In a Weak Economy, New Taxes Make No Sense

Posted: Jul 08, 2011 12:01 AM

WASHINGTON -- The demonstrably false party line being peddled by President Obama and the Democrats in the budget battle is that tax increases must be a large part of the deal because corporations and the rich don't pay their fair share.

How large? Brace yourself. Senate Budget Committee Chairman Kent Conrad of North Dakota was reportedly briefing his Democratic leaders behind closed doors Wednesday on a budget bill that would gouge more than $2 trillion out of a weak, underemployed economy that's still struggling to regain its health.

Prescribing tax hikes of that size, of any size, in this painfully slow-paced economy would be the medical equivalent of bleeding a bedridden patient suffering from acute anemia.

What American businesses need most right now is an economy-wide transfusion of fresh capital investment via tax-rate cuts offset by major spending cuts.

As for the Democrats' claims that the wealthiest segments of our economy are not paying their fair share of taxes while major poverty programs are undernourished, nothing could be further from the truth.

After crunching IRS revenue data, the nonpartisan Congressional Budget Office reported earlier this year that the richest 20 percent of all taxpayers pay a record 86 percent of all federal income taxes. That's more than they were paying when Ronald Reagan entered the White House (64 percent) and more than when George W. Bush took office (81 percent).

The tax burden shift came about in part when Bush cut marginal tax rates across the board in 2001 and 2003 from the highest income brackets to the lowest, which he cut by one-third while doubling the refundable child tax credit. That alone removed 10 million low-income families from the income tax rolls.

"In fact, the poorest 40 percent of households now pay zero income taxes, and many actually receive checks from Washington on April 15," Heritage Foundation budget analyst Brian Riedl wrote earlier this year.

"The data are clear. Nearly every year, the federal tax burden tilts even further toward upper-income taxpayers," Riedl said. "Seekers of a more progressive tax policy should answer two questions: If 86 percent of the income tax burden is not enough, how much should the top 20 percent of taxpayers pay? And if the bottom 40 percent paying no income taxes is not sufficient, what is?"

The ratio doesn't change much even when you throw in all federal taxes -- corporate, payroll and excise taxes. In 1980, the wealthiest 20 percent paid 55 percent of all federal revenue. The top 20 percent now pay 69 percent.

As for federal spending on behalf of low-income Americans, it's been growing by leaps and bounds. Anti-poverty expenditures rose from $190 billion in 1990 to $348 billion in 2000, soaring to $638 billion this year, according to the White House Office of Management and Budget.

Since 2000, food stamp expenditures grew by 229 percent, child care assistance by 89 percent, Medicaid by 80 percent, and the Children's Health Insurance Program by 470 percent. But suggest that the growth of these and other poverty programs can be slowed even a little bit, and the Democrats cry that would shred the safety net.

As the White House pushes for some budget-cutting compromise in exchange for raising the debt limit, Obama and the Democrats are charging that the Republicans are solely to blame for blocking any deal that includes tax increases -- another falsehood.

A number of Senate Democrats who face tough re-election races next year have begun to join forces to flatly oppose higher taxes in the debt ceiling bill.

No sooner did Conrad's tax-raising budget bill see the light of day than Nebraska Sen. Ben Nelson, who is at the top of the Democrats' endangered species list, came out against it.

"Debt reduction should focus on spending cuts. Raising taxes at a time when our economy remains fragile takes us in the wrong direction. That won't create jobs in Nebraska," Nelson told reporters Wednesday.

Freshman Sen. Joe Manchin of West Virginia, another vulnerable Democrat facing a tough race next year, also sided with the GOP on keeping tax increases off the table. "I don't believe in tax hikes. We have to start living within our means in this country," he said.

Democratic Sen. Mary Landrieu of Louisiana isn't about to vote for any tax increase that whacks her state's dominant oil industry as Obama has proposed. Sens. Jon Tester of Montana, Claire McCaskill of Missouri and Debbie Stabenow of Michigan also face competitive races that will make voting for higher taxes in a weak economy more than problematic.

With just 53 Senate Democrats, and so many likely desertions, the numbers are running against Majority Leader Harry Reid's hopes of mustering the 60 votes needed to cut off a GOP filibuster against any tax-hiking budget bill.

There are many growth incentives we can quickly adopt to get the U.S. economy up and running again at full throttle, but burdening struggling job creators with another $2 trillion in taxes is not one of them.

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