Thursday, August 25, 2011

Of Lucky Ducks

Many of the GOP presidential wannabes are going at a new approach to raising income taxes -- tax everyone. Michelle Bachmann contends that, " we need to broaden the tax base so that everybody pays something, even if it is a dollar. Everyone should pay something, because we all benefit." Son of a billionaire, Jon M Huntsman Jr. went straight to the point, "the half of Americans no longer paying income taxes, mainly working poor families and seniors, should be brought onto the income tax rolls." The Slate article linked above contends that this is part of theory that originated in WSJ editorials that called the working poor and those that don't pay income taxes "lucky duckies" and that real change to the tax code will only come when the lucky duckies share the tax burden and are enraged enough to demand change.

The tax code has become a system of bribery towards the working poor. Certain tax provisions end up providing poor people thousands of taxpayer dollars that they didn't contribute. In 2004 it is estimated that the Federal Government paid out more than 36 billion dollars in Earned Income Tax Credit to over 21 million US households. The EIC coupled with the additional child tax credit, provides working poor families with a great deal of Treasury dollars just for being poor. This needs to change. While it is important to provide help to the needy, we don't need the government to be handing out cash to every single household that makes less than six figures whether the asked for it or not.

Having railed against the negative tax provisions of the tax code, it would be folly to require the working poor to shoulder a proportionate load of the income tax burden. First, most lower middle class families struggle to make ends meet without requiring them to set an additional 10-20% aside for income taxes. Adding these people to the tax roles may produce an enraged working poor, but it would also burden the IRS in pursuing tax bills that are more than likely noncollectable. Second, taxing the poor will create more poverty. I went through this ad nauseum when former Utah governor Huntsman started pushing a fair or flat tax. Ten to twenty percent of 100k is a lot less painful than ten to twenty percent of 40k.

The best move our nation can make in regards to taxes and the working poor is the repeal of income based refundable tax credits. This will end the multi-billion dollar drain on the Treasury without increasing the cost of living on lower middle-class families. Beyond that I foresee flat taxes as producing tax cuts that benefit the rich at the expense of the poor. The GOP candidates may argue that forcing the rich to pay all the taxes is class warfare, but taxing people who in some cases make 1/100th of the wealthy peers at the same rate is just plain tyrannical.

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