Over the past few months, there has been a daily trickle of establishment Republicans coming out before the media in hostage style confession statements to declare that they would accept tax increases as part of a “grand bargain” to cut the deficit. The latest members are Senator Lamar Alexander and Rep. Scott Rigell.
The entire premise behind Republicans acquiescing to the “balanced approach” to the debt crisis is immoral, misguided, and counterproductive. Before they bend in fear from the truculent Democrat class warfare, here are some points they should consider:
1) Government as God: Let’s begin with a simple declaration that must serve as the foundation for any Republican candidate’s platform on taxes. Raising taxes on the rich for the purpose of growing government, redistributing wealth, and creating dependency – and by extension – cementing Democrat power, is immoral. The promotion of theft and jealousy is just as immoral as abortion. The same God who said thou shalt not kill also said thou shalt not steal or covet thy neighbor’s property. In that sense, the tax issue is also a “social issue.”
Besides, those of us who are not rich and still give 10% of our income to charity need not be lectured by the limousine liberals on the virtues of helping the poor. Private charitable giving to the poor is virtuous; government-mandated redistribution for political gain is theft. And yes, there’s a reason why residents of the red states give more charity than those in blue states, even though many of them are poorer than their blue state counterparts. They are simply more religious, and do not misplace government for God. Yes, Mr. Clinton, there are those of us who reject the government-take-all society.
So any Republican who agrees to raise taxes on the rich at a time when our tax code is the most progressive it has ever been, obviously subscribes to the ‘government is the only thing we all belong to’ meme. They are wrong. God is the only ‘thing’ we all belong to. It’s not the job of the rich to bail out failed Democrat reelection programs; it’s the job of all of us to privately help God’s creations.
2) Faux Balance: There is no balanced solution on the table, and there never will be. The reality is that Democrats have never agreed to anything more than notional baseline cuts over 10 years. They have not agreed to close down a single agency or office, much less a full government department. They have not put on the table a plan to eliminate even a few of the 2,184 assistance programs. And they never will. It would be an anathema to their entire political desideratum: growing government and creating dependency and special interests for the purpose of cementing a permanent power structure.
So why are Republicans pre-emptively committing to raising taxes before there is a parallel agreement to limit government and pass free market entitlement reform?
3) Fairness: Democrats speak of tax fairness and the need for the rich to pay their fair share. But who is really paying their fair share? What part of the top 1% pay 36.7% of income taxes, even though they only earn 16.9% of AGI, and the bottom 47% pay zero income taxes do the liberals and RINOs not understand?
Source: Tax Foundation
Furthermore, the system has only gotten more progressive since the Reagan and Bush tax cuts. Let’s compare the change in share of the tax burden since 1980:
As you can see, the tax code has become increasingly progressive, to the extent that the rich pay almost twice the share of taxes they did in 1980. You can kick and scream about loopholes and handouts for the rich from now until tomorrow, but the fact is that despite all the tax credits and deductions, they still shoulder an overwhelmingly disproportionate share of the tax burden relative to their AGI.
4) Lower-income earners: Democrats claim that Republicans want to raise taxes on the poor and “working class” in order to give to the rich. The reality is that not only do the poor not pay any federal income taxes, the amount they receive in refundable tax credits will more than offset any other tax liability, often with a lot of change to spare. It is actually the Republican tax cuts of the past few decades that have made the tax code even more progressive by eliminating the bottom tax brackets and expanding refundable credits. Here is a useful chart from the Tax Foundation showing the growth of refundable tax credits, even compared to the growth of other tax credits.
Source: Tax Foundation
Ironically, Republicans have dug their own grave on the tax issue by allowing so many people to avoid paying taxes. Consequently, many of them garner no animus towards the current tax code. According to the Tax Foundation, 40.9% of tax filers paid no federal income taxes in 2009. However, when all U.S. households are included (those who don’t have to file tax returns), that number grows to 51%, according to the Joint Committee on Taxation. Moreover, 30% of households actually make money from the tax code. In 1981, the first year Reagan was in office, only 19.6% of tax units had no tax liability.
And yet, Democrats still accuse Republicans of “raising taxes” on the working class. The idea that the rich (except for a few anomalies) sit back and pay nothing, while the low-middle income earners shoulder the brunt of the burden is not grounded in reality.
5) The Liberal Regressive Taxes: Now that we established that it is actually the Republicans who are responsible for the lack of taxation on the poor and some middle class Americans, the regulatory burden and market distorting-policies put in place by Democrats represent the biggest and most regressive tax on those people. Whether it’s the devaluing of our dollar, green energy mandates, CAFÉ standards, Obamacare, Dodd-Frank, or EPA regulations, Democrats have increased the cost of food, energy, healthcare, and cars – all vital needs that account for a large portion of the “working class” income.
6) The Budget: The idea that tax increases can balance the budget is absurd. There is one thing that will bring in more revenues (to the extent that it’s even a worthy goal); a growing economy. Raising taxes will never get the economy moving again. You might be able to confiscate the wealth of the top 1% for a few years, but they will never receive the projected 10-year revenue increases from a permanently depressed economy. Besides, even Obama concedes that you cannot raise taxes too severely, and that you can’t raise taxes on the middle class. Well, the reality is that in order to use tax increases to balance the budget, those tax hikes would have to be so severe and spill over into the middle class in order to raise enough revenue. Veronique de Rugby of the Mercatus Center posted a chart that illustrates the absurdity of the notion that taxes increases will solve our problems:
Source: Mercatus Center
It’s a big government problem; not a tax problem. The real issue is that government is growing faster than the economy. Raising taxes to fund more government growth will only exacerbate the problem and engender a future need for more tax increases when the revenues disappoint. Maryland and Martin O’Malley should serve as a case study for the counterintuitive nature of raising taxes on the rich over and beyond their current disproportionate liability.
7) Investment Income: To the extent that there are very wealthy people who pay a lower effective tax rate, it is because they earn most of their income from investments and long-term capital gains. While the highest income tax bracket is 35%, the Capital Gains tax on investments is 15%.
So here’s the question: do liberals believe that it is fair to tax capital gains at the same rate as income, even though investors risk their life earnings in order to make that money? Investments represent the lifeblood of our economy, and if we told investors that we will confiscate a third of their earnings if they succeed, why would they invest?
8) The Welfare State: Not only are almost half of American households not on the hook for federal income taxes (under current law with all of Bush’s tax cuts), much of the tax burden of the rich has gone towards redistribution. In 1979, welfare spending was just over 3% of GDP; today, it accounts for 6.25% of our economy. Current levels of welfare spending account for 73% of the gross income of the top 1% ($1.3 trillion). And this is not enough redistribution for Democrats? After $16 trillion spent on the ‘war on poverty,’ poverty is at record levels. Why should we raise more taxes on job creators to throw money down the same rate hole of failed liberal policies?
At some point we need to draw a line in the sand and declare that enough is enough. The notion that we need to make our tax code even more progressive and our society even more redistributive is not moderate; it’s socialist. And it has no place in our great Republic.
Cross-posted from The Madison Project