Paul L. Caron

Thursday, January 8, 2009

Dick Morris: Tyranny of the Tax Exempt

Dick Morris has published an op-ed in the New York Post, Tyranny of the Tax Exempt:

It now looks like half of President-elect Barack Obama's stimulus package will take the form of "tax cuts" for 95% of all Americans. Yet this wouldn't so much boost the economy as trigger a massive, unhealthy shift in American politics.

Under Obama's plan, the majority of American voters would pay no federal income taxes, but would get money from the government instead. That is, these "refundable tax credits" are basically welfare checks - and Obama's plan would leave the most of us collecting, not paying. ...

Today, the bottom 50% of US taxpayers pays a total of $30.6 billion in federal income taxes on a combined income of about $1 trillion. So about 3% of all federal income-tax payments come from the poorest half of the country. (The top 1% pays 40%; the top 25% pay 85% of the federal income tax.)

Obama's plan -- he'd give all couples a $1,000 refundable tax credit and all single people $500 -- would funnel more than $50 billion to the lowest half of the country, thereby completely wiping out their total federal tax liability. In most cases, it would trigger a "refund" welfare check.

In one stroke, this would transform the majority of voters from taxpayers into tax eaters -- and leave an increasingly small minority to pay the bill. Whether or not this is good economics, it is very dangerous politics.

Essentially, it would put those who actually pay the taxes that fund our government into much the same situation as landlords in New York City -- hopelessly outvoted by their tenants, who use their political clout to limit rents and landlords' profits.

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Is this correct? Obviously this country has long used the tax code to promote social policy, but how is it that we've moved so far towards a policy of straight wealth distribution where many have no responsibility to pay for social services and the country's infrastructure and instead are actually given money?

Posted by: A.M. | Jan 12, 2009 7:40:39 PM

Although this certainly isn't good news, it's just one example of a fairly common problem. There are plenty of other areas -- many patents, most subsidies, most tariffs -- in which all of us pay a little extra, and small groups reap most of the rewards. We can still function, even when that kind of behavior is common.

Posted by: Taxrascal | Jan 13, 2009 9:05:12 PM