Tax Cut?

Instead of doing a Stupid Letter of the Week, I decided to opine on a troubling trend I have recently noticed in several general opinion venues.  I have responded to my local paper, however they have gone extremely liberal and have chosen to not publish my common sense, which is this:  How can so many people be fooled into thinking that Congress passed a law to give rich people a tax break?  Congress did not lower anyone's tax rates.  They did pass a law,which was signed by the president, to lock in the current tax rates for all taxpayers.  How that can be construed as a tax break for the rich is beyond logical thought.

And there is much more wrong with this line of thinking.  Foremost is the perception that America's rich do not pay their fair share. The term fair is somewhat ambiguous and this may lead to the misperception.  How about a few facts? 

• The wealthiest 1 percent of the population earn 19 per­cent of total income but pay 37 percent of the income tax. 
• The bottom 50 percent earn 13 percent of the income but pay just 3 percent of the taxes.

Is this fair?  I'll surprise you and say that it is.  The bottom 50 percent use a large percentage of their income to purchase the necessities of life, while the wealthiest spend a very small percentage of income for the basics.  Because of this, I am comfortable that our tax code is relatively fair. Those who feel it is not are usually looking at the large amount of discretionary income the wealthy have left to spend after taxes .  If not outright class warfare, it is definitely class envy.

If the tax rates are not fair, what would fair look like?  Would it be more or less fair to take $750,000 in taxes from a $1,000,000 income simply because the tax payer would still have $250,000 left?  If so, they why not take everything, but say $75,000, a good living wage?  Where would it stop?  If the incentive to innovate and be productive is limited to $75k per year, why would anyone try?  Under this plan, would there be a Microsoft or Apple?

Adding to the misperception the wealthy do not pay their fair share is the ballooning national deficit and debt.  Some feel this is a direct result of the tax breaks provided by Ronald Reagan and George Bush.  These too are fallacies.  The spiking deficit of the 1980's and under the current administration are due to massive spending increases, not falling tax revenues.  In fact, since the 2003 (Bush) tax cuts, federal revenues have grown by $745 billion, which is the largest real increase in history over such a short time period. Individual and corporate income tax receipts jumped by 30 percent in the first two years after those tax cuts.  The Reagan tax cuts brought similar results and led to the longest period of job growth the country has ever experienced.

Unfortunately, it is difficult to convince shallow thinkers that reducing tax rates can increase tax revenue.  But it does.  The concept is that by lowering the tax rate on production, work, investment, and risk-taking, a government will spur more of these activities which will often produce more tax revenue than was collected before the reduction. That logic is hard to follow, so the current batch of liberals in Congress choose to create a bogeyman (the rich) than change their high spending habits.  In November 2012, they will go also.