Can’t Cut Spending, Can’t Tax, What Now?
There was a lot of ink spilled and screeching that 47% of Americans do not pay income taxes. That’s a very big base of people whose input in a large portion of expenditure is practically cut in half, leaving them with only payroll and state taxes as their contributions.
An important question that escaped people’s conversations about this fact is why it is so.
Keith Hennessey answers that question.
Many Republicans and conservatives argue it is both unfair and politically dangerous to have (almost half / more than one-third, depending on who’s measuring) of Americans not owing any income taxes. […] I wonder how many Republican Members of Congress remember that they are, in large part, responsible for this outcome?
But most of the increase since the mid-1990s in the number of people who owe no income taxes is the result of the child tax credit. This policy was created by Congressional Republicans and expanded with Republicans in the lead.
Behind closed doors Republicans split on the per-child tax credit. Economic types oppose it or hold their noses. Social/family conservatives vigorously support it, as does almost anyone running for office.
It’s easy for Republicans to complain today about the end result. They (we) have an out in that they can point to the EITC as one of the causes. But much of this outcome is driven by tax policy changes initiated and expanded by Republicans.
Several economists (1a, 1b, 2, 3, 4) have advocated a different tax than the income tax which hits a broader base before; whether it’s a VAT or national sales tax doesn’t matter too much except they have “different incentive structures” (Niklas Blanchard). If people are going to be pissed at the fact 47% of tax payers have no tax liability, they should argue to replace the economically constrictive income tax with something more broad-based with lower deadweight cost.
It seems we keep doing this to ourselves and it’s not limited to left/right. Liberals crafted the welfare state we have which is susceptible to crushing growth as evident in SS/Medicare. Conservatives crafted powerful tax credits that diminish the revenue potential of the current tax system. Repealing/cutting either will be politically probable due to their popularity. Conservatives have been loathe to cut SS/M due to their broad, bipartisan popularity (especially with the elderly, the biggest source of loyal conservative votes) and no conservative would dare raise taxes–especially by cutting "pro-family" tax credits.
The current system is absolutely unsustainable in the long run. It’s easy to bitch and complain but people are less willing to speak of reality and simply pound their ideological stances on the table, forgetting practical matters and the real politics of these issues. It is politically improbable to cut either the most dangerous parts of government spending or increase taxes to take care of that government spending. It would be much easier to simply take the burden of crafting a new tax system that will have the lowest impact but the broadest tax base. People are going to have to get over the fact spending will simply not go down unless there’s a fiscal crisis–one that we will not recover from for generations.
1a. Bartlett, Bruce. “John McCain’s Irresponsible Demagoguery on the VAT”
1b. Bartlett, Bruce. “The Case Against the VAT”
2. Crook, Clive. “Why a VAT Makes Sense”
3. Rogers, Diane L. “Why a VAT? Give Me a Better Way to Raise Revenue”
4. Blanchard, Niklas. “The (Unnecessary) Annoyance that is Tax Day”