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Robbing Peter to Pay Peter

An op-ed in today’s Washington Post by Kevin Hassett, director of economic policy studies at the American Enterprise Institute asks, “Why we pay (taxes) without a whimper?” The question is especially provocative since we had a revolution over 200 years ago when Hassett estimates their taxes were “a measly 2 percent.” Compare that to today when “taxes eat up about 30 percent of income.”

According to Hassett:

“Perhaps the most contentious question about taxes is: Who should pay them? Progressives argue that the government should use the tax code to redistribute income from the wealthiest to others, while economic conservatives worry that high taxes will slow the economy and hurt the poor.”

After noting that the poor have largely been removed from paying taxes, as we’ve growled about in the past, Hassett then calculates what two different families pay in taxes, a family of four making $50,000 and a family of four making $150,000. It will surprise some, but the family earning $50,000 went from paying 29% of their income in taxes in 1983 to paying 31% in 2003. By comparison, the family earning $150,000 paid 30% of their income in taxes in 1983 and also 30% in 2003. The explanation:

“Lots of things have changed, but one thing is constant: Government has been robbing Peter to pay Peter. The similarity between the tax proportion for the high-income family and that of the middle-income family will surprise many. That's because the federal income tax, which is steeply progressive -- the higher your income, the more you pay in taxes -- gets all the media attention. But other taxes that are less visible, such as sales taxes, hit lower-income families with a heavy thud and quickly fill in the gap between their lower federal income taxes and the higher rates paid by those with high incomes.”

Hassett also explains the motivations behind this chicanery:

“Governments at all levels have voracious appetites for cash, but taking revenue from the middle class is a politically risky maneuver; after all, that's where the votes are. So lawmakers have crafted ingenious ways around the dilemma, imposing hefty levies on those with lower incomes but relying on stealth taxes to do it. If you're going to tax widows and orphans, you'd better be quiet about it; use a sales tax.

“Government thus takes more from the wealthy through income taxes, but extracts more from the poor with all the other taxes. By doing this, politicians get to pretend that they are virtuously redistributing wealth from the richer to the poorer, and they can maintain that fiction without sacrificing the cash. Voters seem to like this approach.”

Do they? Do taxpayers? One thing for certain, though, governments "have voracious appetites."

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