Tax and Spend will not work!

Weekly Opinion Editorial

TAX AND SPEND DOESN’T WORK!

by Steve Fair

     There is a consensus among economists that the best income tax system is one that strikes a balance between economic efficiency and fairness. An efficient tax system is one that does the least to hurt worker production, provide incentive and is fair.  Unfortunately, there is great disagreement as to which plan best meets this criterion, but it’s for certain the current progressive income tax plan in America is neither efficient nor fair.

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     Here are five accepted systems of taxation among economists:
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     First, there is the ‘per-capita,’ or “head” tax.  This tax system requires each person to pay their per-capita fair share of the costs of government.  This is universally accepted as the most efficient and fair tax system because everyone pays the same for the same benefit derived from government.  There are no freeloaders- everyone has to pay their own way or have someone pay it for them.  It’s like a toll on a toll road- every car pays the same because they all derive the same benefit from using the road.
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     Secondly, there is the “flat” tax, which taxes each dollar of income at a single rate of percentage.  This is levied on all earned income from the first dollar and the system does not have any deductions or credits.  Herman Cain’s 9/9/9 plan is an example of a flat tax.
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     Third, there is the ‘digressive’ tax, which is a proportionate tax only on income above a certain threshold.  In other words, a portion of your income is exempt and you pay a percentage- either flat or progressive- on the income above that.
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     Fourth, there is the national sales tax or consumption tax.  Under this plan, every person living in the United States would pay a sales tax on purchases of new goods and services, excluding necessities.  Currently sixty one members of Congress, including Senator Tom Coburn, support the national sales tax. 
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     Fifth, there is America’s current system- the progressive tax, which taxes incremental income at higher marginal rates as income rises, resulting in an increase in taxes as a percentage of income as income increases.  In other words, the more a person earns, the higher the percentage of income tax they pay.

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     Advocates of the progressive income tax system say the system is fair because people with higher incomes have more to lose so they should pay disproportionately more for the protections and services afforded them by government.  They also believe that because taxes are a burden on society, everyone should share equally in that ‘burden.’   Since the more money you make means you likely don’t experience as much financial difficulty as your lower income neighbors, these folks believe higher-income people should pay enough more in taxes to equalize their ‘burden’ or sacrifice. 

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     President Obama has proposed a plan that would increase taxes on American families with taxable incomes of more than $250,000 a year.  According to the U.S. Census Bureau, that is about 4 million households.  Obama’s proposal of hiking the income tax rate on the rich plays well at a campaign stop, the crowd roars, probably because most in the audience pay little or no federal income tax.   Over 50% of Americans do not pay any federal income tax!  In fact the federal personal income tax provides refundable tax credits like Earned Income Tax Credit and the Child Tax Credit, which can reduce or eliminate personal income tax liability and  result in ‘negative personal income tax liability.’  That means many people get a refund check from the IRS when they haven’t paid a dime in federal income tax.
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     With America’s national debt  now over 16 trillion($51,000 per citizen) and  Congress and the President unwilling to cut any federal spending program, income tax increases are his primary solution to the crisis. 
What the President fails to mention is that raising taxes on the rich will not solve our debt crisis.  According to the Joint Committee on Taxation estimates this new tax would yield between $4 billion and $5 billion a year, so even if we collect the Buffett tax for the next 250 years, it would not cover the federal deficit in 2011. 
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America needs a radical overhaul of our tax system.  We should implement either a flat tax or a consumption tax.  The current system is broken.  It’s been proven time and time again- we cannot tax and spend ourselves into prosperity.