How much do the bottom 40% pay? Zero. Zero federal income tax.
So when liberals talk about a progressive tax system, how much more progressive can we get?
Lets think about this... If you are already paying no income tax, what is your incentive for the Government to have lower taxs? You already are paying nothing, so it has no impact on your life to have the "fat cats" pay more. Sure, raise taxes!
When people have no "skin in the game" it costs them nothing to ask for more.
The problem is that this money must come from somewhere... that somewhere is from the people who are creating/owning/running small companies and employing 80% of the people in the country.
These people work hard and create jobs. By taking more and more from them you will eventually cause the incentive to work to be so low that they will work less or move to a more hospitable environment.
Read the following article... I would love to hear your thoughts.
Durand
Obama and the Tax Tipping Point
How long before taxpayers are pushed too far?
By ADAM LERRICK
What happens when the voter in the exact middle of the earnings spectrum receives more in benefits from Washington than he pays in taxes? Economists Allan Meltzer and Scott Richard posed this question 27 years ago. We may soon enough know the answer.
Barack Obama is offering voters strong incentives to support higher taxes and bigger government. This could be the magic income-redistribution formula Democrats have long sought.
Sen. Obama is promising $500 and $1,000 gift-wrapped packets of money in the form of refundable tax credits. These will shift the tax demographics to the tipping point where half of all voters will receive a cash windfall from Washington and an overwhelming majority will gain from tax hikes and more government spending.
In 2006, the latest year for which we have Census data, 220 million Americans were eligible to vote and 89 million -- 40% -- paid no income taxes. According to the Tax Policy Center (a joint venture of the Brookings Institution and the Urban Institute), this will jump to 49% when Mr. Obama's cash credits remove 18 million more voters from the tax rolls. What's more, there are an additional 24 million taxpayers (11% of the electorate) who will pay a minimal amount of income taxes -- less than 5% of their income and less than $1,000 annually.
In all, three out of every five voters will pay little or nothing in income taxes under Mr. Obama's plans and gain when taxes rise on the 40% that already pays 95% of income tax revenues.
The plunder that the Democrats plan to extract from the "very rich" -- the 5% that earn more than $250,000 and who already pay 60% of the federal income tax bill -- will never stretch to cover the expansive programs Mr. Obama promises.
What next? A core group of Obama enthusiasts -- those educated professionals who applaud the "fairness" of their candidate's tax plans -- will soon see their $100,000-$150,000 incomes targeted. As entitlements expand and a self-interested majority votes, the higher tax brackets will kick in at lower levels down the ladder, all the way to households with a $75,000 income.
Calculating how far society's top earners can be pushed before they stop (or cut back on) producing is difficult. But the incentives are easy to see. Voters who benefit from government programs will push for higher tax rates on higher earners -- at least until those who power the economy and create jobs and wealth stop working, stop investing, or move out of the country.
Other nations have tried the ideology of fairness in the place of incentives and found that reward without work is a recipe for decline. In the late 1970s and throughout the 1980s, Margaret Thatcher took on the unions and slashed taxes to restore growth and jobs in Great Britain. In Germany a few years ago, Social Democrat Gerhard Schroeder defied his party's dogma and loosened labor's grip on the economy to end stagnation. And more recently in France, Nicolas Sarkozy was swept to power on a platform of restoring flexibility to the economy.
The sequence is always the same. High-tax, big-spending policies force the economy to lose momentum. Then growth in government spending outstrips revenues. Fiscal and trade deficits soar. Public debt, excessive taxation and unemployment follow. The central bank tries to solve the problem by printing money. International competitiveness is lost and the currency depreciates. The system stagnates. And then a frightened electorate returns conservatives to power.
The economic tides will not stand still while Washington experiments with European-type social democracy, even though the dollar's role as the global reserve currency will buy some time. Our trademark competitive advantage will be lost, and once lost, it will be hard to regain. There are too many emerging economies focused on prosperity and not redistribution for the U.S. to easily recapture its role of global economic leader.
Tomorrow's children may come to question why their parents sold their birthright for a mess of "fairness" -- whatever that will signify when jobs are scarce and American opportunity is no longer the envy of the world.
Mr. Lerrick is a professor of economics at Carnegie Mellon University and a visiting scholar at the American Enterprise Institute.
Posts
3 comments:
Government programs are generally perceived to benefit lower-income people, and thus the disproportionate tax burden on the wealthy can be seen as unfair.
But from another perspective, the entire edifice of government, specific programs aside, is a machine for maintaining law & order and the status quo. That we have a federal government at all, as outlined by the constitution, with the power to collect taxes, raise armies, regulate interstate commerce, and above all protect private property, of course benefits the nation as a whole, but surely most benefits those with the most to lose (i.e. the most private property) in particular.
The wealthier one is, the more he or she stands to lose if society breaks down. Therefore isn't a portion of one's wealth given up to higher taxes, collected in an orderly fashion, meant to be used for the benefit of the collective, a small price to pay for the safeguards of a secure society, rather than one where all one's wealth might be taken in a violent fashion?
I have no problem with people receiving benefits from the Government, but when it becomes a model for income redistribution I feel that it takes away peoples incentive to work.
My belief is that we are lucky to live in a country where there is a rule of law that allows people to benefit from their own labor. When more than half of the population is getting a check from the Government, what does that teach people about the role of Government in their lives?
It sounds like those that work hard, create new jobs, and enjoy the benefits of their labor must "buy off" the violent masses who swarming at the gates. I have a higher opinion of the people in this country. People from all over the world come to this country for a chance to live a better life than the one they had before. They want to give their children a better life... this is through their own hard work, not through a government check they receive just for being alive.
I am not opposed to higher taxes...I just know that the Governments tax receipts have gone UP 30% since the Bush tax cuts. That is because they were targeted in ways to allow capital to work more efficiently, to find the next new better investment.
The counter-intuitive fact is that raising taxes lowers the revenues that the Government takes in. It lowers the incentive to be rewarded for your work and makes every additional hour of work less valuable then the previous one.
This is the system that Europe has championed for so long and only recently has it loosened it labor laws, lowered its tax rates and started to see growth.
I do not look forward to enjoying the prospect of French style governing here... the last time I checked most of the car burnings and riots were happening over there, not here, because people are trapped in their system. The complexity and difficulty of starting a new business or hiring/firing an employee makes everybody stay exactly where they are.
Ill take the mobility and ability to change ones circumstances in the USA anyday.
My biggest problem is how the income is redistributed...if the taxes were used to help infrastructure, education and the global national good it would be great. But sending people a check every year encourages stagnation... see below from an WSJ editorial.
---------------------------------
There's another catch: Because Mr. Obama's tax credits are phased out as incomes rise, they impose a huge "marginal" tax rate increase on low-income workers. The marginal tax rate refers to the rate on the next dollar of income earned. As the nearby chart illustrates, the marginal rate for millions of low- and middle-income workers would spike as they earn more income.
Some families with an income of $40,000 could lose up to 40 cents in vanishing credits for every additional dollar earned from working overtime or taking a new job. As public policy, this is contradictory. The tax credits are sold in the name of "making work pay," but in practice they can be a disincentive to working harder, especially if you're a lower-income couple getting raises of $1,000 or $2,000 a year. One mystery -- among many -- of the McCain campaign is why it has allowed Mr. Obama's 95% illusion to go unanswered.
"Obamas 95% Illusion"
WSJ Oct. 18th 2008
Post a Comment