February 3, 1996
Renowned bank robber Willy Sutton is famously believed to have said, when asked why he robbed banks, something like, “That’s where the money is.” It behooves us to keep Willy’s simple logic in mind as we contemplate the various tax strategies being proposed.
If the object of a tax plan is to raise lots of money, then forget about taxing poor people. “Rich” people haven’t much to offer either. Being relatively few in number, if their entire income above $100,00 was taxed away it would run government for a few days at most. The truth is, “where the money is” is in the hands of middle-class taxpayers and consequently it’s from the middle class that the vast majority of tax revenues are taken.
Government in the USA consumes something between 40 and 50 percent of the entire Gross National Product. That’s nearly half of everything each of us produces. It’s a staggering amount and most people are blissfully unaware of it. Taxes are so ubiquitous that we tend to ignore them — but they add up. Look at your electric, telephone, gas and cable TV bills. Federal excise taxes on all manner of goods. Tax on airline tickets, room taxes on hotel bills. We are all being taxed far more than most people realize.
Taxes are hidden or “built into” everything we buy. When you purchase a car you don’t just pay the sales tax and a bit of excise tax shown on the sticker. You’re paying the payroll taxes that went toward employing the labor that built it and each of its component parts. And you’re paying the highway and fuel taxes on the trucks that transported the parts to the factory and the completed car to the dealer. And the payroll taxes to employ the drivers of the trucks. And the taxes on the steel mill that created the sheet metal the body was made from. On and on it goes. Taxes add many thousands of dollars to the cost of a new car and very little of it shows up on the window sticker. Whether you buy a toaster or a Twinkie, a disposable diaper or a tube of tooth paste, a new music CD or a hammer — you’re paying the built-in taxes. Buy a new home and not only are you paying huge amounts of hidden tax but you’re paying interest for 30 years on the money you borrowed to pay the hidden taxes.
All the poor people and all the rich people in the country together simply do not have the 40-50% of GNP that gets sucked up by government. You, the average Joe or Jane do. And the government, like Willy Sutton, knows where to find the money. Though government may describe a tax as hitting hard at big corporations, rest assured you’re footing the bill in higher prices — hidden taxes. Government may juggle the numbers, vary the deductions and play with tax credits every now and again in an effort to favor one constituency over another but, rest assured, the middle class pays the vast majority of taxes. That’s where the money is.
For our money we get government subsidization of out-of-wedlock births, pork-barrel construction projects, outright hand-outs to well-connected corporations and a vast array of things in between. Most of it is not what I would consider “good government”.
Government is simply too big — 40-50% of GNP and rising. By 1994, the number of workers employed by government in this country exceeded the number employed in manufacturing. The reason that government has grown to be as large as it is and is still growing is that for years government has been telling us that: a) We can have it all; and b) Someone else will pay for it. And, by and large, we’ve believed it. We’ve believed it and continued to vote for politicians promising more benefits, more handouts, more programs, more of everything, and all the while believing someone else was paying for it. “Someone else” turns out to be the middle class — us. We are robbing ourselves blind and even robbing our children by amassing a huge national debt. We must reduce the size of government and the overall tax bite.
The only way to rein in government is to give it less money. The primary objective of any new tax plan therefore should not be to rearrange the tax burden yet again but to reduce it. And only if a majority of citizens call for a reduced tax burden will government actually deliver on it. As is, a great many people, ignorant of, or indifferent to, the hidden tax in everything, believe themselves to be, on net, coming out ahead in the tax burden shuffling. That is, they perceive that the benefits they receive exceed the taxes they pay. For some people this is actually true but a great many more believe it to be true when it is in fact just a well-crafted illusion. Many people believe they “don’t pay any tax” because the income tax — the most obvious and notorious tax — leaves them unscathed or paying only a trifling amount. We need, therefore, to increase in number the people who feel the tax bite so that they too will call for less government and lower taxes.
So now we come to the various tax plans being considered by the congress as a replacement for the current income tax. We are offered a national sales tax and a so-called flat income tax. Any flat tax likely to be enacted will be flat in name only. You can’t have a tax rate of 0% for some people and a higher tax for others and honestly call it “flat”. Yet every “flat” tax proposal does just that. I’ve seen various cut-off incomes mentioned below which folks will pay no income tax. This then leaves in place the incentives for those below the cut-off to continue to vote for higher taxes. Hardly anyone, it seems, has a problem with raising someone else’s taxes.
A “flat tax” should therefore impose the same rate on every one of us, no favorites, no refunds, no “earned income” tax credits. A person voting for higher taxes should be raising their own taxes along with everyone else’s.
The proposals for a national sales tax usually include a provision for refunds to lower-income people. This again creates a group of “non taxpayers” who have every reason to vote for higher taxes for everyone else.
If we are to have any chance of cutting back on the size of government then everyone needs to feel the pinch. Any new tax program should impose taxes that are visible and equal in rate for all taxpayers regardless of income.