Danger of no tax liability

townhall.com ^ | 9/15/04 | Walter E. Williams

[kattracks]

In last week's column, I reported on the Washington, D.C.-based Tax Foundation's study that estimated that 44 percent of income earners will legally have no 2004 federal income tax liability. The study concluded, "When all of the dependents of these income-producing households are counted, there are roughly 122 million Americans -- 44 percent of the U.S. population -- outside of the federal income tax system."

The Bush administration sees removing the income tax burden on Americans at the lower end of the earnings spectrum -- families earning less than $50,000 a year -- as desirable. When President Reagan successfully got Congress to remove 6 million Americans from the tax rolls, he described his tax reform initiative as one of the proudest achievements of his administration. At the time, I argued that doing so was nothing to be proud about, and I extend that same criticism to President Bush.

 You might ask, "Why?" In general, I've always held that a tax cut for anybody, at any time, for any reason is a good thing because it keeps more of our earnings in our pockets and out of Washington. But there's a problem. Removing so many Americans from federal income tax liability contributes to the political problem we're witnessing this election: class warfare and the politics of envy.

 When 122 million Americans are outside of the federal income tax system, it's like throwing chum to our political sharks. These Americans become a natural spending constituency for big-government politicians. After all, if you have no income tax liability, how much do you care about how much Congress spends and the level of taxation? Political calls for tax cuts fall upon deaf ears. Survey polls reveal this. According to a Harris Poll taken in June 2003, 51 percent of Democrats thought the tax cuts enacted by Congress were a bad thing, while 16 percent of Republicans thought so. Among Democrats, 67 percent thought the tax cuts were unfair, while 32 percent of Republicans thought so. When asked whether the $350 billion tax-cut package will help your family finances, 59 percent of those surveyed said no and 35 percent said yes. Tax cuts to many Americans mean just one thing: They threaten the handouts they receive.

 There might be a correction for the political problems caused by large numbers of Americans with zero income-tax liability. But it might be politically incorrect to even mention it. I do not own stock, and hence have no financial stake, in Ford Motor Co. Do you think I should have voting rights, or any say-so, in the matters of the company? I'm guessing that your answer is no.

 So here's my idea. Every American regardless of any other consideration should have one vote in any federal election. Then, every American should get one additional vote for every $10,000 he pays in federal income tax. With such a system, there'd be a modicum of linkage between one's financial stake in our country and his decision-making capacity.

 This is not a far-out idea. The founders of our country worried about it. James Madison's concern about class warfare between the rich and the poor led him to favor the House of Representatives being elected by the people at large and the Senate elected by property owners. He said, "It is nevertheless certain, that there are various ways in which the rich may oppress the poor; in which property may oppress liberty; and that the world is filled with examples. It is necessary that the poor should have a defense against the danger. On the other hand, the danger to the holders of property cannot be disguised, if they be undefended against a majority without property."

[DC Bound]

Good read; thanks for posting. I've never bought the "progressive" tax concept.

[Sonny M]

Interesting but I was always given the impression that the senate (as it was chosen by the state legislature) concept came not from looking at issues in terms of class, but in terms of power and benefits to the state.

Personally, I don't even use the work "progressive tax", I've been calling it a punative tax system since I started college and till now.

My professors hated the term.

[Libertarianize the GOP]

ping

[Weirdad]

There is already an "alternate minimum tax" that bites rather hard on people who are NOT "the rich." The concept was that if you earn a certain amount that EVEN IF you have tax deductible expenses that you cannot have so many that you would not owe any tax. (This tax stinks because it ignores the most basic tenet of business that it takes money to make money, but we are stuck with it at the moment.) If we can say that--that everyone should have to pay tax--and charge "the rich" megabucks even when their net income was zero, then likewise we should say that since everyone "gains" from the Federal Government (granted a questionable premise) that no person should be exempt from paying SOME income tax, however small that may be. Just set a minimum tax of say, $100, and index it to the top tax bracket so that those people also feel a little something when they advocate marginal tax rates of 70%+ on "the rich."

[DC Bound]

I like punitive better. I'm stealing it from you. What kills me is that so many patriots fought for the right for citizens to have a voice in taxation, and today the code is so complex normal folks don't know where to start arguing. Coupled with income tax withholding, guaranteeing most folks don't miss their money because they never see it. I can't wait to see what comes of the President's proposed IRC reform.

[Cosmo]

I belive it was Robert Nozick who deemed taxes little more than a mugging.

I get mugged on a daily basis. how bout you?

[Taxman]

Dr. Williams, you and I know and a lot of other people know that the National Retail Sales Tax solves this problem.

It is time for you to get back on board (at one time, back in the mid-nineties, Dr. Williams supported the National Retail Sales Tax) with the Fair Tax -- no way is the progressive income tax system ever going to tinkered into a just, fair or reasonable system.

The Fair Tax is, by design, a just, fair and reasonable tax system.

“I have sworn upon the altar of God eternal hostility against every form of tyranny over the mind of man.” [Thomas Jefferson, letter to Benjamin Rush, 1800.]

Click here and here to help us scrap the Code, scrap the IRS and abolish the VLWC!

You can also click here to sign a petition in support of Fundamental Tax Replacement.

We will never be a truly FRee people so long as we have the income tax and the IRS.

[Casloy]

I'm more inclined to have a flat tax. Everyone pays the same flat percentage of their income with no deductions. Furthermore, your employer would not auto deduct from your paycheck. The government would send you a bill every month. Now that would make tax hiking politicians extinct.

[Your Nightmare]

It's interesting that he only mentions income taxes, which are more progressive, and doesn't mention excise taxes or payroll taxes, which are more regressive. If you look at total federal tax burden, virtually every pays some taxes

Effective Federal Tax Rates: 2001
	Share of Income (Percent) Pretax Income	Effective Individual Income Tax Rate	Effective Social Insurance Tax Rate	Effective Excise Tax Rate	Effective Corporate Income Tax Rate	Total Effective Federal Tax Rate
Lowest Quintile	4.2%	-5.6%	8.3%	2.4%	0.3%	5.4%
Second Quintile	9.2%	0.3%	9.4%	1.5%	0.4%	11.6%
Middle Quintile	14.2%	3.8%	9.5%	1.2%	0.7%	15.2%
Fourth Quintile	20.7%	7.2%	10.4%	1.0%	0.7%	19.3%
Highest Quintile	52.4%	16.3%	7.1%	0.6%	2.9%	26.8%
All	100.0%	10.4%	8.4%	0.9%	1.8%	21.5%
Top 10%	37.6%	18.7%	5.8%	0.5%	3.6%	28.6%
Top 5%	27.5%	20.8%	4.5%	0.4%	4.5%	30.1%
Top 1%	14.8%	24.1%	2.3%	0.3%	6.4%	33.0%

[Your Nightmare]

Here's the table showing percentage of federal tax liabilities (note: this is before the Bush tax cuts):

Effective Federal Tax Rates: 2001
	Share of Income (Percent) Pretax Income	Share of Total Federal Tax Liabilities	Effective Individual Income Tax Rate	Effective Social Insurance Tax Rate	Effective Excise Tax Rate	Effective Corporate Income Tax Rate	Total Effective Federal Tax Rate
Lowest Quintile	4.2%	1.1%	-5.6%	8.3%	2.4%	0.3%	5.4%
Second Quintile	9.2%	5.0%	0.3%	9.4%	1.5%	0.4%	11.6%
Middle Quintile	14.2%	10.0%	3.8%	9.5%	1.2%	0.7%	15.2%
Fourth Quintile	20.7%	18.5%	7.2%	10.4%	1.0%	0.7%	19.3%
Highest Quintile	52.4%	65.3%	16.3%	7.1%	0.6%	2.9%	26.8%
All	100.0%	100.0%	10.4%	8.4%	0.9%	1.8%	21.5%
Top 10%	37.6%	50.0%	18.7%	5.8%	0.5%	3.6%	28.6%
Top 5%	27.5%	38.5%	20.8%	4.5%	0.4%	4.5%	30.1%
Top 1%	14.8%	22.7%	24.1%	2.3%	0.3%	6.4%	33.0%

[reelfoot]

It's time for the Fair Tax; the slave (income) tax must go. I'm ready to see illegal aliens, pimps, drug dealers, etc. pay their fair share of taxes when they buy their new big screen TV, car, etc.

[ancient_geezer]

A Taxreform bump for you all.

If you would like to be added to this ping list let me know.

John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:

H.R.25, S.1493
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.

Refer for additional information: http://www.fairtax.org & http://www.salestax.org

[lewislynn]

I'm ready to see illegal aliens, pimps, drug dealers, etc. pay their fair share of taxes when they buy their new big screen TV, car, etc.

The fairtax folks claim they already do pay.

It's the fairtax folk's claim that every product you buy has 20-30% of "hidden" federal tax "imbedded" in the price.

If 20-30% isn't "a fair share" what is?

[CSM]

Didn't our current tax situation start with a flat tax?

[CSM]

Are these specific columns calling out the "buried" taxes, therefore negating the EIC rebates that people get? Seriously, they look like that is what they are pointing out, so if I'm misinterpreting them let me know.

[ancient_geezer]

Some current tax rate data taken from Taxfoundation reflecting the Bush Tax cuts:

Tax Freedom Day 2004 PDF http://www.taxfoundation.org/sr129.pdf

 

Total Effective Tax Rates by Level of Government Percent of comprehensive income (NNP)
Year	Federal	State	Total
2000	23.1%	10.4%	33.5%
2001	22.2%	10.5%	33.7%
2002 1	19.7%	10.2%	29.2%
2003 2	18.5%	10.1%	28.6%
2004 3	17.9%	10.0%	27.9%
1 Economic Growth and Tax Reform Reconciliation Act of 2001 2 The Job Creation and Worker Assistance Act of 2002 3 Job Growth and Tax Relief Reconciliation Act of 2003 Sources: Office of Management and Budget; Internal Revenue Service; Congressional Research Service; National Bureau of Economic Research; Treasury Department; and Tax Foundation calculations.

 

---

A few tidbits from the 2004 Tax Foundation report:

 

The Projected Course of Tax Freedom Day

Tax legislation being debated right now will affect the course of future Tax Freedom Days. The President wants to keep such popular tax cuts as the child tax credit, the 10% bracket, and the marriage penalty relief at their most generous levels, which they have reached in 2004, rather than let them dip as they are scheduled to do under current law. Senator Kerry also speaks out in favor of those tax cuts but promises repeal of tax cuts for higher-income taxpayers.

If current law prevails, the tax burden will start growing again, and Tax Freedom Day will fall later in April (see Figure 2).

---

Figure 2: Tax Freedom Day Forecast, 2004 - 2014

[reelfoot]

If I'm paying "20-30% of 'hidden' federal tax 'imbedded' in the price" PLUS paying through the nose in income taxes, then I don't view it as fair that those in the underground economy pay no income taxes.

[n-tres-ted]

You're right that the Fair Tax is already designed to be fair to all. WEW's idea to give the wealthy greater voting power in proportion to their tax bill is unlikely to draw much support from the Dem caucus.

[Bigun]

How many hundreds of times have we discussed this very subject on this very forum in days and years past?

Dr. Williams is spot on and, I think, DOES support the Fair Tax idea.