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Tag Archives: tax policy

We Need Some Sane Tax Policy in Washington

President Obama has launched his campaign for reelection by using “fairness” as a theme.  His main rallying cry is that the rich need to pay their fair share of taxes.  No one knows what this exact fair share is; all he and his supporters know is that it’s a number that is higher than what high income earners pay now.

I realize, however, that I can’t just be mad at the left and their blatant attempt to tax more in order to spend more.  Upon reflection, it’s obvious that there hasn’t been sane tax policy in years.  Good tax policy would involve taxes and spending in the same conversation.

Washington has a history of doing one without the other.  People are critical of Reagan and his marginal rates cut from the early 80s.  What was supposed to happen was that for every $1 in cuts, the Democrat-led Congress was supposed to impose $3 in spending cuts.  Instead, the cuts were never implemented.  Ironically, in what has become a prominent talking point, the left even now points to Reagan as a big spender.  The idea that there was a deal that was reneged on is never mentioned.

In the 90s, Clinton and a Dem-led Congress increased taxes in 1993.  The fact that the economy continued to grow on the strength of the tech bubble gives ammunition to those who say the increases helped fuel the economy.  In 1996, after the Republican takeover in congress, tax cuts were pushed through.  Clinton didn’t want them but signed them nonetheless.  The economy continued to grow and tax receipts to the government increased.  Yes, increased.

Then came the Bush cuts.  Sure, with two wars going on, there was lots of distraction.  But the administration and Congress missed the boat.  Based on tax receipts, the deficit got down to $400 billion before the economy collapsed in 2007.   That’s important to point out because without any real spending cuts, tax receipts were going up.  If there had been a real effort to cut spending, it’s possible there may have been a surplus in the future.  Instead, the Bush administration and the Republicans (then the Dems in 2007 and 2008) continued to spend.

Further, Republicans used the pending expiration of the Bush tax cuts to yell about how Obama would preside over the largest tax increase in history.  Not only is that assertion probably false, but it also ignores the fact that the cuts had to have a sunset provision of 10 years in order to be passed in the first place.  The fact is, they all should have been allowed to expire.  But how often does Congress do the right thing?  Republicans want all to be extended, while Democrats have made it a priority to raise taxes on the top 1%-2% of earners, saying they need to pay their “fair share.”  If there was going to be serious, SERIOUS discussion of tax policy, ALL the rates would be returned to pre-Bush levels.  It is funny, though, that critics say how the Bush cuts put the economy in a hole, yet only lobby for ending the cuts for the highest earners.  The estimated cost of the cuts for the middle class and below is three times that of the amount for high earners.  But to point that out would be political suicide.

Speaking of Democrats, Obama put a small tax cut into the stimulus, then extended the Bush cuts for two years as part of the debt ceiling deal.  But Democrats are pounding the war drums for higher taxes on higher earners, saying its about “fairness.”  They have yet to acknowledge that in terms of the amount of taxes paid, effective rate comparisons, or burden distribution, higher earners do more than their less well-to-do countrymen.  Plus, Democrats are lobbying to extend a payroll tax cut from 2011.  While Republicans went after the Democrats before about not raising taxes during a down economy-something Obama said he wouldn’t do), Democrats have taken that page from the playbook in order to get the payroll tax cut extended through 2012.

This is just more insanity.  In this case, we’re not just talking less in tax receipts.  We are now reducing the amount of money going to Social Security, which is already heading towards insolvency.  It’s as though they won’t realize that they are playing with fire until the house burns down.

We can’t forget to mention the failure of the debt commission to come up with a deficit reducing solution.  Republicans should at the very least agree to close loopholes.  Democrats should admit that, as has been proven successful in other countries, there should be a lot more spending cuts than tax increase.  There should be consideration of the suggestions made by the Simpson-Bowles committee to raise revenues, even if it means a lower tax rate for the rich–which, with fewer loopholes would lead to more tax receipts.

Let’s see who will be the first to step up and actually make some sense.

 

What’s More Important–Jumpstarting the Economy, or Raising Taxes on the Rich?

Republican presidential candidate Herman Cain is advocating a plan to overhaul the current tax structure in order to jumpstart the economy.  You can read the details at his website http://www.hermancain.com/999plan.  In a nutshell, his 9-9-9 plan would lower corporate taxes to 9%, personal income taxes to 9%, and introduce a 9% consumption tax.  Loopholes and deductions (with the exception of charity) would go away, as would the inheritance tax and capital gains taxes.  Businesses would save billions in tax compliance costs, and individuals would have more to spend, since it also eliminates payroll taxes.

I see two problems that stand in the way of such a change being passed.

First, politicians would probably balk.  For the plan to be effective, the constitution would need to be amended to prevent politicians from enacting other taxes on top of the 9-9-9 plan.  But we know how politicians are.  They like to provide favors for the donors.  So not being able to provide tax breaks for their favorite people or companies wouldn’t fly.

Second, Democrats wouldn’t go for it either.  Simply put, regardless of whether or not the plan would help the economy, their complaint would be that the rich weren’t paying enough.  Need proof?  In an exchange between Cain and the talking heads from MSNBCRachel Maddow, Al Sharpton, Eugene Robinson, Ed Schultz, and that O’Donnell guy, each asked Cain a question.  Of course, the good Rev. Sharpton asked a question racially related, asking if Cain’s talk of states having more control over certain things doesn’t equate to the classic “states rights” debate from the civil war and civil rights eras (thank goodness Cain shot him down quickly).  O’Donnell and Robinson went after him over Social Security–“personalization” vs “privatization.”  But around the 4:30 mark, Shultz plays the class card.  His worry?  That the 9-9-9 plan not only hits the lower class hardest, but that the rich wouldn’t pay their “fair share.”

Well, we know what the real priority is!  (Video can be seen here).

By the way, because reminding folks about it never gets old, a strong argument can be made that high income earners, by virtue of their piece of the tax pie, already pay their fair share, if not more. Here is a piece that breaks down the income tax burden pie in 20% increments.