The American tax system is broken. While strangling our economy, it divides our citizens into “us” and “them”. But what happened to “we”, as in “We the People”?

In today’s America, roughly half of Americans pay no federal income tax. Yet, even though half of our country pays the bills for everyone else, we all use the goods and services those tax dollars provide. Meanwhile federal spending skyrockets while the deficit explodes. If we have not reached a taxation tipping point yet, then surely that point is rapidly approaching.

Our society is quickly devolving into two classes: tax payers and tax consumers. Those who pay taxes have a strong personal interest in the decisions of what is done with their tax dollars. This is especially true where half of Americans are supporting the other half through social programs. Likewise, the tax-consuming half of our society has a deep vested interest in the success of the tax-providing half.

Why?

If the taxpaying half of our society is unsuccessful in generating personal wealth for themselves, they cannot afford to provide sufficient tax revenue to support the consumers on the other side. This sick codependent relationship between taxpayers and tax consumers has forged a deepening chasm between American “haves” and “have-nots”, simultaneously eradicating the Middle Class and waging rhetorical war between the remaining polarized factions.

Depending on which news source one reads and the year in question, roughly half of all Americans don’t pay taxes and/or actually receive subsidies from Washington. The Associated Press reported that in 2010, 47% of all workers paid no federal income tax for their 2009 earnings. They added that the bottom 40% made a net profit from our tax code. Families making even $50,000 often receive more in direct tax subsidies than they pay and enjoy a net income from government. More disturbing yet, those metrics are headed in the wrong direction with fewer workers shouldering a heavier burden with each passing year.

Clinton strategist Dick Morris writes in his book Catastrophe that there are really three classes of taxpayers in the United States (page 53):

1) The tax payers: The top 25 percent (above $65k), who pay 86 percent of federal income tax
2) The tax neutrals: The middle 25 percent, who pay the rest
3)The tax eaters: The bottom 50 percent, (less than $32k) who pay no income taxes and get refundable tax credits

“On the day [Obama] became president, 43 million American households – roughly a third of all households in the country – were paying no federal income taxes at all. In fact, most of those people got checks from the government.

But when Obama’s tax program is fully implemented, a majority of Americans will be exempt from paying any federal income taxes. And, instead of a tax bill most of them will get checks from Washington every year.” Catastrophe, pg. 47

This concept of providers versus consumers is ironically perhaps the worst threat of increasing the gap between the “haves” and “have-nots” because of the disparate interests of the two subsets. Where the two groups need each other and exploit each other for their own personal gain, the haves are much likelier to become even richer as they invest in our economy. Worse yet, the have-nots will be counting on the haves to increase their own personal wealth. If they fail to do so, who will pay for schools and roads and the military? While we pile more and more Americans onto the government dole, we must further dilute our scarce resources. Our WIC checks, free cheese, and rent subsidies will never be enough to lift Americans out of poverty. Instead, we subsidize poverty and ensure its existence in perpetuity. The rich must get richer by necessity, while the poor stay poor.

If we scrapped our current tax code and instead asked every American to shoulder some tax burden, everyone would feel a more palpable sense of ownership and investment in the outcomes of our government. Taxpayers are far more likely to care about what happens to roads and schools and power plants and the environment, and far more likely to wield their vote to voice their opinions on the matters. They are far less likely to stand for excessive spending or government waste than non-taxpayers simply because they share a vested interest in their own tax burden not increasing.

Every American should have a tax burden upon them if any American is to have a tax burden upon them. While every effort should be made to assure we do not place an undue burden upon the poor or the rich, an equitable (such as by percent of income or spending) burden is fundamental to the ownership principle that is the essence of our democracy.

While it is easy to suggest that our ever-expanding, ever-hungrier government can be financed by increasing the tax burden on the so-called rich, the reality is hardly that simple. That argument is based on the premise that: 1) the rich can afford to pay more, and 2) current tax law exempts them from paying their so-called “fair share”. Those arguments are at least a little untrue and unfair.

On top of the fact that upper income earners would naturally pay a proportionally high share of their income under an equitable system, the United States has had since the creation of our tax code a graduated system wherein upper earners pay a higher rate. Since the induction of our modern tax code, the so-called rich have paid not only their fair share but often the fair share of many others as well. Even with tax loopholes, shelters and deductions, upper income individuals shoulder the overwhelming majority of our tax burden in this country and have for some time. It is intellectually dishonest to suggest that they are not paying enough.

What is “rich”, anyway? If we are to accept as a given the idea that the wealthy should shoulder the burden of increased federal spending on behalf of the greater good, then we must define what it means to be wealthy and establish a threshold. President Obama, for example, has declared a legislative war on earners making over $250,000 annually. Indeed much of his legislative agenda has been introduced with the premise that it will be paid for primarily on the backs of those making over $250,000 per annum. In a nation whose average income is roughly $45,000 yearly, it is safe to say that an individual earning more than five times the average income is well above average. However, many earners enjoying incomes at these levels are actually small business operators that accept personal tax liability as part of their business status. This includes sole proprietors, LLCs and S Corporations.

Requiring small business people and individual investors to pay even higher taxes would be fundamentally an economy killer. Business owners would translate the loss of money into fewer employees and higher price of their goods or services. Individual investors would have less money to invest in their 401ks, stocks and bonds, Treasury bills, money markets, and even deposit accounts which are the backbone of many banks. Everyone suffers under this scenario. Instead of prosperity trickling down, misery trickles down in its place.

Tax consumers will invariably protect their own interests by supporting politicians that expand social programs and shift tax burdens onto “the other guy”. Taxpayers will, likewise, protect their own interests by supporting politicians that promise to cut spending and taxes. In a nation that is closely divided between these two groups, our razor-thin election margins have created an unsustainable status quo of skyrocketing public debt and fewer sugar daddies around to pay the tab.

The time has come for LBJ’s Great Society and FDR’s New Deal to find their places in the ash heap of history once and for all. Our budget woes make it incumbent upon us to make tough choices and prioritize the things that matter most to us. In addition to an elimination of our entitlement society, deep spending cuts must be coupled with a reshuffling of the way our citizens pay for their government. Facing this reality head on will literally save our country. Ignoring it to win elections will ensure our demise.

When all Americans have some skin in the game, we all step up to make government accountable. That is, after all, the very essence of the word “fair”.

Nick Stone is the editor of Drawnlines Politics. The views expressed in this blog are the author’s, and do not necessarily represent the views of Right Pride or GOProud.

 

One Response to “Taxation, Class Warfare & the Welfare State”

  1. Excellent post Nick! I especially liked this last statement:

    “The time has come for LBJ’s Great Society and FDR’s New Deal to find their places in the ash heap of history once and for all.”

    We need to desperately force our leaders into a discussion of revising the tax policy in this nation AND institute constitutional bulwarks against the loopholes left open in the Constitution which have led the statists to wreck the system in the first place (can you tell that’s the Objectivist in me coming out!…LOL!). I’ll share this on my Facebook page!