TruthNews Commentary, Jan. 8, 2003

Before President Bush’s new economic recovery plan was even been released, the nay saying began. The economic plan will consist of tax cuts and additional tax credits for children. The Democrats, already posturing themselves for the 2004 Presidential race, call this a tax cut for the rich.

The increased child tax credit is only for those who make less than $100,000 a year (the parents, not the children). So this is not exactly a tax cut for the rich. Well, maybe someone who makes $99,000 a year is rich, but not as rich as the Democratic congressmen who are sniping about the plan. These Democrats make $154,000 a year (which happens to be exactly the same as their Republican colleagues), not including outside income. So maybe the Democrats are just mad that they’re not going to qualify for the child tax credit. But then, they could always take a voluntary pay cut to $99,000 a year.

However, the rich will benefit significantly from the rest of the plan, which cuts marginal tax rates and eliminates the double taxation of dividends. But there’s a good reason that the rich will get a bigger tax cut, and that’s because they pay more taxes in the first place.

Do the rich deserve a big tax break? Well, that depends on the purpose of the tax cut and what your perception of fairness is. One could argue that the fairest way to tax the people is to tax everyone the same amount. After all, everyone benefits equally from the government, so everyone should pay the same tax. For example, the federal government could tax every person in America $1,000 a year. This would bring in $280 billion. But this isn’t enough because the federal budget is $2.1 trillion a year. So we’d need to tax everyone $7500 per year to have a balanced budget. A family of four would pay $30,000 per year.

Well, maybe this isn’t a workable solution, but it would be "fair" in the context of treating everyone the same. In fact, this was only method of direct taxation authorized by the Constitution until the income tax amendment was passed in 1913 (although it was hardly ever used -- instead the federal government relied on indirect taxation such as tariffs, which was a secondary cause of the Civil War). So, with a grossly inflated federal budget, we rely on a graduated income tax, corporate taxes, tariffs and excise taxes, and borrowing to pay for the federal government.

Another fair way to calculate taxes would be the flat tax, where everyone is charged the same percentage. This is the form of taxation that was established in the Bible (the tithe). If everyone paid, say 10 percent of their income in taxes, we could say that this is "fair"-- everyone is paying the same rate.

For single people, the current tax rate starts at 10 percent for the first $6,000 of taxable income and ranges up to 30 percent for taxable income in excess of $67,701 (i.e., the "rich"). Since a single person gets about $7,450 of exemptions, the category of "rich" in our tax scheme starts at an annual income of around $75,000. Is it fair for this "rich" person to pay 30 percent of his income while the poor person pays only 10 percent? It depends on your point of view, but it would be difficult to make an argument that it would be unfair to cut the rich guy’s rate to 20 percent while still taxing the poor guy 10 percent.

The problem is that Democrats view a tax cut as if the government were giving free money away, and the rich person doesn’t deserve more free money than the poor. This seems to reflect the prevalent view among tax-and-spend liberals that everyone’s money belongs to the government, and it is only because of the generosity of the government that we’re allowed to keep any of it. But a tax cut is not a gift from the government – it’s just a reduction in the amount that they’re soaking us for. Since the average American already works until May just to pay his taxes, it’s high time the government stopped soaking us for so much.

In looking at a reducing tax rates, the other factor we need to consider is what the point of the tax cut is. If we want to encourage oil companies to drill for domestic oil, a tax reduction on domestically produced oil might be in order, but a tax cut for hot dog vendors would be pointless (unless we want to convert hot dog grease to fuel). The point of Bush’s proposed tax cut is to stimulate investment. To stimulate investment, he needs to cut the taxes of the investors. Of course, he wants to be fair, so he also plans to cut taxes for everyone one else.

High taxes can strangle an economy. That’s the difference between East and West Germany, between North and South Korea, and, for that matter, between Europe and the U.S. Bush is trying to relieve the tax stranglehold on our economy. Lower taxes will encourage economic growth, which will actually result in higher government tax revenues (10 percent of $300 is more than 20 percent of $100). The surpluses of the 90s were due to the Reagan tax cuts and those imposed by the Republican Congress in 1994.

Bush is proposing an economically sound plan for short-term and long-term growth. The nay-saying Democrats are trying to get votes with the Roman strategy of "bread and circuses," irregardless of the long term effect on the economy. Of course, it's in the Democrats' partisan interest to keep the recession (began under Clinton's watch in 2000) going until the 2004 Presidential election.