by John Lawrence
Congress is arguing about whether to retain the Bush tax cuts just for the middle class which would add $3 trillion to the deficit over 10 years or to keep them for the wealthy too which would add another $700 billion to the deficit over 10 years, a total of $3.7 trillion in deficits inherited from the Bush administration. I have an idea which would give everyone a tax cut and would reduce the deficit at the same time. First let the Bush tax cuts expire. They were supposed to do so anyway. Then we start over with the flat tax cut. Here's how it would work. Let's say we want to spend only $3 trillion on tax cuts (which is what Democrats want to spend by only extending Bush tax cuts for the middle class) and reduce the deficit by the $700 billion that Democrats want to save by not giving tax cuts to the wealthy. Now there are approximately 140 million taxpayers in the US. The flat tax cut means that we give the same amount in absolute dollars to every one which is only fair. Actually for a tax cut to be progressive the poor should get a bigger one than the rich, but we will give the exact same amount to everyone. In addition for the poor whose taxes are less than the amount we give to everyone, we actually reimburse them by the amount minus whatever taxes they were supposed to pay. So for this example we divide $3 trillion in tax cuts by 140 million taxpayers and get $21,428.57 over ten years the amount paid to every single taxpayer as a tax break or for those whose tax liabilities are less than this amount, the difference would be remitted to them in the form of a check. This is one whopping tax break given to every American rich or poor and we have still reduced the deficit by $700 billion over what it eould be if we kept the Bush tax cuts in place for everyone. Giving everyone this tax break/rebate up front instead of doling it out over ten years would result in a significant boost to the economy.
This example just shows the stupidity of giving humungus tax breaks to the wealthy and peanuts to the middle class which is what would be the case if the Bush tax cuts were kept in place. Now you say it would be ridiculous to give every taxpayer a refund of over $20,000? It would be a better idea to reduce the deficit and give everyone a more modest tax cut. OK. Let's say we want to reduce the deficit by $2 trillion and only use $1.7 trillion for tax cuts. Then we divide $1.7 trillion by 140 million taxpayers and we get a more modest tax cut of $12,142.86 for every American taxpayer. Well, you say this is still too much. Let's reduce the deficit even more. Let's say we choose to give every taxpayer a tax cut of $5000. $5000. times 140 million equals $700 billion, and that leaves $3 trillion left over for deficit reduction. So of the $3.7 trillion it would cost over ten years to retain the Bush tax cuts, we could, after ending the Bush tax cuts, turn around and give every American taxpayer a tax cut of $5000. in one lump sum or $500. per year over ten years and still reduce the deficit by $3 trillion.
And this is entirely doable by the lame duck Congress. All they have to do is pass it in the House where they still have the majority and then pass it in the Senate using reconciliation to avoid the filibuster. Recall that the Bush tax cuts were passed in the first place with reconciliation. That's why they were supposed to expire after 10 years which is now. But notice that things that are supposed to happen some time in the future with the government don't necessarily happen as Congress is about to demonstrate by retaining the full amount of the Bush tax cuts which were supposed to expire. I say let them expire and then pass my flat tax cut plan which would give every American taxpayer a $5000. tax cut with a rebate to everyone whose tax liability is less than $5000., and this results in a $3 trillion reduction in the deficit. Now if this passes using reconciliation, this flat tax cut will expire in ten years just as the Bush tax cuts were supposed to. But so what? Nothing ever is permanent anyway. For government to argue over a permanent or a temporary tax cut is like arguing about how many angels can dance on the head of a pin. Government is supposed to respond and do the right thing in real time and as the situation dictates, not set permanent policies for all time. And with the government nothing is ever permanent, nor should it be.
This example of a flat tax cut shows just how out of whack our tax system is and just how much the wealthy are ripping off middle class taxpayers. And the wealthy are ripping off middle class taxpayers in such a way as to add huge sums to the deficit. They do this by using percentages for tax cuts instead of absolute amounts of dollars. A 5% tax cut for someone earning $50,000. is $2500. while for someone earning $5 million it amounts to $250,000. Why should there be such a huge disparity in the first place? Even more ridiculous, there are hedge fund managers who earned $1 billion last year. A 5% tax cut for them amounts to $250,000,000! So while an average slob earning $50K gets a measly $2500. tax cut, a billionaire hedge fund manager gets a $250 million tax cut! This is way more than the guy or gal earning $50K a year will earn in his or her lifetime. If the guy earns $50K for 40 years he will only earn $2 million over the whole course of his lifetime. But with a 5% across the board tax cut, the hedge fund manager who earns $1 billion in a year will get a one time tax cut amounting to 125 times what the other guy will earn in his whole lifetime of 40 years of work. This assumes that he starts work at 25, for example, and works till he is 65.
The rich have made out like bandits for far too long. The main reason is that they have insisted on being taxed less than the middle class. The hedge fund manager is taxed at half the rate of a middle class worker because the tax ripoff is set up so that all his income is considered capital gains taxed at 15% while the middle class worker is taxed at around 30%. Is it any wonder that there has been a huge transfer of wealth from the poor and middle class to the rich? This is what Republican tax cuts are all about.
