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A post by Maynard

You’ve heard Democrats advocating a tax hike on “the rich”, who aren’t (so they tell us) paying their “fair” share. The charge is a silly one, but it’s also dangerous to refute. If elections are going to be decided by a class war, then it’s not safe to stand against the masses.

The irony is that, under our progressive tax structure, the bulk of taxpayers pay little or no Federal income tax, and the top income earners pay the lion’s share. The exact numbers vary depending upon how you analyze, but the big picture is clear. For example, here’s a Congressional Budget analysis from 1999. Looking at the section labeled “Share of Total Individual Income Taxes”, the lowest quintile (20%) of taxpayers are listed as paying negative 2% of Federal taxes (meaning these people get more refunds than they paid in), and the next 20% pay 1%. Meanwhile the high-earning 20% pay 79% of Federal income tax. And the trend over the recent era has been for the high-income-earners to shoulder an increasing share of the tax burden.

In light of this, it’s a bit weird for the Democrats to rile up the big group that pays 0% in order to make them angry at the small group that pays 80%. But that’s politics, and I won’t pretend to be surprised.

So it’s fun and games as usual in Washington, but meanwhile the foreigners are eating our lunch. Here’s a frustrating article in The Economist about how our tax-cutting foreign rivals are drawing business away from America. America needs to examine its corporate tax policy, or our businesses —and thus our workers — will pay the price.

How much should the corporate tax rate be cut? Alan Auerbach of the University of California, Berkeley, says it would make sense for America to move more in line with other countries. Unfortunately, in the current political climate, even that idea seems outlandish. But Mr Hubbard, for one, thinks things would be different if voters realised who actually pays the tax. The evidence, he says, suggests that the burden of the corporate tax falls disproportionately on workers. For instance, a study by Kevin Hassett and Aparna Mathur of the American Enterprise Institute, looking at 72 countries over 22 years, suggests that a 1% increase in corporate tax rates results in a 0.8% reduction in manufacturing wage rates. Other studies paint a similar picture. If workers understood that corporate taxes are a toll on the common man, wouldn’t they clamour for a rate cut?

These were facts that Ronald Reagan could understand and communicate to the people. I’m not sure who in the national spotlight is willing and able to carry the message today. George Bush has been a tax cutter, but he’s also been a spender, and not a great communicator.