Another “DeMinted” Tax Shift
W. Andrew Arnold
August 17, 2004
NOTE: This Article was first published on SCHotline.com over a year ago. Rep. Jim "Do-Nothing" DeMint's idea is not new. However, DeMint has been uable to move his proposal through the conservative House of Representatives, but wants us to believe that he will be able to find more success if we send him to the more moderate U.S. Senate. So, this is more an issue for people who like to debate ideas, because DeMint has proved a failure at advancing his legislative agenda. In the 107th Congress, Congress Do-Nothing sponsored 37 bills, but only one ever got out of committee.
Republicans have determined that the poor need to pay more taxes to teach them a lesson about the costs of government. Rep. Jim DeMint is leading the charge. He believes that the rich among us pay more than their share of taxes. DeMint said that “[y]ou can’t maintain a democracy if the people who are voting don’t care what their government costs.” DeMint's idea is to replace the income tax with a national sales tax...9% as I understand it. A tax shift…not unlike Sanford’s proposed tax shift. This is just a growing trend among Republicans who focus on tax shifts instead of spending cuts.
At first glance DeMint would seem to have a point: The top 5 % of the nation’s taxpayers paid 41 % of all federal taxes. However, in 1998 this same group owned 59% of this country's household wealth while the top 1% owned about 40% of all household wealth. Furthermore, the richest 1% owned 42% of all stocks and mutual funds. Tax burden appears to be proportionate to wealth.
And the myth about the rich getting richer...it's true. The share of household wealth of the top 1% has increased from 20.5% in 1977 to 40% in 1998. In fact the top 1% have seen their after tax incomes increase 115% since 1977. However, the bottom 20% saw their after tax income decline. As the Wall Street Journal observed in 1999 "Nearly 90% of all shares were held by the wealthiest 10% of households. The bottom line: that top 10% held 73.2% of the country's net worth in 1997, up from 68.2% in 1983.” The top bracket's share of the wealth is increasing at a faster rate than any other income group.
Our economic policies do not benefit every one equally. In fact, competition itself is designed to produce inequality. However, sometimes the system produces a degree of inequality which is inconsistent with a fair market and a democratic society. In 1980, CEO pay was 40 times that of the average worker. By 2000, CEO pay was 531 times that of the average worker. CEO pay has increased over 400% whereas worker pay has increased 42% since 1990. (And inflation was 36%). Accounting standards and tax policy are largely responsible to this specific inequality.
However, there are other policies of government which contribute to the inequality. The most observable example is the money supply policy. Full employment is not preferred because of the inflationary pressures that arise from high employment. Accordingly, the money supply is tightened anytime the economy gets going to fast. Have you ever noticed how bad news for Main Street America can be good news for Wall Street America? We essentially sacrifice a very small percentage of workers for the good of the whole. Those who benefit the most from Government policies should contribute most for the costs of that Government.
One problem with the transition to sales tax is the extent it penalizes those who have already paid income taxes on the money we will spend over the rest of our lifetimes....primarily retired folks. If you have paid taxes on your previous income which is now in savings or stocks, then a sales tax will work as a double taxation on those dollars. (I missed Ralph Bristol’s show which dedicated an hour to this topic and therefore do not know how this issue will be addressed).
The real threat to democracy is not the demands of the poor, but the current cash-for-access system. It has become accepted constitutional theory that money equals speech. In free market politics, legislation is for sale and tax policy is Washington's hottest commodity. It is not poor people who are flooding Washington with lobbyists and campaign cash. The rate of return on a loophole in the tax code is enormous…assuming they have not moved their operations offshore to avoid taxes altogether.
For example, in 1998, Pfizer made more than $1 billion in profits, paid no federal income taxes, and received a $100 million refund resulting from generous tax credits. These tax credits were the result of drug lobbyists greasing the palms of politicians. The entire federal expenditure for South Carolina's Temporary Assistance to Needy Families (TANF) for 2002 was $100 million. Cash for access blurs reality and makes folks like DeMint believe the problem is with the poor. Hundreds of million is subsidizing corporate America's profits, but it is the scraps that fall off the table that gets Republicans looking for a scapegoat. DeMint is gearing up for a run at the Senate in '04, and he knows where he must go looking for campaign cash.
The problem of course is on the spending side. "Corporate welfare" costs taxpayers about $160 billion in annual federal expenditures. This “Aid for Corporations with Dependent CEOs” cost about 6 times the amount spent on the former Aid to Families with Dependent Children (AFDC) now TANF. TANF/AFDC and food stamps (those programs typically associated with "welfare") spend about $25 billion per year...one percent (1%) of the combined federal and state budgets.
One of the budget’s biggest expenses is the interest on the Reagan/Bush era national debt. When Republicans had the chance to pay down the debt with surpluses, they opted for tax cuts instead. Now that deficits have resulted, they want to grow our way out of deficits. However, the next time we grow ourselves out of deficits into surplus, the Republicans will want another tax cut. This is a budgetary shell game that essentially finances growth with debt which will over a period of time cripple government. It is my opinion crippling government is exactly what these folks want.
Congressman DeMint is engaging in class warfare...plain and simple.
Finally, DeMint’s logic involves an assumption about class...once poor always poor. Stated another way, he thinks we need to change to a sales tax because poor people will not have to pay income taxes and therefore won't understand the burden of taxation. However, there are many people who because of the second chance afforded by progressive taxation and temporary assistance for needy families that become taxpayers and more than payback for all the assistance they have received. It is why Democrats tend to look at progressive taxation and social safety nets as “investments.”
I'll end with a personal example: When I was a child, the Department of Corrections was nice enough to subsidize the room and board for my father for about 10 years. The result was that my family was supported by AFDC payments and food stamps for a few years. We attended public schools and lived in public housing. We received free lunches at school...thank goodness. I qualified for tuition assistance and loans to attend college and law school. And I have paid more than enough in taxes to pay it all back and then some (with the exception of Dad's room and board which I believe is his responsibility). My mother, brother, sister and I will pay enough in taxes this year alone to make sure the government makes a profit on the Arnold family.
This is difference between “trickle down” economics and “building up” economics. DeMint's proposed tax shift certainly will clarify our choices and raise the stakes in 2004