American entertainer Will Rogers once commented, “Noah must have taken into the Ark two taxes, one male and one female. And did they multiply bountifully! Next to guinea pigs, taxes must have been the most prolific animals.”
Yes, taxes and their tremendous growth are a regular topic of conversation, not only in Washington but also at dinner tables and workplaces across America. And, as might be expected with any issue that enjoys widespread attention, these conversations on taxes are overflowing with misperceptions, half-truths and even the occasional falsehood.
One such popular misconception is that the wealthiest Americans have it easy when it comes to taxes. Some believe that if the rich would just pay their share, then we’d all be fine.
The problem with this logic is that it ignores reality. The fact is, the rich do pay their share of taxes — and they often pay the next guy’s share, too. In 1998, the top 6.7 percent of income earners in the US — that is, those whose adjusted gross incomes were $100,000 or higher that year — paid a stifling 58.4 percent of total income taxes! This is despite the fact that the adjusted gross income of this group was only 37.4 percent of the US total.
Meanwhile, the bottom 87.5 percent of income earners — those who earn less than $75,000 — paid only 30.8 percent of the tax burden in 1998.
In short, what this means is that our tax system is not at all a windfall for the wealthy. Quite to the contrary, the wealthiest Americans pay upward of 30 percent of their total incomes to taxes. Continuing to increase this rate could discourage our most innovative, high-earning individuals from working, for fear of Uncle Sam taking all the fruits of their ingenuity.
This is not an argument against a progressive income tax system. But it does emphasize that those who think tax cuts should be targeted so as to exclude the highest earners are misguided. Tax cuts are beneficial and should not exclude any taxpayers. And if the wealthy benefit a bit from tax reductions — just like everyone else — why shouldn’t they? They are the ones paying most of the taxes in the first place.
Another instance where misunderstanding rears its ugly head is in the debate over reducing and eliminating the estate tax, which literally combines Franklin’s expectation of “death and taxes.” The estate tax is patently unfair because it is blatant double-taxation. It affects individuals who have already paid taxes on their wealth during their lives.
Why should their deaths be an occasion for the government to dip into their holdings yet again?
Current measures to phase out the death tax are a welcome sight, and they should be accelerated for the sake of all taxpayers.
Indeed, the topic of tax cuts is especially pressing for an economy in recession, and recent suggestions by Democrats that President Bush’s tax reduction act should be reversed ought to strike us all as outrageous. Tax breaks for all Americans are more important than ever. They put income back into the hands of families to make their own consumption decisions, decisions that can fuel a recovery far better than any single government program could do in the same case.
In this way, despite popular belief, tax reductions do not necessarily lead to higher budget deficits, as economic adviser Art Laffer observed during President Reagan’s administration. This is due to the fact that if tax cuts spur economic growth, the base of taxable income might increase enough to offset the lost revenue caused by the lower rate, thus holding government receipts stable. Even when this is not the case, tax cuts can be useful to force the Congress and the President to evaluate which programs are efficient and deserve funding and which are wasteful and deserve to be discarded.
And so, the case for across-the-board tax cuts, or at least keeping those already planned, is as strong as ever. Unfortunately, Will Rogers may have been right when he noted the expanding reach of the tax collector’s tentacles.
And he certainly had the right idea when he said of taxes, “I hope they do get ’em lowered enough so people can afford to pay ’em.”
Will Edwards is a senior in Pierson College. His columns appear on alternate Mondays.