jobs, and business incomes. It would also leave Americans with more of their own money, increasing disposable income for an average family of four by up to $4,500 by 2013.
Such a reform may be hard to imagine in today's political environment, but we need plans to unite around. Meantime, the Tea Parties are a great rallying point for Americans who still pay taxes. Let's hear it for the few, the proud -- the taxpayers.
Ernest Istook is recovering from serving 14 years in Congress and is now a distinguished fellow at The Heritage Foundation.
First Appeared in Human Events