The method to the madness

[sirs]

I've referenced this point many times before, but came across this recent op-ed by the master Thomas Sowel.  It helps reinforce the tactic being pused by the left....to get as many folks hooked into Government programs, if not completely supported by it as possible.  Once a majority of voters are "hooked", the Dems are locked in.  Pretty nefarious, though ultimately its the electorate that makes that decision.

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Depending on Dependency

The theme that most seemed to rouse the enthusiasm of delegates to the Democratic National Convention in Charlotte was that we are all responsible for one another -- and that Republicans don't want to help the poor, the sick and the helpless.

All of us should be on guard against beliefs that flatter ourselves. At the very least, we should check such beliefs against facts.

Yet the notion that people who prefer economic decisions to be made by individuals in the market are not as compassionate as people who prefer those decisions to be made collectively by politicians is seldom even thought of as a belief that should be checked against facts.

Nor is this notion confined to Democrats in America today. Belief in the superior compassion of the political left is a worldwide phenomenon that goes back at least as far as the 18th century. But in all that time, and in all those places, there has been little, if any, effort on the left to check this crucial assumption against facts.

When an empirical study of the actual behavior of American conservatives and liberals was published in 2006, it turned out that conservatives donated a larger amount of money, and a higher percentage of their incomes (which were slightly lower than liberal incomes) to philanthropic activities.

Conservatives also donated more of their time to philanthropic activities and donated far more blood than liberals. What is most remarkable about this study are not just its results. What is even more remarkable is how long it took before anyone even bothered to ask the questions. It was just assumed, for centuries, that the left was more compassionate.

Ronald Reagan donated a higher percentage of his income to charitable activities than did either Franklin D. Roosevelt or Ted Kennedy. Being willing to donate the taxpayers' money is not the same as being willing to put your own money where your mouth is.

Milton Friedman pointed out that the heyday of free market capitalism in the 19th century was a period of an unprecedented rise in philanthropic activity. Going even further back in time, in the 18th century Adam Smith, the patron saint of free market economics, was discovered from records examined after his death to have privately made large charitable donations, far beyond what might have been expected from someone of his income level.

Helping those who have been struck by unforeseeable misfortunes is fundamentally different from making dependency a way of life.

Although the big word on the left is "compassion," the big agenda on the left is dependency. The more people who are dependent on government handouts, the more votes the left can depend on for an ever-expanding welfare state.

Optimistic Republicans who say that widespread unemployment and record numbers of people on food stamps hurt President Obama's reelection chances are overlooking the fact that people who are dependent on government are more likely to vote for politicians who are giving them handouts.

President Franklin D. Roosevelt understood that, back during the Great Depression of the 1930s. He was reelected in a landslide after his first term, during which unemployment was in double digits every single month, and in some months was over 20 percent.

The time is long overdue for optimistic Republicans to understand what FDR understood long ago, and what Barack Obama clearly understands today. Dependency pays off in votes -- unless somebody alerts the taxpayers who get stuck with the bill.

The Obama administration is shamelessly advertising in the media -- whether on billboards or on television -- for people to get on food stamps. Welfare state bureaucrats have been sent into supermarkets to tell shoppers that food stamps are available.

The intelligentsia have for decades been promoting the idea that there should be no stigma to accepting government handouts. Living off the taxpayers is portrayed as a "right" or -- more ponderously -- as part of a "social contract."

You may not recall signing any such contract, but it sounds poetic and high-toned. Moreover, it wins votes among the gullible, and that is the bottom line for welfare state politicians.

[sirs]

Your Fair Share

Barack Obama doesn't think the rich are paying their fair share of income taxes. So what is their fair share?

I posed this question to Fox News commentator Juan Williams in Dallas the other day. "The top 10 percent of income earners are paying 71 percent of all income taxes," I said. "Isn't that enough?" Although Juan was trying to defend the Obama position, he didn't have an answer.

Then I turned the question around. "The bottom one-half of the population is paying zero, or close to zero, income taxes. What's their fair share?" He didn't have an answer to that question either.

Perhaps you have an answer. The median household income in the United States is $50,054, according to the latest Census Bureau report. People earning up to this amount are contributing almost nothing to the operations of the federal government, even though the government is spending one out of every four dollars in our economy.

When you couple that with the fact that nearly half the population is receiving at least one entitlement benefit, we have a dangerous political situation on our hand. If roughly half the population is receiving and not paying, they have an obvious self interest in seeing taxes and spending go higher and higher. This could be a ticket to national bankruptcy.

So back to the original question. What portion of the federal burden should each of us pay? Actually, I have an answer. It's called the Biblical tithe.

One of the reasons why tax rates are so high is that about half of all the income earned in our economy is not taxed at all. This income escapes taxation, courtesy of the standard deduction and tons of other deductions, credits and loopholes in the tax code. What if we wiped out all of these escape routes and taxed all income at one low rate? Then we would all be paying a tax rate of about 10%.

If we want to replace the corporate income tax as part of reform, our rate would have to rise to 11%. But with these low rates the economy would be more efficient. It would grow faster. More income would be reported. Taking that into consideration, it looks like an across-the-board rate of 10 percent is all we would need to replace the personal and corporate income taxes we are now paying. As Dick Armey used to say, most of us could fill out our tax returns on a post card!

Ah, but we're not done yet. There is the not so small issue of the payroll tax, which currently stands at 15.3 percent. Although we are told that workers who pay this tax are contributing to their Social Security and Medicare benefits, in fact all the money is spent the very minute it comes in the door. If each of us were saving for our own retirement, we would need to put aside only half that much. Instead workers are paying 15.3 percent of every paycheck — not for themselves, but for someone else's benefits.

Moreover, unlike the income tax, the payroll tax is actually very regressive. That's because we only pay it on the first $110,000 of income. All income above that level gets off scot free. If we integrate the income and payroll tax, we're now looking at about a 20 percent tax on all income. That's a double tithe. And we're not done yet.

There are three other things to consider.

First, as I wrote in a previous post, it's in everyone's self-interest to have a tax system that makes the economy larger, rather than smaller. When people save and invest they are benefitting the rest of us. When they consume, they are benefitting themselves. That's why it makes sense to only tax that part of people's income that they consume. Practically this means that people would pay the flat tax on all income, minus the dollars they invest.

Second, we have a huge imbalance in our federal finances and it is probably unrealistic to think that the problem can be solved without some increase in the tax burden.

Finally, there is the whole question of whether this type of reform unduly benefits the wealthy at the expense of low and moderate income families. To deal with this objection, some flat tax advocates (Dick Armey, Steve Forbes, etc.) include a generous standard deduction for everyone.

Advocates of a national sales tax include a generous rebate for everyone. Sometime back, my colleague Larry Kotlikoff and I decided that this approach gives away too much money to people who don't need it (e.g., Warren Buffett) while leaving important social goals unmet.

As an alternative, we proposed a generous rebate to the bottom third of taxpayers to solve other social problems. For example, to get one-half the rebate, low-income families would have to produce proof of health insurance. This would encourage millions of people who qualify to enroll in Medicaid or in their employer's health plan. Barring that, families could apply the tax rebate to health insurance they purchase on their own. We propose making the other half contingent on proof of a pension, an IRA, a 401(k) or some other savings account.

So instead of national health insurance and more government spending on the elderly, we would use our flat-tax proposal to urge people to solve these problems on their own.

We called our proposal a "progressive flat tax." The reason: under our flat tax the rich would bear more of the tax burden than they currently do.

So where does that leave us? With a flat tax rate of about 28%. Interestingly this is the rate Ronald Reagan left us with as part of tax reform in 1988.