As of this writing, it is difficult to speculate on whether or not the Democrats in Congress will pass the deal to maintain current tax rates, as agreed upon by Obama and Republican political leaders. If they fail to do so before the end of the year, the “Tax cuts for the rich,” will become tax increases for everyone. The people in the 10% tax bracket will find their taxes will increase by 50%, in order to spite the wealthy from getting a 10% increase.
The tax compromise proposal keeps tax rates for all Americans exactly where they have been for nearly a decade. It extends benefits for unemployment for an additional 13 months—a feather in the Democrats’ hats. It raises the estate tax from 0% to 35%, but keeps them from rising back to 55% as they were scheduled to do in 2011—chalk up one for the Republicans. I don’t know how anyone can complain about the payroll tax reduction of 2% in 2011. It will result in a full 2% refund of tax on wages and salary for the working poor and lower middle class. Nobody will be rebated more than about $1800 no matter how high their income.
Democrats in Congress have become indignant because they were cut out of the negotiations and because they think Obama unnecessarily gave away the farm. But the Democrats’ reputation as champions of the little guy is purely illusion. If they really wanted to maintain tax rates for the middle-class, that should have been a legislative priority long before crunch time.
Personally, I could live with this deal. As a middle-class American I would benefit from the payroll tax holiday. Out of principle I wouldn’t shed a tear if the proposal fell through though. I think it would be a disaster for the Democrats if they choose to die on this hill. When the average American sees their first pay check in January, reflect a decline in less take-home pay, they are going to ask how all this happened. The answer will be that Obama made a deal with Republicans that was nixed by Democrats. After the lame-duck session, it will be harder for Democrats to save face.
Let me tell you about my principles. I believe in limited government. That’s limited government, and neither anarchy nor a nanny state. As such, I think taxes are way too high. Tax structure has been used as a political football to perpetuate class warfare for far too long. Progressive income tax is a gift from Karl Marx. I prefer a flat tax rate, either on income or on consumption. We do not have a tax problem, we have a spending addiction. As such, no tax structure will be much of an improvement if the Congress continues its spendthrift ways. Tax reduction, or in this case, continuance of current rates, doesn’t “cost” anything or result in a deficit. The impression that keeping tax rates the same is a budget cost, assumes all the money belongs to the government to start with. If you think of it that way, then look at all the lost revenue that occurs because the top tax rate isn’t at 63% instead of 36%. Overspending is the lethal disease. Taxes ought to be limited to legitimate needs for the government to carry out its constitutional objectives. It is high time we head back in that direction. Instead we have used borrowing and taxation to fund layer upon layer of entitlements to buy votes, and considering the money spent, very little to reduce poverty. Government acting as a charity is a bad idea, in addition to being constitutionally unjustifiable.
I am a believer in supply-side economics. There is an elastic relationship between the optimum tax rate and the maximum potential revenue to the U.S. Treasury. One objection I have to supply-side economics though, is the premise that we should maximize revenue to the treasury. While in an environment of excessive debt that is an important objective, it is a subtle innuendo, once again, that the government has all the money and doles it out at its own good pleasure.
Another concept that eats me is this idea that the rich need to “pay their fair share.” Who decides just what this “fair share” is? How does someone paying little or no taxes have standing for complaining that someone is greedy for wanting to pay no more than the current federal income tax rate of 36%. Why is the government not criticized for accomplishing so little, and wasting so much with the vast financial resources they have at their disposal?
Look at it this way, I was the guy who wrote essays and term papers in college business classes, complaining that CEO’s were overpaid by any acceptable standard. I still share that sentiment to some degree, but I don’t see how it is the government’s prerogative to decide that issue. What I would prefer is that people make as much as they can, then be generous with a portion of that money. Liberals, of course, have no confidence that people, particularly the rich, will do just that. I think that the wealthy probably don’t get the credit they deserve for their private philanthropy and public job creation. I have spent all my life either as poor or in the middle-class, but I reached a point in my thinking where I became fed up with the campaign of gratuitous coveting of thy neighbor’s property and assets.
That tendency is just as bad as naked greed.