MAK­ING SENSE OF TAX CUTS

Daily Press - - Opinion -

In de­scrib­ing the GOP tax cuts, House Mi­nor­ity Leader Nancy Pelosi said that they and bonuses Amer­i­can work­ers were get­ting were “crumbs.” They were “tax cuts for the rich.” Some ar­gued that the tax cuts would re­duce rev­enues. Pelosi pre­dicted, “This thing will ex­plode the deficit.”

How about some tax facts?

The ar­gu­ment tax cuts re­duce fed­eral rev­enues can be dis­posed of eas­ily. Ac­cord­ing to the Con­gres­sional Bud­get Of­fice, rev­enues from fed­eral in­come taxes were $76 bil­lion higher in the first half of this year than they were in the first half of 2017.

The Trea­sury Depart­ment says it ex­pects that fed­eral rev­enues will con­tinue to ex­ceed last year’s for the rest of 2018. De­spite record fed­eral rev­enues, 2018 will see a mas­sive deficit, per­haps top­ping $1 tril­lion.

Our mas­sive deficit is a re­sult not of tax cuts but of prof­li­gate con­gres­sional spend­ing that out­runs ris­ing tax rev­enues.

Grossly false state­ments about tax cuts’ re­duc­ing rev­enue should be put to rest in the wake of fed­eral rev­enue in­creases seen with tax cuts dur­ing the Kennedy, Rea­gan and Trump ad­min­is­tra­tions.

It turns out that 45 per­cent of Amer­i­can house­holds, nearly 78 mil­lion in­di­vid­u­als, have no fed­eral in­come tax obli­ga­tion.

That poses a se­ri­ous po­lit­i­cal prob­lem. Amer­i­cans with no fed­eral in­come tax obli­ga­tion be­come nat­u­ral con­stituen­cies for big-spend­ing politi­cians.

Af­ter all, if one doesn’t pay fed­eral in­come taxes, what does he care about big spend­ing?

Also, if one doesn’t pay fed­eral taxes, why should he be happy about a tax cut? In fact, those with no skin in the game might see tax cuts as a threat to hand­out pro­grams.

When­ever tax cuts are called for, it’s not long be­fore they are called tax cuts for the rich.

Let’s look at who pays what in fed­eral in­come taxes.

Us­ing IRS data for 2015, the lat­est year avail­able, the Tax Foun­da­tion re­ports that the top 1 per­cent of earn­ers made about 21 per­cent of the na­tion’s in­come, but their share of fed­eral in­come taxes was 39 per­cent. They paid more in in­come taxes than the bot­tom 90 per­cent, who paid 29.4 per­cent of fed­eral in­come taxes (tinyurl.com/y7t4ljv8).

In 2015, the top 50 per­cent of tax­pay­ers paid 97.2 per­cent of all in­di­vid­ual in­come taxes. Also, the top 1 per­cent had an in­come tax rate of 27 per­cent, while the bot­tom 50 per­cent had a tax rate of less than 4 per­cent. It turns out that 892,420 house­holds — out of roughly 34 mil­lion to­tal house­holds — paid 39 per­cent of fed­eral taxes that year.

An­other part of the Trump tax cuts was with cor­po­rate in­come — low­er­ing the rate from 35 per­cent to 21 per­cent.

That, too, has been con­demned by the left as a tax cut for the rich. But cor­po­ra­tions do not pay taxes. Why? Cor­po­ra­tions are le­gal fic­tions.

Only peo­ple pay taxes. If a tax is levied on a cor­po­ra­tion, it will have one or more of the fol­low­ing re­sponses in or­der to re­main in busi­ness. It will raise the price of its prod­uct, lower its div­i­dends to share­hold­ers and/or lay off work­ers.

Thus, only flesh-and-blood peo­ple pay taxes. We can think of cor­po­ra­tions as tax col­lec­tors.

Politi­cians love our ig­no­rance about this. They sug­gest that cor­po­ra­tions, not peo­ple, will be taxed.

Here’s how to see through this cha­rade: Sup­pose a politi­cian told you, as a home­owner, “I’m not go­ing to tax you. I’m go­ing to tax your land.”

I hope you wouldn’t fall for that jive. Land doesn’t pay taxes.

Get­ting back to skin in the game, some­times I won­der whether one should be al­lowed in the game if he doesn’t have any skin in it.

Wil­liams is a pro­fes­sor of eco­nom­ics at Ge­orge Ma­son Univer­sity. Send email to wwilliam@gmu.edu.

Wal­ter Wil­liams

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