Politics & Policy

The Fairness Argument

Spending cuts are smarter and fairer than soak-the-rich tax hikes.

The average person must wonder what the Democrats are thinking. Even the most casual observer knows that U.S. debt projections foretell disaster. With spending at 24 percent of our economy, a modern record, how can Democrats expect to avoid substantial spending cuts? The answer, of course, is that they expect that, when push comes to shove, they can raise the taxes necessary to cover the problem — specifically, that they can tax the people who don’t vote for them to pay for the programs that primarily benefit those who do. Even when the taxes inevitably dip into middle-class pockets, it will be easier to tax than to cut spending. And the rhetoric will still be about taxing the rich and made easier with a little help from the media.

Every team has a go-to play when they’re in a bind. For the Dems it’s to talk about “the need for increased revenue.” According to Obama, we could balance that darned budget if only the millionaires and billionaires (read: couples making over $250,000) would pay their fair share. Obama and his team played that card again last week, during the Biden-led budget negotiations and debt-ceiling talks, prompting House Majority Leader Eric Cantor and Sen. John Kyl to walk out. For every three dollars of spending cuts there must be a dollar of additional revenues, the Dems insist. It’s as if Poppa were spending the family into bankruptcy but will agree to reduce his rate of profligacy only if Momma gets a second job.

Realizing that increasing taxes can never match out-of-control spending, the Republicans have dug in. They have also borne witness to the long history of compromise on this issue. The tax hikes are placed promptly into effect. The spending cuts never quite materialize as planned. The Dems are talking about closing loopholes and cutting subsidies in the current budget talks, but that’s just a door-opener for doing away with the hated Bush tax cuts “for the wealthy.”

Who knows how this is going to play out? If no agreement is reached on the debt ceiling, while default is still not a danger, Obama gets to choose which federal programs get cut or slow-walked as he uses his pulpit to blame the GOP. On the other hand, we have a growing number of Americans who are interested in our not becoming Greece. I’m betting on the GOP but, as we enter this new round of Obama-led demagoguery on the rich-who-must-be-soaked, we need to refocus.

Let’s get off the defensive with regard to this “fairness” argument and meet it head on. We’ve got the better argument from both an economic and a fairness standpoint.

First, I’d start with the question, “Just how much of any person’s money should the government take?” Polls indicate that the public puts that number lower than most politicians think.

Then I’d make these points:

Fewer people are already carrying more of the tax load in this country. More than half pay no income tax at all. Upper-income Americans are paying a growing share of our tax burden. Five percent of taxpayers pay well over 50 percent of the entire tax burden — a higher percentage than anywhere else in the Western world. (Yes, that would include France and Germany.) Moreover, the top 10 percent — makers of an average of $114,000 — pay almost 70 percent of all income taxes.

The soaking-the-rich argument is just a way for the voracious taxing machine known as the federal government to get its foot in the door so that it can get its hands on the middle class, where the real money is. If the government took all of the income of those making over $200,000, it would hardly solve our fiscal problem. It would barely cover Medicare, Medicaid, and Social Security, and it wouldn’t cover those programs after five years. Obama’s soak-the-rich proposals would raise about $750 billion. If interest rates normalize, by the end of ten years that wouldn’t cover the additional interest costs to the government for a single year.

The government never gets the amount of money liberals claim it will from raising the top income-tax rate. The ratio of tax receipts to GDP is always about 8 percent of GDP regardless of the top rate. So in order to raise revenue, you’ve gotta raise real GDP. This should hardly come as a surprise. More than two centuries ago, Alexander Hamilton wrote in Federalist No. 12: “It is evident from the state of the country, from the habits of the people, from the experience we have had on the point itself, that it is impracticable to raise any very considerable sums by direct taxation. Tax laws have in vain been multiplied; new methods to enforce the collection have in vain been tried; the public expectation has been uniformly been disappointed, and the treasuries of the states have remained empty.”

But look at the Clinton administration, the Dems say. “We had higher rates then, and tax collections were booming. We just want to go back to the Clinton tax rates.” But as Cato’s Alan Reynolds pointed out recently, the unexpected revenue windfalls in Clinton’s second term were largely a consequence of lower tax rates on capital gains. They went from 28 percent to 20 percent in 1997. The same thing happened in 2003 when they went to 15 percent.

Our income-tax system doesn’t tax wealth as such. It taxes income. Most people in the highest bracket have been in every tax bracket. They were not in highest bracket ten years ago and they may well not be in it ten years from now. Is there anything more defining of what this country is all about than the ability and the freedom to prosper as a result of one’s own efforts? Shouldn’t we be able to win this argument with the American people?

Fred Thompson, who represented Tennessee in the U.S. Senate from 1994 to 2003, is an actor, lawyer, and political commentator. His weekly commentaries also appear on his site, Fred Thompson’s America.


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