I was out yesterday enjoying some shopping. I bought some wonderful lingerie to augment my collection. Some was a little naughtier than normal but alas, why not. I stopped by a café to enjoy the sights and sounds of Paris. Ah shopping in Paris, new clothes, a wonderful cup of espresso can it get any better? But then I picked up the Journal I purchased in the morning but had not gotten around to reading and I found this article in the Wall Street Journal by Adam Lerrick of Carnegie Mellon, a professor of economics (Oct 22, 2008). It is the most frightening discussion I have yet read regarding our Country and its future tax system. Before you read it I want you to remember the cornerstone reason for creating these United States of America. For those who don’t recall, it was taxation without representation that drove the founding fathers to commit treason against the crown. As you recall, England levied taxes on the colonies to the point of choking trade in the New World. From Lerrick: What happens when the voter in the exact middle of the earnings spectrum receives more in benefits from Washington than he pays in taxes? Economists Allan Meltzer and Scott Richard posed this question 27 years ago. We may soon know the answer.Obama is offering voters strong incentives to support higher taxes and bigger government. This could be the magic income redistribution formula Democrats have long sought. Obama is promising $500 and $1000 gift wrapped packets of money in the form of refundable tax credits. These will shift the tax demographics to the tipping point where half of the voters will receive a cash windfall from Washington and an overwhelming majority will gain from tax hikes and more government spending. In 2006 (the latest census data), 220 million Americans were elegible to vote and 89 million – 40% - paid no income taxes. According to the Tax Policy Center (a joint venture of the Brookings Institution and the Urban Institute), this will jump to 49% when Mr. Obama’s cash credits remove 18 million more voters from the tax rolls. What’s more, there are an additional 24 million taxpayers (11% of the electorate) who will pay a minimum amount of income taxes – less than 5% of their income. In all, three out of every five voters will pay little or nothing in income taxes under Obama’s plans and will gain when taxes rise on the 40% that already pays 95% of the income tax revenues. The plunder that the Democrats plan to extract from the “very rich” – the 5% that earn more than $250k and who already pay 60% of the federal income tax bill – will never stretch to cover the expansive programs Mr. Obama promises. What next? A core group of Obama enthusiasts, those educated professionals who applaud “fairness” of their candidate’s tax plans – will soon see their $100,000-150,000 incomes targeted. As entitlements expand and a self-interested majority votes, the higher tax brackets will kick in at lower levels down the ladder, all the way down to households with $75,000 income. Calculating how far a society’s top earners can be pushed before they stop or cut back on producing is difficult. But the incentives are easy to see. Voters who benefit from government programs will push for higher tax rates on higher earners – at least until those who power the economy and create jobs and wealth stop working, stop investing, or move out of the country. Other nations have tried the ideology of fairness in the place of incentives and fount that reward without work is a recipe for decline. Margaret Thatcher took on the unions and slashed taxes to restore growth in Great Britain. In Germany, Social Democrat Gerhard Schroeder defied his party’s dogma and loosened labor’s grip on the economy to end stagnation. And more recently in France, Sarkozy was swept to power on a platform of restoring flexibility to the economy. The sequence is always the same. High-tax, big spending policies force the economy to lose momentum. Then growth in government spending outstrips revenues. Fiscal and trade deficits soar. Public debt, excessive taxation and unemployment follow. Central Banks try to solve the problem by printing more money. International competitiveness is lost and the currency depreciates. The system stagnates. And then a frightened electorate returns conservatives to power. -----------------------------------
Anyone feel like they are being taxed without representation yet? I need to go back to the hotel and don my new clothes, maybe that will improve my mood.