Overtaxed and Underpaid

Posted: Apr 15, 2014 11:44 AM
Overtaxed and Underpaid

There’s nothing like April 15 to remind Americans that they’re overtaxed and underpaid. And President Obama and the Congressional Democrats are hard at work to make sure it stays that way.

Tax Freedom Day—the day when the nation as a whole has earned enough money to pay its total tax bill for the year—doesn’t come till next Monday, three days later than last year. Obama’s big income tax hike took effect in 2013, so your 1040 might show that Uncle Sam has helped himself to quite a bit more of your paycheck than last year. (Be careful filling out that 1040, by the way. Depending on your political views, Obama’s IRS might be inclined to give it extra scrutiny.)

If only Americans’ income had been rising like taxes. Except for the top 10 percent, real household income in the United States has been stagnant for over a decade. Poverty rates are at all-time highs, and the Obama economy has left a record 20 percent of American households on food stamps.

If you’re at the top, you might be doing fine. The Federal Reserve’s policies have your stock portfolio flying high, and maybe you work in one of the administration’s favored industries. “Green” energy can be awfully lucrative if you’ve got the right friends in Washington.

On the other hand, you might be one of millions of Americans who are out of work, or are underemployed, in this sluggish economy. You might be one of the forty thousand people who could get a job building the Keystone XL pipeline if only the President would approve it. That’s not likely, though. If Obama has to make a choice between jobs and affordable energy for hardworking Americans and the dogmas of the environmental fringe, he’ll go with the latter every time.

It’s enough to make you die of frustration. But don’t do that—especially if you’re a small business owner. The Democrats made sure that death taxes returned to confiscatory levels in 2013. Your children will have to sell off that business you’re so proud of. They believe the federal government, after all, is a better custodian of the wealth you’ve built than your family would be.

It’s bad enough to be overtaxed and underpaid, but the pain is worse because it’s so unnecessary. Economic policies focused on growth and the return of industry to America, leavened with an ethic of hard work and opportunity, could pull this country out of the ditch in which Obama has left it.

We should start with rewriting the federal tax code, a disgraceful mix of needless complexity and perverse incentives, and start over. We need a new system for the twenty-first century that is simple, logical, and fair. It should promote behavior that builds strong families, businesses, and communities.

A fundamental restructuring of the tax system isn’t going to happen without a national debate, a conservative-controlled House and Senate, and a new president. But here are a few ideas we should champion in the meantime.

We should start by eliminating the seven different income taxes rates and replacing them with just one or two low rates that let people keep more of what they earn and reward saving and investing.

Our corporate tax system is as dysfunctional as the individual income tax. U.S. corporate tax rates are the highest in the industrial world, so U.S. companies keep billions of dollars parked overseas. Repatriating foreign income at a 5 percent rate rather than the current 35 percent would bring that capital home to be invested in America.

An even bolder step would be to cut the corporate tax rate for domestic manufacturers from 35 percent to zero. That’s right—zero. The disappearance of manufacturing jobs has been devastating to many hard working Americans. Eliminating the corporate tax on manufacturers would give U.S. workers a level playing field in the international competition for jobs without the self-defeating drawbacks of protectionism.

Such reforms—along with reducing the capital gains rate, providing 100 percent expensing for businesses, scrapping the Alternative Minimum Tax, and repealing Obamacare—would help the sputtering American economy come roaring back. We would suddenly see annual growth rates of 4 to 5 percent instead of the paltry 2 to 2.5 percent we have seen in recent years. This would create millions of new, high-paying jobs and rising wages for all workers.

Tragically, President Obama’s policies have created a “growth gap.” As Republican Congressman Kevin Brady notes, the Obama era’s painfully slow economic growth has cost the United States the additional 5.6 million private sector jobs and $1.3 trillion in gross domestic product that historically average growth would have produced. We absolutely must turn this around. Bold tax reform can do just that.

What’s more, we should eliminate the marriage penalty from the tax code. Marriage is a critical factor in rising out of poverty, so we should also establish more tax benefits for married couples. At the height of the Baby Boom, a typical family of four paid 2 percent of its income to the federal government. Today it pays 9 percent, plus all the new taxes that have been imposed since the 1950s. You’d think we weren’t interested in raising the next generation. Congress should double the tax credit for children from $3,000 to $6,000 per child. Doing so would put hardworking families back on a par, in terms of federal taxes, with their grandparents when they were having all those kids in the 1950s.

Reducing and simplifying taxes on families is the best investment government can make in our future. It’s also an investment in programs like Social Security and Medicare, which desperately need more new workers to provide the benefits due to the exploding ranks of retired Baby Boomers.

For decades, working families have borne the brunt of our government’s misguided economic policies. All the “compassion” that liberals like to show with other people’s money is making it harder for blue collar Americans to achieve the American dream. But there’s nothing inevitable about this devastation. Bad policies caused this mess, and wise policies can reverse it.

This tax day, let’s declare that enough is enough.