To the People

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or TO THE PEOPLE.

Monday, April 16, 2007

A Sobering Thought About Our Tax System

To mourn tax season, the WSJ has had a series of editorials and op-eds on the insanity of the US tax system. An op-ed today by former press secretary Ari Fleischer hit a point that is not discussed much but is quite important. Namely, that the top 40% of earners pay 99% of federal income taxes, which means that 60% of earners pay nothing or next to nothing. When a majority of the population is not affected at all by the cost of government it creates a moral hazard situation which leads to profligate government spending, as the majority supports expensive programs that they don't have to pay anything for. From the article [subscription only]:
If, as now happens, 60% of the people in our democracy can force 40% to pay the bills, what's to stop 65% from making 35% pay it all? Since no one wants to pay taxes, what's to stop 90% of people in a democracy from making 10% pay it all? Or why not let 99% of the country off the hook, as long as the remaining 1% picks up the tab?

The problem is that there is a tipping point after which piling taxes onto the rich will leave the government unable to meet its obligations. And perhaps we're already reaching that point, where most people won't have a serious stake in what the government does because they don't pay for it. They want services and benefits, but they don't pay the price. That's a formula for runaway spending and no accountability. In other words, a system that looks a lot like the one we already have.

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