The House Ways and Means Committee pushed out their new tax bill and President Joe Biden endorsed it.
Politicians talk about the middle class all the time but really it’s just talking. They need to milk the middle class for tax revenue because it’s the largest part of the population and they don’t have the resources to find their way around them.
Tax policy has been talked about ad infinitum. It’s boring and as deficits mount at all levels of government it is basically meaningless.
Anecdote after anecdote comes at you. Billionaire Warren Buffett quips that he wants to pay more in taxes than his secretary and the right rails back that he can voluntarily pay more in tax than he owes.
When it comes down to really taxing the rich, everyone blinks. The recent bill was supposed to change the tax treatment on carried interest, but because the people who benefit from carried interest tend to fund Democrats nothing changed. Even though some people who benefit begged publicly for higher taxes on themselves, just like their pal Warren.
The other thing that always happens is both parties get into a debate over federal programs and how they will pay for them. The “non-partisan” Congressional Budget Office scores the budget and the opposing sides spin.
We know that the wealthy and upper middle class pay most of the taxes in the US. The Heritage Foundation compiled data from the IRS.
The top 2-6% of income earners pay 60% of the taxes in the US.
Here are some things you should know.
When people talk about fairness, whatever comes out of their mouth next is pure fallacy.
Fairness is subjective. What might be fair to you might not be fair to me.
When governments can’t tax, they raise backdoor fees like licenses, water costs, electricity costs, sales taxes, and things like that to raise money.
Taxes are penalities and penalize success.
Corporations do not really pay taxes. They aggregate them. Raise corporate taxes and they will figure out a way to increase prices and decrease costs. Decreasing costs often means laying off labor, or not raising wages. Increasing prices increase costs to consumers.
The CBO never uses actual economics to determine if taxes will raise more money or not. They use accounting which doesn’t account for a change in human behavior when incentives change.
Instead, we ought to be talking about reforming the tax code to incentivize people to make more money, increase their own personal production, and reward risk-taking.
The tax code is rife with all kinds of loopholes for businesses and professional sectors. Our economy is huge and complex.
The only way to accurately treat everyone equally is via a flat tax with no loopholes. I would suggest a rate that is like Hauser’s Law discovered by economist W. Kurt Hauser. The law says that post World War Two tax revenue in the US is generally 19.5% of GDP, no matter what the prevailing tax rate of the US is. Hauser said: “Raising taxes encourages taxpayers to shift, hide, and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation.”
Putting it a different way, capital migrates away from regimes in which it is treated harshly and toward regimes in which it is free to be invested profitably and safely. In this regard, the capital controlled by our richest citizens is especially tax intolerant.
The above is true with multi-national businesses as well. They will employ armies of accountants and tax lawyers to figure out the best way to recognize and shelter income to avoid taxes. It’s been said a billion times before, but that takes resources away from things like innovation, higher pay for employees and is a drain on corporate culture.
Detractors of the flat tax say it’s not “fair” (see above) because the rich pay the same as the poor. Well, it’s not fair that the rich contribute a lot more to society than the poor either. Of course, the rich pay the same sales tax and the same fees to license cars as the poor too. The fairness argument is a dumb argument.
I don’t know where the right percentage is for a fair tax. I do know it’s under 20%, and over 15%. Having it eliminates all other taxes on income. The public gives up all write-offs for a steady static tax.
What’s government get out of it?
Steady tax revenue that they can budget for. Culturally, and this is important, a flat tax with no write-offs will change government policy. Policies will have to focus on ways to enable people to maximize their income because the government will have an incentive to do it at a fixed rate. The incentive to expand the welfare state will diminish since it would be in the government’s best interest to enable people at the bottom to earn more.
If the Republicans ever get control of both Houses of Congress and the Presidency and don’t enact reforms like this, we know we are whistling past the graveyard.