Ending Class Warfare with a Flat Tax

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Guest Commentary
by Joel Marchese

Conservatives always lash out at liberals for using class warfare as a tool to win elections. Liberals respond by saying that if only tax rates were higher for the rich than they are now, we wouldn’t need this debate.

Historically, the conservative argument for keeping taxes lower always wins when the empirical data is analyzed fully. Lower taxes result in greater tax revenues because it unleashes the private sector to create more jobs, and thus more payroll taxes are collected. This philosophy of lowering taxes to stimulate the economy and raise more tax revenue works ever time it is tried — as it did with Ronald Reagan’s presidency in the 1980s, and even during the Clinton and Bush presidencies.

So, why did we still have to suffer through a repeat of the class warfare debate during the Obama re-election campaign? Well, partly because class warfare is a cornerstone of the Obama Motis Operandi, but mostly because the argument seems to rally the Democrat base regardless of facts or data. It’s all about emotion and class envy.

So, what to do, what to do.

The answer is to adopt — once and for all, a flat rate income tax for all, a.k.a., the flat tax!

Yes, some will moan and groan. Others will sneer and cheer! However, once adopted, no “star-bellied-sneetch” can point to another sneetch and say — I want what he’s got! The whole class warfare debate simply goes away. We could put a fix on a number somewhere between the average single income tax rate of 7.2 percent and the average household income tax rate of 17.4 percent (based on the 2009 table of average income tax rates from the CBOs office).

A reasonable flat tax rate would seem to be somewhere around 12 to 15 percent for all income taxpayers. And, what about deductions — you say? These nasty critters remind me of the original Star Trek episode: “The Trouble With Tribbles.” They were cute, but there were just too darned many of them, and they just were not worth keeping around. Yes, some deductions are definitely worth keeping — like the Child Tax Credit. Since families by definition represent the future of our nation, we should always find any way possible to encourage families to grow and seek prosperity through hard work and savings.

So goes the end of the Class Warfare argument, where you can no longer point to fingers at someone who is successful and say — “he’s not paying his fair share of taxes.” Why, of course he is, and so are you!

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Joel Marchese is a conservative candidate for United States Congress in CA-53. Endorsed by Carl DeMaio, Joel is a strong grassroots conservative who advocates for small business, lower taxes and tax reform, smaller government and a desire to bring back a vibrant and dynamic economy to San Diego and all of Southern California. Joel will be opposing ten year Democrat incumbent Susan Davis for the 53rd Congressional District. http://joelforcongress2014.org

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Comments 29

  1. Thanks Dave. I don’t know how many times I’ve heard the other side preach about equality. Here is an issue we can win with, that takes class warfare off the table for 2016. Big question is will they do it?

  2. Trust me on this one. The biggest opposition to this will be from the wealthiest, however I like the concept combined with a balanced budget. Estimate the budget and flat tax accordingly. Adjust each year. The reality will be that many corporations and super weathy will pay more than they do now. That being said, any of you genieses want to explain how this country developed the greatest middle class in the history of the world during a time when with the highest tax rates at +90%. I can explain this Can you?

  3. Hypocrisy,
    Are you suggesting the only revenue the federal government has to live on is from the income tax?

  4. Michael,

    Please educate me on how much revenue the Federal Government takes in from revenue other than income tax.

  5. How about I put it this way, Hypocrisy…the Democrats like to bring up how fiscally sound Clinton’s budgets were. The economy was hot. Everyone had a job. The federal government was running a surplus.

    Most of his budgets were around $1,500,000 (number in millions), so let’s adopt his average budget.

    The $1,500,000 (number in millions) amount is just about how much revenue the federal government received in 2012 from all sources that were NOT income tax. So if we adopt the fiscally sound, Clinton federal budget and still receive the amount of revenue we receive in 2012, we would no longer need to take a single dollar away from hard working Americans. It would help them keep their houses and buy goods and services from their neighbors.

    In other words, we wouldn’t need an income tax.

    Might have to add a number here and there, I used a broad brush, but you get the idea. I found those numbers from the right-wing extremist website WhiteHouse.gov, by the way. There are a ton of spreadsheets showing revenue and outlays by source, as a percentage of GDP, etc.

    (Interesting side note, the most amount of revenue ever received from taxing the income of Americans was in the 2000s after Bush cut the Clinton income tax rates.)

  6. Michael,

    Almost all of that revenue is payroll taxes – Social Security and Medicare. That is not exactly available to fund the day to day operations of the government.

    From the left-wing extremist website (see I can use sarcasm too) Heritage Foundation:

    Total Revenue = $2.3 Trillion
    Personal Income Tax = $1.1 Trillion
    Payroll Tax = $818 Billion
    Corporate Income Tax = $ 181 Billion
    Estate and Gift Tax = $7 Billion
    Customs, Duties, Excise Taxes and Misc. = $205 Billion

    Take away taxes on income and the annual revenue is $212 Billion.

    As for your side note, you are correct that the most annual income taken in by the federal government happened in 2007 before the market crashed, but now that the some of the tax cuts have been reversed, revenue is projected to be 5-6% higher in 2013 than it was in 2007 and almost 60% higher by 2018.

  7. Yet still, throughout the ‘90s the country and its government survived (counter to your original point that it could not without the revenue from the income tax).

    My point is that the federal government revenue has increased enough from non-income tax revenues to support a total budget we were all happy about just 10 to 15 years ago.

    As you have proven with your original comment, the grossly uninformed are convinced that the federal government would literally no longer exist without income tax revenue. And clearly, that’s not true.

    But what is true is that the half of Americans who have to bear the burden of paying tax on what they’ve earned would use that money in ways that would improve our economy by saving, investing, and buying goods/services. If we can live on a budget that doesn’t require an income tax, then why wouldn’t we try for the betterment of our society?

    I am all for a flat tax because it’s easy to understand and makes sense, but to truly make is a “fair” tax and to truly benefit the entire economy, the flat percentage would have to be 0%.

    Regarding the side note, your zeal in pointing out how much the increase in income tax revenue is projected to increase is just disturbing to me. I pointed out that we can have record high income tax revenue with lower rates, but no, you’re pretty happy that Americans are being burdened by government overhead.

  8. Michael,

    The original Bush Tax Cuts were in 2001 and income tax collected by the Federal Government immediately fell and continued to fall until 2005 and then, as you pointed out,rose and peaked in 2007. Revenue fell in 2008 and fell again by almost 30% in 2009. Any objective read of those facts will tell you that the peak revenue was due to the stock market bubble, not tax cuts. As soon as that bubble burst, revenue dropped well below what it was before the tax cuts.

    As for your other point concerning Clinton’s budget, I can see that we will go back and forth on how you believe we can spend payroll taxes for the day-to-day operation of the government and still have that money available to pay Medicare and Social Security recipients, so let me try another approach.

    According to the Bureau of Labor Statistics (http://www.bls.gov/data/inflation_calculator.htm), $100 in 1995 would have the same buying power as $153 today. Let’s round that down to $150 for easier calculation and you can see that Clinton’s $1.5 trillion dollar budget would have to be $2.25 trillion today just to keep up with inflation. And this doesn’t account for any increase in the population.

    Even if you include payroll taxes, you cannot eliminate personal and corporate income taxes and come anywhere close to $2.25 trillion.

  9. Here’s the income tax revenue (in millions of dollars) from 1993 to today-

    1993: 509,680
    1994: 543,055
    1995: 590,680
    1996: 543,055
    1997: 590,244
    1998: 828,586
    1999: 879,480
    2000: 1,004,462
    2001: 994,339
    2002: 858,345
    2003: 793,699
    2004: 808,959
    2005: 927,222
    2006: 1,043,908
    2007: 1,163,472
    2008: 1,145,747
    2009: 915,308
    2010: 898,549
    2011: 1,091,473
    2012: 1,132,206

    The Bush tax cuts came in 2001. So the “fall” in revenue was immediate, but it’s not intellectually honest to expect a massive economy to grow due to the effects of lower tax rates within a year after their implementation and a massive foreign attack on their soil.

    But it is interesting to point out that after the “fall” you talk about, revenue from income tax was still more revenue per year than most of the years Clinton was in office and during his exorbitant income tax rates. And it is relevant and meaningful to point out that the federal government received significantly more revenue after the Bush tax cuts than during Clinton’s tax hikes even though during Clinton’s administration the economy was expanding significantly. It wasn’t a population boom that produced this huge increase in revenue after a rate cut and during an economic contraction, it was smart economics.

    Your claim about me saying something about wanting to defund social security is dishonest. I said we should adopt a budget like the budgets under Clinton in the ‘90s. Was social security defunded under those budgets? Our 2013 estimated budget is over $3.6 trillion. To suggest that the 140% increase is absolutely necessary due to inflation is dishonest too. And how much do you think inflation would have been had we not increased government spending 140% in a decade? Maybe a little lower? Thank you for adding another reason to end the income tax and cut federal spending.

    We may have to stop bailing out Obama campaign supporters to get there and we might even have to stop giving away free cell phones and buying military equipment for Pakistan, but it’s possible. You can try and confuse that reality with false claims of wanting to defund social security all you want.

    My point remains that we could live on the current revenue the federal government receives from sources other than the income tax. And the fact that we were doing it just a little over a decade ago is the proof.

  10. Michael,

    I never said that you wanted to defund Social Security. What I said was, if you don’t count personal or business income tax, the bulk of the federal government’s revenue comes from payroll taxes and that these payroll taxes are meant to fund Medicare and Social Security only.

    If you eliminate income taxes and those payroll taxes, the federal revenue is approximately $200 billion per year which is not even enough to fund one good war.

    As an aside, Clinton raised taxes all the way to a top rate of 39.6%. I am not sure I agree with your description of that rate as exorbitant especially considering the top rate under Reagan was 50% and it was 70% before Reagan.

    It seems to me that honest people can look at a set a numbers and reach different conclusions as to their meaning. Having read your posts over the years, I consider you an honest person.

  11. Thank you, Hypocrisy.

    It is a worthy goal to take as little from the American people as we can get away with.

    It would be nice to change the perspective across the board. For example, $200 billion isn’t enough? Enough to do what exactly?

    And from the original article, 10%-15% is a reasonable amount of my income to take? Says who? It sounds decidedly unreasonable to me.

  12. Michael,

    From my perspective, I am not as worried by how much the government takes as I am by what we get in return (and I don’t mean giveaways). I am willing to pay for freedom, an infrastructure that works and even a safety net for those who didn’t make some of the right choices that I made. In other words, I am looking for value for my hard earned dollar. I am guessing that we both agree that the government could do a better job of providing that.

  13. Hey Paul Therrio,
    “That being said, any of you genieses want to explain how this country developed the greatest middle class in the history of the world during a time when with the highest tax rates at +90%. I can explain this Can you?”

    No genies here. Why don’t you explain it for us.

  14. When tax rates were 90%+ companies would lower their burdon by 1.Paying higher salaries, 2. Providing pension plans, 3. Investing in new companies and re-investing in existing companies.BTW- early in Obama’s first term a bill that provided small companies significant incentives for new hires was rejected by the GOP for political reasons. Look folks, I’m basically a very conservative person however I have no faith in a party that puts politics far and above the greater good.

  15. PAUL THERRIO, in the ’40s and ’50s the top tax rate was 91% and was on $200,000 and up.

    Are you honestly comparing the very few people who made that kind of money in those years to the tax brackets and who they apply to today? That’s simply not honest. Stop putting your politics above the greater good.

  16. Michael,

    I am not knowledgeable enough about the benefits we gain by bribing other countries to be our friend so I don’t know if that would be a prudent cut or not.

    As to your comment to Paul: It would take approximately $3.3 million dollars today to buy what cost $200,000 in 1940. It would take approximately $1.6 million today to buy what cost $200,000 in 1958 (http://www.bls.gov/data/inflation_calculator.htm). Are you suggesting that you would be agreeable with a 91% tax bracket starting with incomes above either of those amounts?

  17. $200k in 1946 money is $2,398,738 in today’s money.

    An apples to apples comparison would be to suggest the government tax income over $3.4 million at 91% now just like we taxed income over $200k at 91% then.

    But he didn’t. He is suggesting that our highest tax bracket should be 91% now like it was then. This would mean that 91 cents of every dollar someone earns over $400k (our highest tax bracket) would be given to the federal government so they can apparently arm Pakistan. And somehow only keeping 9 of every 100 cents you earn after $400k is a benefit to the middle class.

    I guess it keeps everyone from advancing past the middle class thus increasing their numbers?

    I’m going to ignore the complete lack of causation between high tax rates and a strong middle class. I’ll let economics address that fallacy. But the successful economy in the ‘50s didn’t come from keeping 91% of people’s income.

    A lot of things happened in the ‘50s during those high taxes. Did exorbitant tax rates cause Elvis too?

  18. Michael,

    “An apples to apples comparison would be to suggest the government tax income over $3.4 million at 91% now just like we taxed income over $200k at 91% then. But he didn’t.”

    But I did and the question stands. Would you be agreeable to that?

    Paul does point out some potential benefits and it certainly is true that we had a robust economy even with the high top rate.

  19. Mr. Schwartz, You just made my point. They avoided paying 91% by paying high wages, pensions, heathcare, etc. And no, I’m not advocating a 91% tax rate, however I’m sick and tired of subsidizing big corps. low wages thru food stamps and other tax sponsored assistance while they get every loop hole in the book.

  20. Hypocrisy,

    No.

    Paul,

    Are you getting the corporate tax confused with the individual tax rate? I don’t follow.
    Actually, Paul, I don’t care. High tax rates doesn’t create some kind of economic utopia. But i am with you about the handouts to corporations, etc.

  21. I’d like to take a stab at answering Paul’s question.

    Assuming that the Post-WW2 prosperity is highly correlated to a 91% tax rate ignores a lot of more significant factors. The biggest one being that American prosperity from 1945-1970 was not due to new deal programs or the great society but built on its export dominance since the rest of the industrialized world was recovering from (still) unprecedented destruction.

    America made and sold everything then. Without much competition it was really easy to provide generous benefits and even pay higher taxes in that situation.

  22. Elliott,

    You make a good point, but I think you will find that the bulk of our GDP post-WWII was not based on exports. It was driven by domestic consumption that was possible due to a thriving blue-collar middle class.

  23. HQ

    That’s part of that. Domestic consumption was possible because Americans were employed making products for export. The high demand for labor in the US (because companies needed workers to make stuff that the rebuilding world needed) led to competition in the labor market. Corps and unions got along great in the days of plenty and little competition so the blue collars benefited greatly.

    When the rest of the world got back on its feet and other countries with blue collar skills (but lower wages because they weren’t part of the earlier labor market) began trading Americans starting seeing their salaries erode along with America’s comparative advantage.

    The rich are getting richer because they possess capital that moves easier than labor. They can invest overseas and get greater margins when they sell here. The “99%” ‘s asset isn’t financial capital but labor capital and as the world continues to develop our unique labor skills becomes more common and less valuable.

    That’s the funny thing about the left. They want peace and happiness throughout the world but they don’t realize the cost means the world’s salary goes up as ours will inevitably go down.

  24. Elliott,

    Once again a case where honest people can look at the same numbers and come to different conclusions based on the way they see the world. I don’t think we will agree on what would happen to our economy if the top tax ratewas higher, but I will add two thoughts:

    1. Our economy was very strong top to bottom when our tax rates were at their highest. As you pointed out, there is certainly reason to believe that the tax rates were not the cause of the robust economy. However, it is clearly apparent that the high taxes didn’t prevent us from having a great economy.

    2. The difference in labor costs between manufacturing in the United States and overseas does not add that much to the cost of the finished product. According to Forbes, it would cost Apple an additional $4.00 per iPhone in labor costs had they set up manufacturing in the United States. Assuming similar cost differences across themanufacturing sector, it isn’t hard to believe that if the richest of the rich had to turn over more of their profit to the government, they might have been willing to keep the manufacturing jobs in the United States and we might still have that robust blue collar middle class.

  25. If the debate on this post is reflective at all of opinion among people more likely than not to vote Republican rather than Democrat, the flat tax looks like a non-starter. Too bad. Some people really seem enamored with steeply progressive tax rates.

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