Creating tax system with 'shared sacrifice'

Posted: Jan 08, 2003 12:00 AM
New York Democratic Rep. Charles Rangel proposed legislation last week calling to renew the military draft on the premise that Americans need to have a "shared sense of sacrifice." He doesn't actually want a draft; he just wants to scare people out of a war on Iraq. But that's a conversation for another day, or never -since the legislation is a gimmick with no chance of passing. But the notion of shared sacrifice -Americans of all walks of life having an equal stake in something -is an interesting and good one. Indeed, it's worth contemplating as Washington begins its next round of food fights over tax cuts. President Bush's new economic plan is eliciting the usual howls from Democrats. "The president is using the word `stimulus' … as a Trojan horse to wheel in some of their pet projects for their rich friends," complained House Minority Leader Nancy Pelosi, D-Calif. Indeed, Democrats howled nearly a full week before the plan was actually made public. But that's OK, their anger toward tax cuts hasn't changed in decades. And that is how it should be. Democrats don't like tax cuts and Republicans do: This is one of the few reliable ways you can tell the difference between the two species. Now, there's stuff I don't like in the president's plan, either. For example, I don't have much use for paying people $3,000 to get a job. It seems to me getting a job is its own reward. If you need three grand to get one, you're not going to keep it long. Also, I only like half of the president's motives for eliminating the tax on stock dividends. The White House is clearly hoping that a repeal of the tax on dividends will entice skittish investors back into the market, and it probably will. But, as a general proposition, Washington shouldn't be in the business of trying to goose the stock market. The thing I like about repealing the dividend taxis that it should help encourage corporate responsibility -something I could swear Democrats cared about until recently. The argument is that if dividends aren't taxed, shareholders will demand dividends from management. This will discourage CEOs from what some call "empire building" -spending cash on unnecessary acquisitions. CEOs aren't too different from congressmen; if they have a pile of money sitting around, they will spend it. Also, forcing corporations to give that money back to shareholders will encourage them to issue stock instead of issuing huge piles of debt, which is what can lead to Enron-style trouble. But there's one `problem' with eliminating the dividend tax that doesn't bother me at all. It will disproportionately make rich people richer, as would President Bush's proposal to lower income tax rates across the board. The Democrats are furious about the fact the rich will get richer, and Republicans seem embarrassed about it. I don't understand either sentiment. Indeed, I bet if we knew for a fact that giving Bill Gates $1 trillion from the U.S. Treasury would somehow make us all richer and the economy stronger, Democrats would be against it. It's just unfair to make the rich any richer in their eyes. And, I bet the Republicans would somehow pretend they didn't really give Gates $1 trillion. Me, I figure if it's good economic policy, who cares if the rich get richer? And that brings me back to this notion of shared sacrifice. The first thing to keep in mind is that it is almost impossible to cut any tax without making the people who pay that tax richer. And, rich people pay a lot more taxes than poor people do. According to the Tax Foundation, more than five out of every six dollars collected by the federal government were paid by the top 25 percent of taxpayers. You need a gross adjusted income of $55,225 to qualify as a member of the top quarter. Now, if all these people qualify as "rich," so be it. If cutting their taxes makes them richer, so be that, too. The top 1 percent, by the way, pay 37 percent of the total income taxes collected by the federal government. Democrats keep talking about how little poor people will get from an income tax cut. That's true -because poor people pay so little in income taxes. How about creating a tax system in this country that makes everybody feel like they're paying their fair share? I don't want to raise taxes on anybody -I want to cut them for everybody. But having a system where vast segments of the working population are clients of the government and a small number are funders of it is not only institutionalized class warfare, it's the exact opposite of shared sacrifice.