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Tax-Cut Fallacies

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The Republican collapse on taxes is as about as surprising as an elephant’s fleeing a mouse, which, come to think of it, may be exactly what’s happened.

It looked as though the congressional Republicans were going to make a 10 percent across-the-board unconditional tax-rate cut the centerpiece of their agenda. It was supposed to contrast with the Clinton administration’s insistence that any tax reduction be “targeted,” which means laden with conditions on the taxpayers. The Republican cut was miserly, to put it mildly. But at least it was unconditional. While President Clinton was saying, “You, Mr. Citizen, may have a small amount of your earnings back only if you behave as I decree,” the Republicans seemed to be saying, “Mr. Citizen, it’s your money; you may have more of it with no strings attached.”

But the Republicans have now caved. I’m beginning to get used to this.

Why did they cave? They let themselves get snookered by the old class-warfare trick. As soon as someone says “across-the-board tax cut,” the Democrats and their running dogs cry, “Unfair! The rich will get more than the poor!”

Citizens for Tax Justice attitudinized that a 10 percent tax cut would shrink the tax bill for families making less than $38,000 by an average $99. Yet people with incomes over $301,000 would find themselves $20,697 richer. The Center on Budget and Policy Priorities calculated that 27 percent of taxpayers wouldn’t get a dime!

That shameful tactic worked again.

“An across-the-board cut isn’t the right policy for this time,” said Republican representative Nancy L. Johnson of Connecticut. “While we’re for tax cuts, this must be a modest bill and it can make more difference in people’s lives if it’s targeted. When you do an across-the-board cut it tends to help the top earners the most.”

Such sophistry neatly rigs the game against any plain old “untargeted” tax cut, not to mention repeal. A few facts will demonstrate this.

First, the congressional Joint Economic Committee points out that people making less than $20,000 pay no personal income tax. In fact, many people at that end of the income ladder receive money through the misnamed and redistributive Earned Income Tax Credit. The handout last year totaled $12 billion.

Second, higher-income people pay most of the taxes. Tax analyst Bruce Bartlett notes that people making more than $100,000 last year paid 62.4 percent of all federal income taxes. According to the IRS, in 1996, the top 50 percent of earners paid more than 95 percent of the income taxes. (The top 10 percent paid more than 62 percent of the tax.)

In other words, the bottom 50 percent-those making about $23,000 or less-paid less than 5 percent of what the income tax took in!

If an across-the-board tax cut “favors” wealthier people, it is only because those people pay most of the tax to begin with. How, then, can that be unfair? Obviously, 10 percent of a large number is bigger than 10 percent of a small number. Obviously, income taxes cannot be cut for people who pay no income taxes.

Are we to have no unconditional tax cuts because people who make more than $23,000 will keep more than people who make less?

The Republican crime is to have surrendered to this sordid appeal to ignorance, envy, and class hatred. Most people in this country earn their incomes. The tax system seizes those earnings and gives them to politically favored groups, be they low-income people or rich corporations. That is wrong. Therefore, when people are able to keep their income, it is a good thing. The complaint that richer people get to keep more than poorer people is sheer demagoguery.

After all, whose blasted money is it?

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.