America is nearing a tipping point in the tax burden – soon, 50% of Americans may not pay anything at all.

David M Edwards, Staff Writer
Ideology: Conservative Democrat| Writing In: New Haven, CT

April 15, 2009, tax day, came and went this year.  If the IRS were a business, I would have shorted its stock.  Tax revenue was down an astounding $138 billion, or around one seventh of the proposed 2010 federal budget.  This 34% drop in tax revenue year-over-year is a result of reduced incomes economy-wide for both individuals and corporations. Moreover, 47% of Americans won’t owe any income tax this year, up resoundingly from projections of 38% touted by our always fiscally-inclined president on the campaign trail.

I understand that in the last year people have lost a lot of money.  People’s IRA’s have decreased in value, their pensions have decreased or evaporated into thin air, and their stocks have pulled back significantly, all of which reduce incomes and have resulted in the reduction of the number of taxpayers.

This year, almost half of Americans will be “net takers” from the government as they are contributing nothing to tax revenue, but they will be utilizing many public programs and projects that are funded by federal money.  And so, instead of trimming back its programs by the same 34% by which its revenue decreased in 2009, the government taxes those who are well-to-do at a higher rate (almost as if those people receive more utility from the programs and projects they are paying for).

2009 marks a generational event in federal taxes—the highest overall tax rate and greatest iniquity in tax rates since America’s beloved peanut-farmer-turned-president Jimmy Carter was in office.  Tax rates for middle and low-income workers are approaching 30 year lows and tax rates for the well-to-do are approaching the high-40% range and possibly even 50% in some states, according to some legislators.

Despite this apparent iniquity, the Obama administration and the Democratic Party are pushing ahead with more tax increases for the well-to-do, namely an increase of the highest overall tax rate to just under 40% and a proposed healthcare surtax of an extra 5%.  These increases would raise some individuals’ effective tax rates to above 50%.  This tax situation is certainly reminiscent of the Carter era, during which many Americans paid in excess of 65% of their income in taxes and a whopping 70% on capital gains, which at that point in time had been deemed “unearned” income by the Carter Administration, as if people who had undertaken investment risks had just done nothing.  Because of the enormous tax burden of the 1970s, many Americans sought protection from the government in tax shelters and, for the most part, withdrew investment capital from the American market, thus hurting the overall economy.

I argue that the current administration views the well-to-do in much the same way as the Carter administration—as a bottomless wallet designed to pay for any program no matter the expense.  If Mr. Obama continues to be fiscally reckless and irresponsible, the wallet of America will be running and hiding in tax shelters so as to weather the storm until a kinder and more respectful set of leaders comes along.  A very famous economist named Art Laffer and I would be the first people to argue that the proposed increases in taxes would not actually increase federal tax revenue, but rather drive it down by creating an incentive to exit the system.  And so, Obama is playing a dangerous game with our economy, one in which he could further exacerbate the government’s tax revenue issue and put us deeper in the hole, which will disadvantage every American—not just the rich.