Ray,
The Wall Street article you've posted is a wonderful example of the Law of
Unintended Consequences isn't it?
Progressive taxation means that those who already receive good salaries in
formal employment will want (and obtain) even higher salaries -- thus
exacerbating income inequality.
Progressive taxation also means that those who are already rich will
continue to search for every trick in the book -- legal or criminal -- in
order to avoid taxation.
The whole well-meaning experiment of 'democratic' politicians over the past
century or so has, in fact, turned out to be a disaster. It has produced a
substantial, subservient, non-responsible, non-voting proportion of the
electorate (which is growing steadily from year to year). In England, the
psychological disaster is now even affecting what can be called the lower
middle class. Even a family earning US$120,000 p.a. now receives family
credits from the government!
America and other western governments are only repeating what happened in
the USSR. The split between the nomenklatura and the rest of the population
grew so vast that the whole system collapsed. There was no other possible
outcome. The process in the western world is going on at a slower pace but
the same result -- collapse of the system -- is inevitable.
Or will it collapse? (Unlike the USSR, there's no template for western
societies to fall back on.) M'mm . . . I don't know. Maybe just a
continuing intensification of what I've been saying many times on FW -- a
dual society.
There's no solution except flat-rate taxation but, to be realistic, this is
really hypothetical because it would take at least two or three generations
to arrive at. Even if there were sufficient motivation by those who are
already benefiting.
In a couple of decades we might see something similar to what already
exists in Israel. Pockets of gated communities scattered around within a
larger population which, when the going gets tough (that is, during the
decline of our oil-and-gas dependent economy) will become increasingly
wretched and decrepit.
Or the better-off could migrate to more easily defensible regions. This is
very possibly what will happen in China between its coastal provinces and
the interior. (The contrast in prosperity is already enormous.) Or perhaps
China will avoid the trap of progressive taxation in the coming years as
its economy expands and thus the whole population will benefit. But I know
which scenario I'd put my money on!
Keith Hudson
At 00:01 06/12/02 -0500, you wrote:
>Here is the "Lucky Duckie" Wall Street Journal article. What do you think?
>REH
<<<<<
America divided by Democrats: "The Non-Paying Class"
Wall Street Journal ^ | Nov 20, 2002 | Editorial
The stars look to be in perfect alignment for tax relief. With a GOP
majority in both houses of Congress, the Bush Administration is making
eager and energetic noises, and the economy is in what Fed Chairman
Greenspan calls a soft spot.
But as the Republicans construct their tax plan, there is a large and
under-appreciated fact they would do well to keep in mind. Over the past
decade or so, fewer and fewer Americans have been paying income taxes and
still fewer have been paying a significant percentage of income in taxes.
While we would opt for a perfect world in which everybody paid far less in
taxes, our increasingly two-tiered tax system is undermining the political
consensus for cutting taxes at all. Even the barest of glances at tax data
reveal a system that is steeply progressive. Tax revenue has been
increasingly squeezed out of top earners.
According to the most recent data, from 1999, the richest -- with income
above half a million dollars -- constituted 0.5% of taxpayers but accounted
for 28% of total tax revenue. Simply put, a tiny group of people (553,380)
were responsible for more than one-quarter of the income tax take of $877
billion.
Well, maybe you're saying -- so what? They can afford it. Then take a look
at those who aren't Richie Rich. The most recent data from the IRS, in
2000, show that the top 5% coughed up more than half of total tax revenue.
Specifically, we are talking about folks with adjusted gross incomes of
$128,336 and higher being responsible for 56% of the tax take. Eyebrows
raised? There's more. The top 50% of taxpayers accounted for almost all
income tax revenue -- 96% of the total take.
These numbers are more arresting when compared with the situation 14 years
earlier. In 1986, the top 1% paid 26% of revenue, the top 5% was
responsible for 42% and the top half contributed 93%. And what about the
bottom half of taxpayers? They accounted for 7% of the total in 1986 but
only 4% in 2000.
This skewed reality is the result of a growing number of absolutely legal
escape hatches. Consider what happens to those in the lowest bracket. Say a
person earns $12,000. After subtracting the personal exemption, the
standard deduction and assuming no tax credits, then applying the 10% rate
of the lowest bracket, the person ends up paying a little less than 4% of
income in taxes. It ain't peanuts, but not enough to get his or her blood
boiling with tax rage.
Of course, lower-income workers are on the hook for the payroll tax -- but
a sizable group slip free from even that net tax liability via the
refundable earned income tax credit. ("Refundable" means that even if your
net income tax liability is zero, the government still writes you a check.)
These numbers represent only people who have a positive adjusted gross
income. In 1999, there were 127 million tax filers, 94.5 million of whom
showed an income tax liability. That is, 26% had no liability at all. The
actual number of people filing without paying comes to 16 million (after
subtracting those getting earned income tax credits and thus, presumably,
still somewhat sensitive to tax rates). So almost 13% of all workers have
no tax liability and so are indifferent to income tax rates. And that
doesn't include another 16.5 million who have some income but don't file at
all.
Who are these lucky duckies? They are the beneficiaries of tax policies
that have expanded the personal exemption and standard deduction and
targeted certain voter groups by introducing a welter of tax credits for
things like child care and education. When these escape hatches are figured
against income, the result is either a zero liability or a liability that
represents a tiny percentage of income. The 1986 tax reform, for example,
with its giant increase in the personal exemption and standard deduction,
took six to seven million people off the tax rolls.
This complicated system of progressivity and targeted rewards is creating a
nation of two different tax-paying classes: those who pay a lot and those
who pay very little. And as fewer and fewer people are responsible for
paying more and more of all taxes, the constituency for tax cutting, much
less for tax reform, is eroding. Workers who pay little or no taxes can
hardly be expected to care about tax relief for everybody else. They are
also that much more detached from recognizing the costs of government. All
of which suggests that the last thing the White House should do now is come
up with more exemptions, deductions and credits that will shrink the
tax-paying population even further.
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Keith Hudson, General Editor, Handlo Music, http://www.handlo.com
6 Upper Camden Place, Bath BA1 5HX, England
Tel: +44 1225 312622; Fax: +44 1225 447727; mailto:[EMAIL PROTECTED]
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