According the 3 inch red flashing headlines now on my monitor from Drudge, roughly half of all US households no longer pay any federal income taxes. This raises that trope about how a Democracy is really just 51% of the people picking the pockets of 49%. Well apparently it’s time to check your watch and wallet because we have finally become that very nation of thieves.
Not that this will surprise readers any of you…I’ve been referring to our elected officials as ‘thieves, liars and cheats’ for ages now. It seems the most accurate label. And to be fair to the leftward portion of the general population, when it comes to the actual stealing it’s the congress-critters who are the ones committing the act itself, the rest are just benefiting from it.
My younger and more liberal friends in the office are quick to point out to me that it was actually that compassionate conservative GW Bush who was responsible for the specific tax code change that made this possible. They are mistaken in their belief that I care. In fact, I find that this is a mistake that Democrats make a lot. They assume that if it’s the party that I generally find less reprehensible who has enacted a terribly policy, then it somehow negates my revulsion to the terrible idea itself. They don’t get that it’s the policy I have a problem with and not the party that enacted it. I think that all the elected officials of both parties are all more corrupt, less honest, and of generally poorer character than almost all of their constituents. If the Republicans enacted nationalized energy production or the systematic dismantling of the military I’d still think it’s a bad idea.
But I digress…. what I actually wanted to talk about was the tax code. It’s become obvious to everyone who passes for rational, that the current tax code is not going to cut it going forward. Obama has promised that 95% of all Americans will get tax cuts and that last evil 5% will be forced to carry the burden for everyone else. This was always a stupid idea, and not just because it’s totally unachievable. The people in government simply aren’t smart enough to get any more money from those people and history bears this out. Increases in maximum tax rates have never managed to produce anything like the increase in tax revenue that their proponents hope, and no one who knows better seriously thinks they ever will. It’s a resolved issue for economists, and only the few remaining Marxists from America’s various English literature departments and law schools still cling to the fantasy.
Of course, the best taxes; that is to say those which are most effective at raising revenue and least distorting of other economic activity, are those taxes that are ‘broad based’. This is an economic code word for saying that ‘everyone pays something’. It doesn’t’ jive with the leftist world view, but the fact is that you raise much more actual tax revenue by increasing the taxes .1% on everyone than you do by raising them 1% on only the top 10% of earners or 10% on the top 1% of earners. What’s more… you do less damage to your economy. The fact is, a dollar invested by a ‘rich person’ contributes more to the economy than a dollar consumed by a poor one.
So if the government takes all it revenue from the people that would otherwise help the economy the most, you get more unemployment, and lower growth than you otherwise would. This is the hard fact that team Obama, and America is about to learn. It’s not a t “conservative” opinion; it’s just the hard realities of tax policy. Political posturing aside, Economists have reached a consensus on this stuff ages ago and it isn’t seriously debated anymore by anyone you should take seriously.
But this is the kind of financial algebra that not only violates the specific campaign promises of team Obama, but violates the basic principles of liberalism as well. The left wants ‘the rich’ (whoever the hell that is) to pay for the poor and for the poor to pay nothing. “From each according to their means, to each according to their strength as a voting block”, is one of the founding principles of the Democrat party I think…isn’t it? Well even if I didn’t get that quite right… it’s clear that they don’t like broad based taxes. And in the end, that makes their entire fiscal policy unsustainable.
The CBO this week came right out and said that our current tax policies WILL NOT BE SUFFICENT to address our future deficits. That means that like it or not, unless we want to witness the inevitable economic collapse of the nation, we must switch to a broad based tax. And that means that even though they may not like it in DC, taxes are going up on people that Obama has promised will never have to pay more. That’s the fact Jack.
Inside the beltway with will be used as the justification for a European style VAT. But that would be the worst of all possible tax options because it will give the government an extremely effective way to hide what they are pulling away from the private sector. At the same time it would give those in congress the ability to custom tune the tax to only punish those people they have a political reason to punish. We’ll have to go with a broad based tax eventually, but a much smarter way would be for the new tax to be clear, simple, visible and fair. And when I say fair I mean ‘a single rate for everyone’. A progressive tax, one where the percentage increases based on a metric, works contrary to productive economic activity. And whatever nonsense you may believe about social justice, you don’t really want your tax code to punish ‘productive’ behavior.
But the far the biggest problem with the current tax code is not the way it distorts behavior but the way that no one can really tell what they have to pay up front. Its current state is one where obfuscation is the norm and clarity the exception. And if we allow the implementation of a VAT, we take that problem and make it worse in quite possibly the only way we could. We don’t want the congress to have any more control over choosing winners and losers than they do now.
The new ‘broad based tax’ that’s good for America will be the one that’s worst for Congress. That is… they’ll certainly like it the least. It will be the one that denies them the power to custom tune and direct the ‘tax savings’ to people they prefer, and that treats everyone essentially the same. A flat tax or a single rate sales tax would probably be best, but since they are both completely transparent and ‘fair’, they’re naturally wildly unpopular inside the beltway.
This is just another place where the interests of those in government are contrary to the people they represent, and if recent history is any example, the people will be getting the short end of that stick.
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