Wednesday, February 14, 2001

Bush tax cuts are step in right direction

By DAVE HAMRICK
Editor-at-large

Now begins the great class war.

Those who believe that money earned by other people should be given to them to be redistributed more "equitably" already are parading before the cameras and writing editorials denouncing the president's proposed tax cuts because rich people will get bigger cuts than poor people.

And middle America listens to the rhetoric and says to itself, "That doesn't sound right. Shouldn't poor people get bigger tax cuts than rich people?"

Just pretend I'm a precocious 5-year-old looking up with curious eyes and asking, "Why? Why should poor people get bigger tax cuts than rich people?"

Well, the answer is obvious, you sputter. Poor people have the greater need. We shouldn't "give" the money to rich people?

Here's me the 5-year-old again: "What's a tax anyway, Daddy?"

It's money that the government takes away from the people in order to do the things that government must do.

"So, if the money was taken away from the people, why is it 'giving' to the rich people if we let them keep more of their own money?"

Well, OK, it's not "giving" to them, but they have more, so they should pay more.

"Isn't that why they get to keep more, because they already pay a lot more?"

Yeah, I guess so. But listen to this: the richest 10 percent will get 60 percent of the tax cuts. How do you like that, Mr. smarty pants?

"But it says right here that the richest 10 percent pay 65 percent of the taxes. Shouldn't they really get 65 percent of the tax cuts?"

Isn't it your bed time?

OK, OK. No 5-year-old would be talking like that. But the point remains that this is all very simple if you look at the facts. An across-the-board tax cut does not equate to "giving" anybody anything. It is a reduction in the amount that will be taken away.

And the difference in the amount being taken away will be larger in actual dollars for rich people than it will be for poor people because rich people pay more taxes than poor people, and will still pay the lion's share of taxes after the cuts are in place.

In Thursday's Wall Street Journal, Albert R. Hunt bemoans the fact that under Bush's tax plan, people who make less than $18,000 a year won't get a cut.

Albert, even you can understand that you can't give a tax cut to people who don't pay taxes.

He points out that such people do pay payroll taxes, for things like Social Security and Medicare. So I suppose he is saying we should reduce their Social Security and Medicare payments so they'll at least get something. I'll go you one better. We should do away with Social Security altogether and let them save for their own retirement.

And Mr. Hunt leaves out one more important fact. Not only do people in the lowest income brackets pay no taxes, but they are also eligible for a whole array of government benefits so that they are net tax consumers, rather than net taxpayers.

Let's talk about how to truly get more equity in the tax system.

Clear the table and assume we're setting up a brand new federal government, assuming there are somewhat autonomous provinces or states like we have in the U.S. We need to set up a tax system that will provide money to operate our government, to provide a court and criminal justice system, to regulate commerce between the states and to provide for defense against aggressive foreign governments, and because we are compassionate, we want some money to help our poorest people.

Assuming this is going to be an income tax, we figure out how much money we need, then we figure out how much income all the working people produce. If we need $100 billion to run the government, and our people have a total income of $1 trillion, then we need to tax 10 percent of our people's earnings to fund the government.

It should be just that simple.

But somewhere along the line, our leaders decided we should use the tax system not only to raise the money needed to fund the operation of the government, but also to reward certain behavior and punish other behavior; in other words, to accomplish some social engineering.

That has resulted in a tax system so complex that I doubt seriously there is a single person in this country who understands all of it.

The president's tax cut package takes a few tiny steps toward simplification, by reducing the number of brackets from five to four and eliminating the death tax, which is a tax on already taxed income.

But the plan also continues the tax system's legacy of social engineering, with extra credits for children, charitable deductions for those who don't itemize, and making current credits for companies' research and development expenditures permanent.

While I don't necessarily disagree with the aims behind any of those, I was hoping for bigger steps toward a flat tax.

That said, I'll probably be supporting the Bush tax cut plan as the only available alternative to the current plan, which is to tax us until we bleed.

You'll be hearing more from me on this as the debate continues.

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