Untied for a Fair Economy

A friend of mine sent me, as he often does, a newsletter from an organization that purports to have solved the deep economic question of fairness. United for a Fair Economy had this to say:

Wealthy Taxpayers Still Reaping Huge Tax Cuts

“This president is giving me millions of dollars. Do you think I need that?” ­– Matt Damon, ABC Primetime Live.

“It seems to me that instead of cutting taxes, we ought to be increasing taxes to pay off the deficit….” – Walter Cronkite, CNN NewsNight.

Those quotes are from 2004 and 2003 respectively, but they would be just as true today. Upper-income taxpayers are still pocketing huge Bush and Clinton-era tax cuts while our national debt soars, educational needs are unfunded and New Orleans remains in shambles.

George W. Bush inherited a projected $5.1 trillion, 10-year budget surplus and gave most of it away in tax cuts for the wealthy. Six years later, we face a $237 billion annual deficit and over $8.7 trillion of national debt – and yet wealthy taxpayers are still receiving windfall savings!

I responded: Is the goal of taxes to punish the wealthy, or to raise money for government programs?

If it's the former, then I can't argue with UFE. If it's the latter, then the data shows that Mr. Bush was right: tax receipts have gone up since the tax cuts. I disagreed with the Bush tax cuts when they were passed in 2003, for the same reasons as UFE. But I kept an open mind, and the empirical results have convinced me that it was a Pareto improvement (some people are better off and nobody is worse off). As I've mentioned before, the tax cuts have raised the percentage of all taxes paid by the rich. Cafe Hayek reported new IRS stats that showed an increase in the percentage of income taxes paid by the wealthiest 1% from 34.3 in 2003 to 36.9 in 2004. Most of that change comes from the fact that they got richer. So the tax cuts motivated the wealthy to work even harder, and even with a lower tax rate, they paid more taxes relative to the rest of us. They're happy, we're happy, Uncle Sam is happy. (BTW, the same stats show that the top 1% pays almost double what they would under a flat income tax).

Returning to UFE's argument, I think the deficit is a big problem, too, but raising taxes doesn't help that at all in the long run, since Congress (both parties) stands ready to spend every red cent and then some. The Federal government is a broken cistern: neither pouring more money in nor cutting off the flow is going to fix it. Instead, we should think about:
(1) Not starting expensive foreign wars
(2) Not sweetening every bill with billions of $$ of pork
(3) Not subsidizing favored farmers, unions, and industries
(4) Not making unrealistic promises to retirees

If those things were fixed and we still had a deficit, then I would consider tax policy an area for improvement.

Speaking of which, I need to file my tax return