Class warriors exploit taxpayers

By W. James Antle III 
web posted February 25, 2002

As this year's elections approach and a half dozen or so
nationally known Democrats begin to seriously contemplate
2004 presidential bids, political disagreements muted by the war
on terrorism are once again finding their voice.

The most common Democratic refrain on the stump or the
Sunday morning talk shows is that Republicans are throwing the
budget out of balance and endangering needed federal programs
in order to provide tax breaks to rich people who do not need
them. Those making this claim usually insist that they are not
against tax cuts per se. They would simply offer smaller, more
responsible "targeted" tax cuts to people who truly deserve them.

Ever since Democrats on the House Ways and Means
Committee released Congressional Budget Office figures at the
end of the 1980s that purported to show how the Reagan
administration's tax policies disproportionately benefited the
wealthy, such figures have been brandished against every
medium-sized to large Republican tax-cut proposal. George W.
Bush may have dismissed Al Gore's assertions that 40 percent of
his tax cut would benefit the top 1 percent of taxpayers as "fuzzy
math," but criticism along these lines has been persistent.

Yes, these figures are often based on faulty premises at best and
downright wrong at worst. It is also true that the tax cuts touted
by Republicans - including the one passed last year, which was
the first to lower marginal income tax rates since the Reagan
years - have gone to those who actually pay taxes while the
"targeted, refundable" tax credits offered by the Democrats are
really welfare payments to people who don't pay income tax. But
any serious Republican tax cut devised on conservative terms is
vulnerable to the "fairness" argument.

Lower marginal income tax rates remove barriers to production
and therefore increase output. But in order to be effective, rates
must also far at the highest levels, cutting taxes for the "rich." It is
these taxpayers who are most responsive to the resultant
changes in incentives. While it has been repeatedly demonstrated
that this ultimately pays off in increased revenues from these
same taxpayers, any relief for the rich is deemed unacceptable.

De Tocqueville warned of the dangers to liberty in a democracy
when the people learn they can vote themselves money from the
public treasury. The present redistributive welfare state has
afforded the majority that very opportunity.

According to IRS data, in 1999 the 9.5 million households with
tax returns on incomes of $100,000 and above - "the rich" in
most liberal polemics - made 62 percent of federal income tax
payments, up from 42 percent in 1993. In other words, just 7.5
percent of filers paid more than three-fifths of all federal income
taxes that year. Additionally, while households earning $100,000
to $200,000 earned only slightly more than households earning
$50,000 to $75,000, they paid 43 percent more in income
taxes.

Out of 129 million taxpayers, 32 million - the top 25 percent of
income earners - pay 83 percent of federal income taxes. This is
compared with the 97 million people who supply only 17 percent
of personal income tax revenues and another 70 million with no
pay no income tax whatsoever. In fact, 43 percent of those who
file income tax returns receive credits in excess of their tax
liability. This is why liberals in the name of "fairness" oppose
cutting marginal tax rates and instead offer refundable tax credits.
They wish to seize as much of their opponents' wealth as
possible and bestow it upon their supporters, all the while
expanding those who benefit from government largesse.

Republicans have also helped reduce the number of people
subject to the income tax. The Tax Reform Act of 1986 signed
by President Reagan dropped 3 million low-income families from
the income tax rolls altogether. The tax cut signed by President
Bush dropped another 4.5 million. While it is good to free
Americans from the income tax, the unintended consequence has
been to create a situation where some of the most economically
destructive tax rates may be left intact while the number of voters
who don't pay income tax - and won't directly benefit from the
tax-rate cuts most likely to stimulate economic growth -
increases.

If everyone votes yet progressively fewer people pay the
personal income tax that provided 50 percent of federal revenue
in 1999, up from 44 percent in 1993, larger numbers of people
can vote for more government without worrying about who will
pay for it. This helps explain the diminished political salience of
tax cuts. While President Reagan enjoyed somewhat greater
public enthusiasm for a larger tax cut than the one championed
by President Bush, he also faced an electorate that was more
burdened by the income tax across the board - from upper-
income taxpayers with wages taxed at a 50 percent rate and
investment income taxed at an eye-popping 70 percent, to
working-class families suffering unlegislated, inflation-induced tax
increases even as their real incomes fell.

Tax cuts remain a pivotal issue economically because the
taxpayers reeling in post-Clinton America are owners of small
businesses and suppliers of needed investment capital. But more
than ever before, Democrats will be tempted to wage class
warfare against tax cuts because the progressive income-tax rate
structure itself gives them ammunition. While many taxpayers
with little or no income tax liability are still burdened by payroll
taxes, both parties are hesitant to cut these levies because they
are used to finance Social Security and Medicare.

Will taxpayers become a beleaguered minority forced by class
warriors to pay for every public demand for services from the
state? Or will this untenable trend be reversed by tax cuts before
there is severe economic fallout? Only a willingness to cut taxes
for the rich will keep property rights secure and prevent us from
killing off potential for economic growth.

W. James Antle III is a senior writer for Enter Stage Right.

Enter Stage Right - http://www.enterstageright.com