The rich deserve a tax cut

After their laudable effort to repeal and replace Obamacare failed, Republicans have been working hard on tax reform. They realize how essential it is to score at least one major legislative victory ahead of 2018 midterms, in order to have a decent shot at retaining control of the House and the Senate.

But, as you’d expect, they have been subjected to various demagogic attacks from all corners of the Democrat-media complex. Although, some of them have been about repeal of the SALT deduction, most of the ire has been focused on the rich getting most of the benefits under the House and Senate bills.

House Minority Leader Nancy Pelosi howled:

The American people deserve real, bipartisan tax reform that puts the middle class first. This Republican plan doesn’t do any of that. In fact, it’s a giveaway to corporations and the wealthiest.

Similarly, over at the New York Times, columnist Edsall lamented:

…“tax cuts for the rich” is no caricature. This year’s bill is already setting new tax avoidance schemes in motion as it becomes clear once again that a favor-the-rich, reward-the-already-affluent ideology is embedded in the Republican Party’s DNA.

These breathless and disingenuous denunciations are aimed at convincing you that the rich don’t pay their “fair share” of taxes, and that the proposed reform will further exacerbate the situation. They go as far as to characterize it as an “assault on the poor.”

Yet, the reality is exactly the opposite. What always goes unmentioned by critics of tax cuts is that the rich currently pay a highly disproportionate share of income tax. It becomes clear to anyone who takes even a cursory glance at tax distribution data. For instance, consider two of the Tax Foundation’s key findings gleaned from 2013 federal income tax data:

  • The top 1 percent (1.3 million filers) paid a greater share of income taxes (37.8 percent) than the bottom 90 percent (124.5 million filers) combined (30.2 percent).
  • The top 1 percent of taxpayers paid a higher effective income tax rate than any other group, at 27.1 percent, which is over 8 times higher than taxpayers in the bottom 50 percent (3.3 percent) [emphasis mine].

This means that if you are in the bottom 50% of taxpayers and someone in the top 1% earns thousand times as much as you do, he ends up paying not thousand times as much as you (which would be fair), but 8000 times. (Note that this data takes into account all the loopholes, deductions and credits.)

Let’s try to appreciate the disparity better by having a look at the numbers from a different perspective. Consider the chart below, which compares the share of income of a given income group to its contribution to income tax.

Half of Taxpayers Pay 97.2 Percent of All Income Taxes

As you can see, even though the top 1% earns only about 19% of the adjusted gross income, they end up paying 37% of the taxes. On the other extreme, the bottom 50% contributes only about 3% to tax even though they earn around 11% of total income.

This demonstrates that the rich aren’t getting away with murder, as the left wants you to believe. Instead, they are being soaked. The proposed reform aims at merely punishing the rich a bit less (although, probably to soothe the class warriors, the House bill that passed recently increases the top rate from 39.6% to 45.6% for some; the Senate bill thankfully doesn’t). Yet, liberal elites work themselves into a complete frenzy over how a vast share of the tax cuts go to the affluent, while never acknowledging the fact that this happens partly because of the way the rich are taxed disproportionately. Mick Mulvaney, Director of the Office of Management and Budget, took a stab at explaining this. He said:

People always ask all the time, ‘Why do you want to give a tax cut to the rich?’ Here’s the math. We have a progressive tax system, which means that if you make $1 million and I make $50,000, we both pay the exact same rate on the first, let’s say, $20,000. And then, from the next $20,000 up to my $50,000, and her next $20,000 to her next $50,000, we pay the same, I think it’s 12 percent of 15 percent, I can’t remember where the brackets are right now. And then she goes on to pay her higher rate on the stuff that she makes and I stop.

Well, if you want to give me, the middle class, a cut, take my 15 percent rate down to say 10 percent, and that gives the middle class a cut. Guess who else benefits from that, she does. She pays that same rate on the way up the brackets.

One disingenuous trick that liberals employ is claiming that the tax cuts constitute a redistribution of income from the poor to the rich (see Vox, for example). But the reality is that the current system constitutes an abhorrent and coercive redistribution from the wealthy to the poor, and merely decreasing the magnitude of it isn’t an act of redistributing in the reverse direction.

Contrary to what progressives claim to believe, redistribution of income cannot be justified by an appeal to compassion. Taking others’ money without their consent and giving it to the needy isn’t an act of kindness, donating your own money is (notably, conservatives do that a lot more, perhaps because they understand that taxation should be limited to funding the core functions of a government). It cannot be justified by claiming that the system is “rigged” either, as I explained in my last post.

Liberals also assert that decreasing tax revenue will add to the already swollen federal debt, and thus anyone who supports reform doesn’t really care about the debt. But, they conveniently forget that this is an issue only if the spending isn’t cut by an equal amount too. Remember, the Trump administration had already proposed a budget that quite drastically cuts spending in May itself. But when it came out, liberals ran around screaming bloody murder, which goes to show that the real issue they’re concerned about isn’t debt, but maintaining illicit wealth transfer to their preferred constituencies.

So, since there is no justification for the rich to shoulder an excessive share of the tax burden as they currently do, Republicans are entirely right in attempting to cut their taxes. In fact, I’d have loved them to go even further and support a flat tax system, under which everyone is taxed at the same rate. Still, the House and Senate bills constitute significant progress and I hope tax reform becomes law.

 

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