The Tax Man Cometh

Posted: Apr 15, 2013 1:04 PM

Happy tax day, America.  Uncle Sam is processing more than $2.4 trillion in 2012 tax receipts -- which, all told, would less than 70 percent of the federal government's expenditures during fiscal year '12, resulting in a deficit of approximately $1.1 trillion.  Evidence that the government needs to tax us more?  Hardly.  As Philip Klein explained in February, we don't have a "revenue problem:"

Between 2014 and 2023, according to CBO estimates, annual tax receipts will soar by 65 percent. During that time period, revenue collected by the federal government will average 18.9 percent of the economy. That's 1 point higher than the 17.9 percent average from the end of World War II to the year 2000 (just before George W. Bush's first round of tax cuts was passed.)  At the same time, due to negotiated budget caps and automatic cuts known as the sequester, defense spending is projected to grow relatively modestly -- by about 20 percent over the next decade. By 2023, defense spending will account for only 12 percent of the overall federal budget. Not only is this well below the historical average, it's the lowest level since at least 1940, when the White House Office of Management and Budget data begin. (It's almost certainly the lowest level in history, given that the modern welfare state didn't begin until 1935 with the passage of Social Security). Previously, the lowest level recorded was in 1999, toward the end of the post-Cold War military drawdown, and even then defense represented 16.1 percent of the budget. Despite the fact that new tax revenue will be drastically outpacing growth in the defense budget, the nation is still projected to accumulate an additional $7 trillion in deficits over the next 10-year period, bringing the public debt to $20 trillion. The cause of that debt, therefore, cannot be taxes that are too low or defense spending that's too high. In fact, by 2020, Congress could vote to eliminate all military spending and it wouldn't even be enough to cover interest payments on the national debt.

Between 2012 and 2023, tax revenues are projected to double, and military spending will hit an eight-decade low as a percentage of the budget...and yet, we'll still have humongous deficits, as even bigger long-term unfunded obligations continue to accrue.  We have a spending and promising problem.  The trouble is, the American people tend to like much of that spending and many of those illusory promises.  The public can abide relatively minor cuts and theoretical across-the-board reductions, but they broadly oppose touching the programs that most desperately cry out for reform.  That's why Paul Ryan's bipartisan Medicare reform plan was demagogued ferociously, and even President Obama's recent minor proposed tweaks have sustained blows right and (mostly) left.  On the revenue side of the ledger, a near-unanimous majority of Americans believe their current tax rates are currently either just right or too high:

Memo to that last two percent of people:  Pony up, guys.  But don't expect those funds to actually pay down any debt.  Over the weekend, Dan flagged a Rasmussen poll showing that 63 percent of Americans say additional tax hikes are unnecessary, as opposed to 28 percent who disagree. One can only reconcile the Gallup and Rasmussen numbers by acknowledging that what an overwhelming majority of the "we need more tax hikes" crowd means to say is, "someone other than me needs to pay more taxes."  On that note, I'll leave you with some perspective on two tax day buzz-phrases and one stark reality bulletin from Mark Steyn:

(1) "Balanced approach."  There are three federal budget proposals on the table in Washington.  Two of them accelerate spending, raise taxes by at least $1 trillion, and never balance.  These blueprints are offered by the same party responsible for at least $1.6 trillion in tax increases since President Obama took office, during which time they've added more than $6 trillion to the national debt.  The other does not raise taxes, reduces the rate of spending increases, and balances within ten years -- in accordance with the wishes of more than eight in ten Americans.

(2) "Fair share." The Washington Times reported in July (note, these figures aren't limited to federal income taxes, but the entire federal burden):

Wealthy Americans earn about 50 percent of all income but pay nearly 70 percent of the federal tax burden, according to the latest analysis Tuesday by the Congressional Budget Office — though the agency said the very richest have seen their share of taxes fall the last few years. CBO looked at 2007 through 2009 and found the bottom 20 percent of American earners paid just three-tenths of a percent of the total tax burden, while the richest 20 percent paid 67.9 percent of taxes. The top 1 percent, who President Obama has made a target during the presidential campaign, earns 13.4 percent of all pre-tax income, but paid 22.3 percent of taxes in 2009, CBO said.  

(3) "[A] fundamental dishonesty is the heart of the crisis. You cannot simultaneously enjoy American-sized taxes and European-sized government. One or the other has to go."

UPDATE - An important message on tax reform from Jim Pethokoukis.

UPDATE II - Joe Scarborough notices that despite his relentless class warfare rhetoric about "fair shares," mutlimillionaire Barack Obama pays a relatively low effective tax rate of 18.4 percent:

Over the last two decades, maligned richy-rich Mitt Romney surrendered nearly 40 percent of his adjusted gross income in taxes (local, state and federal) and charitable donations. 

UPDATE III (Flashback) - Over to you, Howard Dean:

UPDATE IV - The president's latest budget includes a regressive cigarette tax on the poor to "pay for" a new universal pre-K system.  Policy analysts on the left and right agree that the math won't work.

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