Saturday, June 25, 2011
"Broadening the Tax Base"
This is the Dream of Dreams for our governing class: Make everyone pay "taxes," instead of the barely 50% who currently do. By "taxes" is meant the individual income tax, of course, the Holy Grail of taxation for Our Rulers because it provides the bulk of the operating (non-borrowing) revenue that the Government requires. It's a wonderful tax mechanism for the Government because it is revenue withheld directly from wage-earners' paychecks; since they never see it, they never (really) notice it's gone. They've become so accustomed to living on less than they actually earn that they'll even front the Government X-number of dollars over the course of the year, only requesting the overage returned when when it comes time to filing tax returns -- providing the Government with a short term interest free loan. Excellent.
But only about half the wage earners in this country are subject to the individual income tax because they don't make enough money to qualify. A goodly number not only don't pay individual income taxes, they receive a refundable credit from the Government -- which can amount to thousands of dollars -- merely for working at all and having a family.
Almost all workers, of course, are subject to payroll taxes, however -- to fund Social Security, Medicare and Unemployment Insurance. Social Security taxes are only collected on wage income up to $106,000, though.
The payroll taxes are in effect a Flat Tax on wage income, and a Flat Tax is advocated by some to replace the not very steeply graduated income tax that attempts to impose a higher rate of income taxation on higher earners, but often enough, higher earners pay a lower effective rate of taxation than lower income wage earners. Much snickering at the Country Club over that little factoid you can be sure.
Interestingly, Flat Tax advocates are at odds with those who want to "broaden the tax base" because as a general rule Flat Taxers would exempt the first $20,000 or even $30,000 of income from being taxed. Tax Base Broadeners would, on the other hand, apply the income tax to every dollar that a worker earns, closing "loopholes" and eliminating "exemptions" -- and of course eliminating tax "expenditures" such as the Earned Income Tax Credit. The point being to subject everyone who works for wages to the individual income tax, even if it means they only pay a few tens or hundreds of dollars in individual income taxes.
Income taxes were initially imposed on only the highest 2% or 3% of earners, not on "everyone," nor was the income tax ever intended to be applied to "everyone," so those who now advocate for "broadening the tax base" by applying the individual income tax to "everyone" are actually making a radical proposal for restructuring the income tax and its application from what it has been historically to what they think it should be.
From the indications, some of them seem to think the individual income tax should be like the payroll tax: it should apply to every dime of wage income, up to a certain point, when -- magically -- "poof," it doesn't apply any more.
It would really be something if they finally got their way. Advocacy for "broadening the tax base" has been underway for decades, at least since Roosevelt, and quite likely since Wilson. At this point, they are nearly there, what with the Simpson-Bowles Plan actually promoting the idea as part of a radical reinvention of the tax code.
Those who see taxation as punishment are the ones most likely to favor an income tax scheme that applies to everyone who earns less than a certain amount -- just as the Social Security tax does now. In their world, you should pay less tax the more money you make as a reward for your Success. Ultimately, in that scheme of taxation, the lower-earning taxpayers would be the only taxpayers, and their taxes would be used first for the military. Any surplus would be used to subsidize the projects and lifestyles of the High and the Mighty, under whose sufferance the lowly are permitted to live. It's a Randian wet-dream.
But we're not quite to that point yet. Not quite.
The more pressing goal, it seems, is to revise the tax code so that lower earners are indeed subject to paying individual income taxes, many for the first time; in addition, the plan seems to be to reduce or eliminate tax expenditures, such as the Earned Income Tax Credit and the home mortgage deduction (among others). EITC reduction or elimination will, of course, impact only lower income wage earners. It will have no effect on the High and the Mighty at all. The elimination of the home mortgage deduction might affect them -- especially if their palace has recently been refinanced -- but it can be easily offset by reducing tax rates on the Highest and the Mightiest, and by eliminating all sorts of nuisance taxes like the so-called Death Tax.
The precipitous reduction of tax rates at the highest end is a further goal of tax base broadeners. The idea is that if the lowly are finally paying Their Fair Share (haha), the High and the Mighty won't have to pay as much as they do now. So their rates can be reduced significantly and the Government will still take in more money. It's win-win, you see.
The truly radical would eliminate any taxation on the incomes of the Very Wealthy, and they might even go so far as to offer the handsome subsidies to the very top of the heap in order, say, for them to have an "incentive" to employ a few Proles in some menial jobs to keep them from rioting. The beauty part of that is that the lowly would actually wind up paying their Betters to be employed at all. It is genius.
"Broadening the tax base" is mentioned periodically almost in passing during the intense "debate" over the budget and raising the debt ceiling and whatnot, but it seems to be some kind of peripheral interest of tax wonks, not a core principle of the radical reactionaries who have largely bought and paid for the Government. Much like the payroll tax cut that was instituted as part of the tax bargain made at the end of last year, though -- without debate and without the knowledge of the public or media prior to enactment -- these radical proposals for "broadening the tax base" are likely to be enacted stealthily, without debate and without the prior knowledge of the public.
And once they are, more than likely there will be wild cheers and parties among the Governing class and their Sponsors, there will be shrugs among the tattered remnants of the middle class, and there will be OUTRAGE!!!™-- with no outlet -- among the impotent lowly.
(The only saving grace here is that my Predict-o-Meter has been on the fritz for a good long time, and therefore none of this may come to pass. What will come to pass is something No One Could Have Predicted. And whatever it will be is worse. By far. We'll see.)