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Freeloaders – The Case for a REGRESSIVE Income Tax

Liberals constantly recite the mantra that “the wealthiest Americans” should pay “their fair share” of taxes, whining about “tax breaks” (which are nothing more than legal deductions) and mythical “loopholes” that prosperous people supposedly use to avoid taxes. But they never talk about the one group of people who enjoy the biggest “tax break” of all – the 51% of working Americans who pay NO FEDERAL INCOME TAX whatsoever (source: IRS). Worse, many of them actually have a “negative tax” burden – meaning instead of paying taxes, they get a check. Talk about “tax breaks.”

Meanwhile, the higher up you go on the income scale, the heavier your tax burden becomes. Contrary to the media perpetuated myth that “the rich don’t pay any taxes” the opposite is true – the top 10% of income earners now pay more than 70% of all income taxes. But even that is not enough for today’s Democrats – in their quest to turn America into a European-style socialist state, they want even more. “Fair” indeed.

Our grossly lopsided tax code is all the result of an excessive focus over the last 40 years on cutting tax rates on the lower and middle income groups, while either maintaining or increasing taxes on higher income earners. Democrats are the primary villains in the tactic of pitting one group of Americans against another, demanding “middle class tax cuts” while attacking “tax cuts for the rich,” but Republicans are almost as bad – even after their huge victory in 2010, they are still afraid to stand up for the top income earners.

But having fully half of our citizens getting a free ride while the other half pays all the bills is not merely blatantly discriminatory, it is a prescription for political tyranny. Because the real problem is that the half of voters who pay little or no income tax are also the same people who CONSUME the most government services. They are “freeloaders” in the truest sense, and are only too happy to support ever higher taxes on someone else. But as the old saying goes, “When you rob Peter to pay Paul, you can always count on Paul’s vote.”

Democrats learned this truism a long time ago. States (and cities) with the highest percentages of their populations receiving welfare, food stamps, and other government “assistance” are the same states that have been under Democrat rule for decades. Not surprisingly, they are also the states that are in the most disastrous fiscal condition (see California or Michigan), much of the problem due to the skyrocketing costs of government employee unions. See “14 Cities That Are Being Eaten Alive by Public Sector Workers” at:

http://www.claremont.org/publications/crb/id.1852/article_detail.asp

But as long as we persist in a tax structure that “Robs Peter to pay Paul” things will only get worse. We need to dramatically change the way we pay for government.

Ideally, the Federal Income Tax should be completely scrapped, and replaced with a national sales tax. But not a sales tax system like the recently proposed “Fair Tax,” which would simply perpetuate the “top loading” of the tax burden by “exempting” the bottom tier of tax payers, via a “rebate” scheme. We need a simple flat sales tax that would apply equally to everyone.

Now, obviously, since higher income earners spend more, even under a national sales tax they would still be paying a disproportionate share of the taxes, but at least everyone would feel the very same “pinch” at the cash register – we would all have “skin in the game.” More importantly, under such a system, were a politician to propose “raising the national sales tax” it would be met with an outcry from ALL voters – because they would all be hit in their pocketbooks, not just the wealthy. Unlike today, where it’s easy to get support for “raising taxes” when half the people (or more) know that THEY won’t be affected.

But even if realpolitik means that we have to stay with an income tax, there is absolutely no way that the current “progressive” tax code is sustainable. The only option with any possibility of dealing with our financial woes is a flat rate tax, with NO exemptions, NO deductions, and applied FROM THE FIRST DOLLAR of income. It is also the only truly fair way to tax income, since a flat tax means that everyone is paying the same share of their income.

Now it is true that, just as with a national sales tax, under a flat rate income tax the higher earners would still be paying more than lower income earners, but at least their tax bill would not grow exponentially as their income rises, the way it does today. And here again, should any politician propose a tax increase to fund some massive spending program, everyone would know that they, too, will be subject to the increase, not just “those rich guys.” For the first time, people at all income levels would have “skin in the game” – a good thing.

And as we broaden the tax base by putting everyone with income on the tax roles, the rate that all of us would have to pay could be brought down dramatically, some say as low as 10 or 12%. Liberals will claim that the lowest income earners “can’t afford” to pay. But one look at the lifestyles of most of the so-called “poor” will put that myth to rest. And in a free society, everyone should pay. Besides, the truly poor, those with little or no declared income, would still pay virtually nothing.

But I would go even further, and put a cap on earnings that are subject to the flat tax rate, say $250,000 – since this is the level that includes the bulk of small business owners who file individual tax returns, the very people who now create the majority of new jobs. You’d pay the flat tax rate on every dollar up to $250,000 – above that, no income tax at all – just like we do with Social Security taxes (FICA). After all, upper income earners don’t get any more government services for the extra taxes they pay – on the contrary, their high incomes make them ineligible for most of the programs that the lower income folks utilize.

But more importantly, having small business owners keep more of what they earn would mean more capital for investment and expansion. It could usher in an era of private sector growth and job creation unparalleled in our history. It would encourage existing small businesses to expand, knowing that once they reached that $250K threshold, they would keep every additional dollar they earned. It would also bring in new entrepreneurs, by making it more attractive to start and grow a business. Profit is an wonderful motivator, and as much as Democrats hate to admit it, the best thing you can do for the poor is to cut tax rates on the highest earners, not the lowest – the “poor” don’t create jobs.

Ironically, the increased economic activity would also lead to more tax revenue to the Federal Treasury, as more and more people became tax payers, rather than tax consumers – once again, broadening the tax base is good for everyone, even the government.

Naturally, a flat tax proposal will make today’s liberal Democrats go ballistic. Because while they have no problem whatsoever using the power of government to impose punitively progressive taxes on the “rich,” they recoil in horror at the thought that all those people currently paying nothing would now have to pay at the same rate as the rest of us. And making the income tax “regressive” by capping taxable income as I suggest would make their heads positively explode.

The ugly truth is that today’s political Left view “the rich” as little more than golden geese, to be squeezed of every last “egg” in order to fund an ever expanding, and ever more socialist, Federal government. The root of the problem is the liberal view that taxation should be based on “ability to pay” – the “rich” should always pay more. That half the country gets a free ride bothers them not one bit.

That’s because while Conservatives see taxation as a matter of equitably spreading the burden of funding the government, liberals instead view the tax code as a means of taking money from one group of people in order to “redistribute” it to another – “spreading the wealth around” as then candidate Obama told “Joe the Plumber.” They seem to forget that IT’S NOT THEIR MONEY – the wealth they want to spread around must first be taken (by force) from someone who created it.

Our current financial crisis is the result of almost 100 years of escalating socialism, with no regard as to how to pay for it. It started with the income tax in 1913, followed by Social Security and the New Deal in the 1930′s, then Lyndon Johnson’s “Great Society” programs and the rise of the modern welfare state. It continued with disasters like Jimmy Carter’s “Community Reinvestment Act” which led to the current housing crash, and the numerous “bailouts” of banks, auto companies, and finally, Obamacare and the ill-named “stimulus” bill, all of which have accelerated our inexorable slide into fiscal irresponsibility.

More and more government spending, $4 Trillion of it in Obama’s first two years alone, most of it on things the government has no business being involved in at all.

More and more regulations that not only strangle entire industries like oil, coal, and nuclear power, but intrude into every aspect of our private lives, from dictating what kind of light bulbs we have in our kitchens, to what type of toilets we have in our bathrooms.

More and more subsidies and mandates for “green” nonsense like ethanol, which have driven food and energy prices through the roof.

More and more borrowing in order to spend money we simply do not have, raising our national debt to a staggering $14 Trillion – soon to go even higher.

And a tax code that has resulted in an ever shrinking number of our most productive citizens paying the bills, while an ever growing number of people now pay next to nothing.

A regressive income tax? You bet. And the more regressive the better. Because only when we have eliminated “freeloaders” – and everyone has “skin in the game” – will we be able to reign in out-of control spending, and get our fiscal house in order.

John Caile

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