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January 7, 2009
Tyranny of the Tax-Exempt
It now looks like half of President-elect Barack Obama's stimulus package will take the form of "tax cuts" for 95% of all Americans. Yet this wouldn't so much boost the economy as trigger a massive, unhealthy shift in American politics.
Under Obama's plan, the majority of American voters would pay no federal income taxes, but would get money from the government instead. That is, these "refundable tax credits" are basically welfare checks – and Obama's plan would leave the most of us collecting, not paying.
A $200 billion giveaway won't do much to get a $14 trillion economy rolling again. But the plan would leave any future taxpayer revolt no hope of majority support.
Today, the bottom 50% of US taxpayers pays a total of $30.6 billion in federal income taxes on a combined income of about $1 trillion. So, about 3% of all federal income-tax payments come from the poorest half of the country. (The top 1% pays 40%; the top 25% pay 85% of the federal income tax.)
Obama's plan – he'd give all couples a $1,000 refundable tax credit and all single people $500 – would funnel more than $50 billion to the lowest half of the country, thereby completely wiping out their total federal tax liability. In most cases, it would trigger a "refund" welfare check.
In one stroke, this would transform the majority of voters from taxpayers into tax eaters – and leave an increasingly small minority to pay the bill. Whether this is good economics or not, it is very dangerous politics.
Essentially, it would put those who actually pay the taxes that fund our government into much the same situation as landlords in New York City – hopelessly outvoted by their tenants, who use their political clout to limit rents and landlords' profits.
Since Ronald Reagan, the anti-tax movement has been based on a blue-collar revolt against high taxes; it would lose that constituency under the Obama plan. Taxpayers would be politically helpless and the tax-eating majority would have free reign to impose any levies it wished.
Almost all of the 68 million tax filers in the country's bottom economic half would get a check from Washington at tax time. Some would be among the 22 million who get money from the Earned Income Tax Credit (EITC). Others would get a $500 check through the (Bush-passed) Child Tax Credit – and all would get funds through the new Obama tax credit.
Welfare would no longer be only for the poor – the majority of the voters would depend on government handouts. This very system is what makes European social democracies so resistant to change.
In 1980, the bottom 50% of the nation paid 7% of the national tax bill, after refund and credits. It now pays 3%; under Obama's plan, it would pay less than nothing (that is, it would net a profit from the IRS). In 1980, the top 1% paid 19% of the income-tax burden; now it's 40%. Taxes have become the province only of the rich.
Of course, the shift in tax burden also mirrors the incredible increase in incomes of the wealthy in the last 30 years – the top 1% earned only 8 percent of the total national income in 1980; now it earns 22%. And the poorest half has seen its share of national income fall from 17% in 1980 to only 12.5% today.
So it is both fair and sensible to give the poor a tax break and to draw the bulk of federal revenues from the rich. But to exempt the bottom half – a majority of the voters – from paying any taxes and to award them refund checks instead would dangerously alter the fundamental balance of national politics. For the economically well off, it could effectively become taxation without representation – which, as the founders of our nation warned, leads to tyranny.
FamilySecurityMatters.org Contributing Editor Dick Morris is an international political consultant and commentator on FoxNews. Along with his wife, Eileen McGann, he is a columnist for The New York Post and is the author of New York Times bestsellers "Condi v Hillary", "Because He Could", "Rewriting History", "Off With Their Heads" and the current "Fleeced." www.DickMorris.com.
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