That's Enough!

Once the number of citizens paying taxes drops to less than 50%, any hope of real "progressive" (as in good for the country, not the Jimmy Carter kind) tax reform will be dead.

From IBD:
Posted 4/5/2006

Taxes: Remember former Rep. Tom Daschle's stunt where he used a Lexus and a muffler to try to show the Bush cuts went primarily to the rich? We said he was wrong then. Five years later, the data confirm it.

Standing before a fully loaded 2001 GS 300, Daschle, then a Democratic congressman from South Dakota, claimed: "If you're a millionaire, under the Bush tax cut you get a $46,000 tax cut — more than enough to pay for this Lexus. But if you're a typical working person, you get $227 — enough to get a new muffler for your car. And if you make $25,000 a year, you get a goose egg."

While he might have been close on the numbers, Daschle was making a dishonest argument. A millionaire gets a $46,000 cut because he's paying far more in taxes than the typical working person and will naturally get a larger cut in terms of dollars.

And the fellow getting the goose egg? It's unlikely he pays a penny in federal income tax anyway. So it's impossible for him get a cut.

Yet there was Daschle, intentionally misleading the public for political reasons: to poison the badly needed tax cuts, which at that time were merely a proposal.

Thanks to those tax cuts, a record number of Americans are in the goose-egg bracket. For the 2006 (current) tax year, the Tax Foundation estimates that 43.4 million returns, representing 91 million Americans, will have a zero or negative tax liability. That means that as a share of all filers — 136 million of them — those who pay no taxes will hit 32%, a virtually unprecedented number.

That percentage has been climbing steadily since President Bush took office after holding relatively steady during the Clinton years (see chart) when taxes were actually raised. Sort of puts a different light on the perception that Democrats are more concerned about the plight of the working poor than Republicans when the data show that a GOP president working with a GOP Congress has been more successful in wiping the working poor off the tax rolls.



And while it's not bad news that fewer Americans are paying federal income taxes, it isn't necessarily good, either. As the Tax Foundation points out, real tax reform requires broadening the tax base, rather than narrowing, as the Bush tax cuts have done.

Unless the base is wide, overall rate cuts, which must be part of any reform, will be hard to get. As the number of Americans paying no federal income taxes grows, there'll be fewer people to support reform. Indeed, many who don't pay taxes will oppose reform because it puts them back onto the tax rolls.

While it might evoke warm feelings to remove the federal income tax burden from those at the lowest income levels, an economy where a shrinking few pay the income tax isn't sustainable.

Rather than doing the things that make them rich — things that keep the economy growing — many will simply elect to drop into the no-tax bracket. Even Tom Daschle could see the harm in that.