Rapid retroactive Republican revenue rebate

By Bruce Walker
web posted September 25, 2000

Republicans have had difficulty getting traction on tax cuts because we think abstractly and try to educate voters instead of appeal to immediate self-interest. There is nothing moral about losing, particularly when one is right. Republicans from our nominee on down should present a simple, immediate, and persuasive tax cut program. Like the Clinton tax hike, this tax cut should be retroactive. And it should be simple and it should be permanent.

Determine the actual federal surplus in this current fiscal year (the one that ends on September 30, 2000), and when that number becomes reasonably valid (probably around January 2001). Set aside ninety per cent of that for rebates to taxpayers (that would leave some revenue to reduce the national debt, cover emergencies and shortfalls). Assume that the Federal Fiscal Year 2000 surplus is $100 billion, the amount set aside for rebates would be $90 billion.

Then count the total number of taxpayers (with two income families counted as two taxpayers). That number would be about one hundred and twenty million individuals, based upon past data and future trends. Divide the amount available for rebates by the number of taxpayers and send each taxpayer a rebate check of the same amount, under this scenario $750. Then provide that each taxpayer receive this retroactive rebate by February 1, 2001.

Is this an ideal supply side solution to the problems of over-taxation? No, not at all. But it still have great merit. Every citizen who files a tax return would immediately an interest in the federal government not spending more than collects in revenue, and also an interest in expanding the current gap between revenue and expenditures. There would be three ways for these huge mass of voters to collect and increase the size of their rebates.

First, the federal government could increase tax rates; this would be counter-productive over the long run, and very politically dangerous over the short run. Although manipulating the tax code is a wonderful tool for liberal extortionists, actually raising the general tax rates makes more enemies than friends. Besides, obstructing federal legislation is remarkably easy. One House of Congress, forty-one Senators, or a president with more than one-third of either House of Congress can stop any tax increase.

Second, revenues can naturally rise through taxable economic growth. Although most citizens would not make the connection between stifling over-regulation, irrational systems of taxation, and all the myriad governmental disincentives to growth, nearly all citizens could understand a smaller rebate check. Because that smaller check would also reflect a slowing economy, with higher poverty and unemployment rates, and politicians in power during bad economic times would face a double whammy from voters - bad economy and smaller rebate checks. Collectively these politicians would have a strong vested interest in rational economics.

Third, the rebate checks would get fatter when federal expenditures grew at a slower rate than revenues. Huge numbers of voters would have an immediate interest in reducing federal waste, fraud, and inefficiency. Even those taxpayers who paid little or nothing in taxes would benefit from ending programs that did not work and limiting the growth of federal expenditures in general. Politicians who promised the moon in programs could be backslapped with "This will reduce your annual rebate check by $200!"

It is unfair, in an abstract sense, to give those who produce more and so pay more in taxes the same amount as every other taxpayer. But other dynamics are at work besides theories of fairness. What is the brassiest argument against most sensible tax cuts? "Fifty per cent of the benefit will go to the top five per cent of Americans" Populist nonsense? Yes, but persuasive to many Americans. What if proponents of the rebate could say: "Every single taxpayer will get exactly the same amount back under this plan!" What is the retort? There isn't one.

Would some Americans actually get rebates unearned by any taxes paid? Yes, they would. Many low income taxpayers do not pay $750 in federal taxes, and this is effectively a gift from most of us to them. But consider the difference between this gift and the gifts that they receive already. Much of that $750 is gobbled up in administrative costs. Moreover, these politicians and bureaucrats decide how the dollars are to be given (often in goods and services of dubious value or obtained at much greater value in a market economy). Empowering these poor people to make their own decisions with tax dollars would dis-empower politicians and bureaucrats. If these dollars were spent in free markets, rather than dumped in government programs, the entire economy would become more efficient and rational.

Lump sums of money to low income households would also make critical economic events, like home ownership, small scale business enterprises, and long term investment planning much more likely to occur. These are thresholds to middle class finances, but they are also thresholds to middle class thinking. Low income people who have made a down payment on a small home one year, started an IRA account with the next rebate check, and then opened a small office the next year, will begin to view government, taxes, regulations, and self-reliance quite differently. They will feel "middle class" and begin to vote and advocate from that perspective.

Finally, by making this change in the tax code statutory, rather than budgetary, the terrain of future federal budget battles would markedly change. The impact of grand budgetary decisions could be boiled down into terms that every voter could understand: "Under the Republican proposal, each taxpayer would get $950 in three months; under the Democrat proposal, each taxpayer would get $700." Who wins that argument? It also takes the powerful Republican argument of simplicity in taxing and spending, and it makes that simplicity a compelling populist argument by itself.

Would this tax rebate become a part of the American landscape, like Social Security? Yes, it would gain the power of an entitlement, but an entitlement by taxpayers for the unneeded portion of their taxes. The rebate does not fit well into economic models of ideal market behavior, but the market does not work with individual precision in every transaction; it works instead with statistical precision over a period of time.

Making flat tax rebates of federal surpluses would be a calculated decision by the federal government, like when it took the vast stretches of government owned land and opened those millions of acres to homesteaders. Yes, it was in many ways an unearned gift - but it was a gift that lead people into independent and productive lives. Give people cash, even if they didn't earn it all, and they will become different types of individuals.

Bruce Walker is a frequent contributor to The Pragmatist and The Common Conservative.

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