|U.S. Tipping Point: 51% of Households Now Pay No Income Taxes|
By Timothy H. Lee
Thursday, May 05 2011
“A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s greatest civilizations has been two hundred years.”
Let’s see… Promises of ever-increasing benefits from the public treasury, loose fiscal policy, increasingly dictatorial central government... Beginning to sound familiar?
The preceding wisdom has been variously attributed to Alexis de Tocqueville and Alexander Tytler through the years, but debate and uncertainty continue. Regardless of its source, however, the observation gained even greater immediacy this week, some 35 years since America’s own two-hundred-year milestone.
Namely, the portion of U.S. households paying zero federal income taxes has been steadily climbing, and has reached the 51% tipping point.
That alarming number formed the centerpiece of this week’s U.S. Senate Finance Committee official “Is the Distribution of Tax Burdens and Tax Benefits Equitable?” hearing. Although the news of Navy SEALs heroically raiding Osama bin Laden’s lair naturally dominated the news cycle, our increasingly lopsided tax burden will likely prove the more consequential civic dilemma for 2012 and onward.
Senate Finance Committee member Orrin Hatch (R – Utah) wisely noted, “Most taxpayers are skeptical that the answer to our fiscal problems is for them to sacrifice more, when more than half of all households are not paying any income taxes and an increasingly smaller group of Americans is shouldering the burden for an increasingly larger group of Americans.”
Yet that is the answer that liberals continue to offer. As the federal government once again approaches its debt limit and the presidential campaign begins, Barack Obama hypocritically maintains his soak-the-rich prescription of higher taxes for “millionaires and billionaires.” We say “hypocritically” because Obama himself paid taxes under the existing 35% top rate, rather than the 39.6% rate he claims to support. That decreased his overall tax payment by $74,000. Obama also opted to itemize rather than take the standard deduction, further reducing his tax liability by $127,000.
If Obama and other liberals believe that “the rich” don’t pay enough taxes, why don’t their actions ever seem to match their words?
Moreover, Obama’s talking point is glaringly dishonest, since the “millionaires and billionaires” population he claims to target actually includes families earning $250,000 or individuals earning $200,000. Shouldn’t the man who raised deficits into the trillion-dollar stratosphere possess a clearer concept of numerical definitions?
Additionally, many of “the rich” Obama and liberals continue to scapegoat are actually small businesses that create most new jobs in America. As the nation’s economy continues to struggle, if small businesses are forced to pay even more to the federal government they’ll by definition have less to invest or hire.
Another metric to consider: In 1980, the top income tax rate was 70%. The top rate is now half that, at 35%, yet the portion of the nation’s income taxes paid by the top 1% has more than doubled from 19% to 38%.
In fact, that 38% portion of income taxes paid by the top 1% is nearly double its 20% share of the nation’s income. Similarly, the top 5% earned 35% of the nation’s income for the most recent year available, but paid 59% of the nation’s total income taxes (up from 37% in 1980). That means the top 5% pay more in taxes than the entire remaining 95% of taxpayers combined. For its part, the top 10% earned 46% of the nation’s income but paid 70% of income taxes (up from 49% in 1980), while the top 25% earned 67% of the nation’s income but shouldered 86% of the nation’s income taxes (up from 73% in 1980).
Simply put, the rich pay a higher portion of the nation’s income taxes today than ever. And now that 51% of American households pay no income tax at all, we face the ominous tipping point decline envisioned above.
“Soak the rich” may sound appealing as a short-term electoral slogan, but it’s a path to national decay. Fortunately, Congressman Paul Ryan (R – Wisconsin) and other conservatives offer greater long-term prosperity via lower tax rates and a broader base. The time for choosing is nearly upon us, America.
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