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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.

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