TAX CUTS ARE ONLY THE BEGINNING
Rep. Mike Morley
Recently, I was invited to and attended a Business Advisory Council meeting in Washington D.C. where taxation and the economic policy of the current administration were discussed. I had the opportunity to discuss with the President’s advisors specific concerns about this administration’s policy on tax cuts and continued spending. I expressed my opinion that not only is it imperative for the economy that we keep taxes low but, in conjunction with cutting taxes, it is imperative that we also reduce spending. Cutting taxes while increasing spending is a formula for disaster.
The principle of fiscal responsibility is one I have supported throughout my tenure as a state legislator. While reducing taxes is on nearly every lawmaker’s list of things they would like to do, the difficult task of reducing spending is equally if not more important to the viability and continued growth of our economy.
I subscribe to the philosophy that cutting taxes allows people to utilize and spend their own income which they do infinitely more effectively than does government. Allowing individuals and families to spend their own money will ultimately grow the economy and provide additional tax revenue. However, to be truly effective, we must hold the line or reduce spending wherever possible to shrink the deficit and stimulate economic growth and prosperity.
William Graham Sumner, an influential professor at Yale University at the turn of the last century, said, “[W]e should regard... every cent of tax as needing justification... All taxation, beyond what is necessary for an economical administration of good government, is either luxurious or wasteful." Unfortunately, federal and state governments do not adequately justify every tax dollar coming into their coffers. As a result, the real level of taxation that citizens face is crippling. More of our earned income is being diverted to pay for what is either “luxurious or wasteful”.
Over the past couple of years as I have listened to the debate in Washington following the Bush tax cuts, I have been at times appalled, amused, and somewhat incredulous. Many congressmen bemoaned the inequity of the tax cuts, indicating that it did little to benefit the poorest segment of our society who needed it most. Obviously, they were not seeing the benefits of job creation which help the poor find jobs or upgrade current employment. The rich, they cried, are the only ones who will receive any significant advantage. They did not seem to grasp the concept that a tax cut is exactly what it intimates: it is a reduction in the taxes paid to the government. Obviously, those who pay the most taxes will receive the most benefit. It would stand to reason that a tax cut would be of very little direct benefit to someone who pays no taxes whereas someone else who has a very high tax burden would, proportionately, receive a greater direct benefit. The indirect benefits, however, are enormous to the population as a whole, but difficult to quantify.
The advantage sought by these congressmen would more accurately be defined as a redistribution of wealth, taking taxes paid by citizens with middle and upper incomes who are in higher tax brackets and giving it to those who for many reasons are allowed to pay less. Our government has been doing this for years. It is called welfare.
A friend shared with me an interesting parable which was written by a professor of economics at the University of Georgia. I believe it relates directly to America’s tax system and would like to share it with you.
“Suppose that every day ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this: The first four men (the poorest) would pay nothing. The fifth would pay $1. The sixth would pay $3. The seventh would pay $7. The eighth would pay $12. The ninth would pay $18. The tenth man (the richest) would pay $59.
“So, that’s what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement until one day the owner threw them a curve. ‘Since you are all such good customers,’ he said, ‘I’m going to reduce the cost of your daily meal by $20.’ So, now dinner for the ten only cost $80.
“The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But, what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone could get his “fair share”? The six men realized that $20 divided by six is $3.33. But, if they subtracted that from everybody’s share, then the fifth and sixth man would each end up being “paid” to eat their meal. So, the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
“And so: the fifth man, like the first four, now paid nothing (100% savings). The sixth now paid $2 instead of $3 (33% savings). The seventh now paid $5 instead of $7 (28% savings). The eight now paid $9 instead of $12 (25% savings). The ninth now paid $14 instead of $18 (22% savings). The tenth now paid $49 instead of $59 (16% savings).
“Each of the six was better off than before. And, the first four continued to eat for free. But, once outside of the restaurant, the men began to compare their savings. ‘I only got one dollar out of the $20,’ declared the sixth man. He pointed to the tenth. ‘But he got $10!’
“‘Yea, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than me!’
“‘That’s true!’ shouted the seventh man. ‘Why should he get $10 back when I got only $2? The wealthy get all the breaks!’.
“‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’
“All nine men surrounded the tenth and beat him up. The next night, the tenth man didn’t show up for dinner so the nine sat down and ate without him. But, when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
“And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. There are lots of good restaurants in Europe and the Caribbean.”
I share with you just one further statistic regarding distribution of income taxes for the 2001 tax year. A study by the National Taxpayers Union indicates that the top 50% of taxpayers (the richest 50% of taxpayers) pay 96% of federal income taxes while the bottom 50% of taxpayers pay just 4%. Taking it a step further, this study found that the top 5% of taxpayers pay more than 53% of all income taxes.
It is time that we not only reduce taxes and hold the line on spending but, perhaps, re-look at our entire system of taxation for fairness and equity and to stimulate our economy for continued growth and prosperity.
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