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The Rebate Racket

February 14, 2001

Tags Taxes and SpendingU.S. EconomyBig GovernmentFiscal Theory

To no one’s surprise, much of the debate regarding President George W. Bush’s "tax cut" proposals center upon "fairness."  On one hand, proponents argue that the benefits of lower taxation will fall disproportionately to those folks who pay the most taxes – and that happens to be those with the highest incomes (surprise, surprise).  On the other hand, opponents of cutting taxes declare that cutting marginal tax rates is inherently unfair precisely because high-income tax payers will receive greater dollar amounts in cuts than lower-income families.

Never fear, writes William Raspberry in the Washington Post.  Fairness is just around the corner with a new "tax" proposal by Rep. Bernie Sanders of Vermont.  Sanders, as nearly all lovers of liberty know, is the only openly avowed socialist in Congress, or at least the only socialist who has come out of the closet.  The socialist version of the "fair tax cut," according to Raspberry, is a $300 rebate to each man, woman, and child in this country, regardless of income, and, says Sanders, if the surplus is "for real."

For example, my present family would see a $900 cut in our total tax bill (provided the surplus is "for real"), while a family of five would receive $1,500 (provided the surplus is "for real").  A millionaire who pays $300,000 in taxes each year would also receive a $300 tax cut – provided the surplus is "for real."

Of course, Raspberry thinks this is a great idea.  First, as he breathlessly points out, lower income families potentially receive more "tax relief" than upper income families, or at least those in upper income brackets receive no more "relief" than their poorer counterparts.  

Second, wealthy folks might actually save their meager "tax cut" while poorer folks would be more likely to spend it, and every socialist in Washington, D.C., knows that it is consumer spending that brings about prosperity.  Thus, Sanders the socialist can be the unlikely hero who saves our economy along with our body politic, which is surely going to be rent by the wave of unfairness unleashed by Mr. Bush.

So much fraud, so little time.  A cursory glance at this "tax plan" reveals it is no tax cut at all.  It is a rebate, or, to be even more specific, a government handout, distribution scheme, or whatever one wishes to call it.  The tip off, of course, is the fact that according to figures released by the Internal Revenue Service itself, the top 50 percent of taxpayers shell out about 96 percent of all individual income taxes.  

Thus, the government simply would be sending money to large numbers of families that did not even pay income taxes at all.  From where would the money come?  Obviously, it would come from those in upper income brackets.

Second, the stipulation that the surplus must be "for real" also lets us know that Sanders intends for no "tax cut" to occur at all.  The easiest way to make a budget surplus to disappear is for politicians to spend more money, which members of both sides of the aisle in Congress are racing to do.  Furthermore, there is no recognition on the part of Sanders or his supporters like Raspberry that the government simply has too much power and controls too much of the economy.

Instead, there is an implicit assumption on Raspberry’s article that he and Sanders consider the government to own a claim upon all property that is now held by private individuals.  The extra $300 per person can be seen as the paternalistic government’s answer to the allowance our parents once gave us.

Even tossing aside the Sanders plan, one must also face the larger question: Just why do we give the government such power to seize our incomes?  Indeed, we would not be talking about income tax cuts were it not for the Sixteenth Amendment to the U.S. Constitution, and amendment foolishly ratified by the states in 1913.  While the earliest income taxes consisted of taking four percent from individuals with incomes greater than $5,000 a year, it did not take long for the income tax to begin to bite everyone.

Today, the income tax retains its awful progressivity.  The IRS reports that in 1998, the top one percent of taxpayers paid about 35 percent of all individual income taxes.  (That is why even the smallest cut in the rates of the wealthiest taxpayers yields a fairly large amount of income returned to its rightful owners.  Of course, that is also why the left always howls about any attempt to cut tax rates.)

Perhaps the real discussion should not be whether or not to cut tax rates, but to eliminate this tax monster once and for all.  Six years ago, Congress was discussing the possibility of actually eliminating the income tax altogether.  Unfortunately, that talk stalled soon after the Republicans took over Congress and began to show a desire to be re-elected.

Unlike a number of other taxes such as tariffs and excise taxes – bad as they are – which are taxes on transactions, the income tax is a direct confiscation of private property.  The Bush plan only lessens the bite Congress takes from our income; it does not reduce the power of the state to take what individuals own.

On the other hand, the Bush plan is still preferable to what Sanders has concocted.  The socialist from the People’s Republic of Vermont is calling for a plan that declares not only that the state has a claim upon everything we own, but also promotes the fiction that taking from Peter to pay Paul is a form of "tax relief."  As Sanders and supporters like Raspberry see it, the state owns everything.  Anything we are permitted to keep is actually a "gift" from our masters.  Tax cut, indeed.

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William Anderson (send him mail) teaches economics at North Greenville College. See Anderson's Daily Article Archive 


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