Thursday, October 1, 2009

Observations about Taxes and the Stimulus

Liberals want to tax the "rich" and redistribute this money to the "poor." Conservatives want the lowest taxes possible for everyone.

Remember, Bush's tax cuts were for the "rich." Yet, if you do any small amount of research and study, when these tax cuts expire at the end of 2010, the "rich" will actually pay less of a share of taxes than they do now, according to the Tax Policy Center. This is because the lowest bracket, 10 percent, will go away and be replaced by the older 15 percent bottom bracket.

My conclusion on the liberal argument is that it is really about class warfare and perception, rather than based on fact.

Liberals firmly believe in taxation. Was it a coincidence that the national income tax (with a constitutional amendment) was instituted shortly after the birth of modern liberalism in the late 1800s and early 1900s?

In 1894, Democrats in Congress passed the Wilson-Gorman tariff, which imposed the first peacetime income tax. The rate was 2% on income over $4000, which meant fewer than 10 percent of households would pay any. The purpose of the income tax was to make up for revenue that would be lost by tariff reductions.

The Supreme Court later decided this was unconstitutional, so the Democrats responded by getting the 16th Amendment passed (ratified in 1913), which stated that "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

As an amendment, it's pretty much permanent, hence the problems we face today.

Earlier this year, Obama signed into law the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5), which, among other things, temporarily put into place some of the refundable credits proposed during the campaign. The Tax Policy Center estimates that under the new law, 47 percent of taxpayers will owe no income tax in 2009.

Also according to the Tax Policy Center, 80 percent of taxpayers earning less than $50,000 a year pay no taxes.

According to the IRS, 23 million taxpayers received earned income credit -- which means they did not pay taxes, but received an amount of money from the government. That is about 17 percent of all individual taxpayers. Millions more get other credits, rather than paying taxes.

I hear all the time from conservatives that more than 50 percent of all Americans -- or is it wage earners -- do not pay income tax. This is about right, according to tax statistics. About 40 percent pay no taxes, yet receive a refund. The other 10 percent is more fuzzy, because the statistics are divided into quintiles. Yet liberals want more taxes, especially for the "rich." But the top 5 percent -- I guess those are "rich" people -- pay nearly 45 percent of federal taxes. Seems enough to me.

Liberals also believe that the worst time to cut taxes is during a recession (of course, during growth periods, they want to raise taxes). Increases government spending will get us out of recessionary periods. Conservatives on the other hand, believe cutting tax rates along with smaller government actually stimulates the economy.

What is the truth?

The Stimulus Doesn't Work

As of Sept 1, 2009, about 17 percent of the $787 billion stimulus package has been spent. You can bet as we get closer to mid-term elections next hear, much more will be spent. But it probably won't make much difference, if government spending doesn't work. Of course, as the economy slowly recovers, the Dems will take credit.

A further study of history will bear out the fact over government spending, yet our friends on the left won't or can't believe it.

What about you?

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