2016 Election, Bernie Sanders, Democrats, Elections, Hillary Clinton, Tax

Three Simple Reasons Why Hillary and Bernie’s Real Plan Is to Soak the Middle Class

5

If you follow the contest between Hillary Clinton and Bernie Sanders, most of the tax discussion is about who has the best plan to squeeze the rich with ever-higher tax rates.

For those motivated by spite and envy, Bernie Sanders “wins” that debate since he wants bigger increases in the tax rates on investors, entrepreneurs, business owners, and other upper-income taxpayers.

For those of us who don’t earn enough to be affected by changes in the top tax rates, this may not seem to be a relevant discussion. Some of us like the idea of higher tax rates on our well-to-do neighbors because we expect to get a slice of the loot and we think it’s morally okay to use government to take other people’s money. Others of us don’t like those higher rates because we don’t resent success and we also worry about the likely impact on incentives to create jobs and wealth.

But all of us are making a mistake if we think that the policy proposals from Bernie and Hillary won’t mean higher taxes on ordinary Americans.

Here are three basic proposition to help explain why lower-income and middle-income taxpayers are the ones who face the biggest threat.

  1. Hillary and Bernie want government to be much bigger, because of both built-in expansions of entitlements and a plethora of new handouts and subsidies.
  2. There’s not much ability to squeeze more money from the “rich” and America already has the developed world’s most “progressive” tax system.
  3. The only practical way to finance bigger government is with big tax hikes on the middle class, both with higher income taxes and a value-added tax.

There’s not really any controversy about the first proposition. We know the two Democratic candidates are opposed to genuine entitlement reform, so that means the burden of government spending automatically will climb in coming decades. And we also know that Hillary and Bernie also want to create new programs and additional spending commitments, with the only real difference being that Bernie wants government to expand at a faster rate.

So let’s look at my second proposition, which may strike some people as implausible, particularly the assertion that America has the most “progressive” tax system. After all, don’t European nations impose higher tax rates on the “rich” than the United States?

Yes and no, but first let’s deal with the issue of whether the rich are a never-ending spigot of tax revenue. The most important thing to understand is that there’s a huge difference between tax rates and tax revenue. If you don’t believe me, simply look at the IRS data from the 1980s, which shows that upper-income taxpayers paid far more to Uncle Sam at a 28 percent tax rate in 1988 than they paid at a 70 percent tax rate in 1980.

And keep in mind that there are incredibly simple – and totally legal – steps that well-to-do taxpayers can take to dramatically lower their tax exposure.

The bottom line is that high tax rates penalize productive behavior and encourage inefficient tax planning, the net effect being that higher tax rates won’t translate into higher revenue.

Moreover, as shown by a different set of IRS data, the American tax system already is heavily biased against the so-called rich. Even when compared with other countries. There are some nations that impose higher top tax rates than America, to be sure, but that’s only part of the story. The “progressivity” of a tax system is based on what share of the burden is paid by the rich.

And if you look at this data from the Tax Foundation, particularly the two measures of progressivity in columns 1 and 3, you can see that the United States gets a greater share of taxes from the rich than any other developed nation.

By the way, the data is from the middle of last decade, so the numbers are probably different today. But since we’ve taken more people off the tax rolls in the past 10 years in America while also increasing tax rates on upper-income households, I would be shocked if the United States didn’t still have the most “progressive” tax code.

In any event, the most important takeaway from the Tax Foundation data is that America has the most “progressive” tax system not because we impose the highest tax rates on the rich, but rather for the simple reason that the tax burden on lower-income and middle-income taxpayers is comparatively mild.

In other words, the tax burden on the rich in America is not particularly unusual. Some nations impose higher tax rates and some countries impose lower tax rates. But because other taxpayers in the U.S. pay very low effective tax rates, that’s why the overall tax code in the United States is so tilted against the rich.

Which brings us to the third proposition about the middle class being the main target of Hillary and Bernie.

Simply stated, the only practical way of financing bigger government is by raising the tax burden on lower-income and middle-income Americans. As already explained, there’s not much leeway to generate more tax revenue from the “rich.”

In other words, the rest of us have a bulls-eye painted on our backs. Our tax burden is relatively low by world standards and there are simple and effective ways that politicians could grab more of our income.

Let’s look at some of the details. The folks at the Pew Research Group crunched the data for 39 developed nations to compare tax burdens for various types of middle-income households. As you can see, taxpayers in the United States are relatively fortunate, particularly if they have kids.

Here are some excerpts from the article.

…most research has concluded that, at least among developed nations, the U.S. is on the low end of the range.  We looked at 2014 data from the Organization for Economic Cooperation and Development’s database of benefits, taxes and wages, which has standardized data from 39 countries going back to 2001 and allows comparisons across different family types. …We calculated this for four different family types: a single employed person with no children; two married couples with two children, one with both parents working and the other with one worker; and a single working parent. In all cases, the U.S. was below the 39-nation average – in some cases, well below. …Much of the difference in relative tax burdens among different countries is due to the taxes that fund social-insurance programs, such as Social Security and Medicare in the U.S. These taxes tend to be higher in other developed nations than they are in the U.S.

And here’s the most shocking part of the article. The aforementioned data only considers income taxes and payroll taxes.

…the OECD data don’t include…other national taxes, such as…value-added taxes.

This is a huge omission. The average VAT in Europe is now 21 percent, so the actual tax burden on taxpayers in other nations is actually much higher than shown in the chart prepared by Pew.

Let’s look at the scorecard.

  • Non-rich Europeans pay higher income tax rates.
  • Non-rich Europeans pay higher payroll taxes.
  • Non-rich Europeans pay the value-added tax.

And because all these taxes on lower-income and middle-income people are the only effective and realistic way to finance European-sized government, this is the future Hillary and Bernie want for America. Even though they won’t admit it.

P.S. I can’t resist pointing out that the countries most admired by Bernie Sanders, Denmark and Sweden, both have tax systems that are far less “progressive” than the United States according to the Tax Foundation data. And the reason for that relative lack of progressivity is because of a giant fiscal burden on lower-income and middle-income taxpayers. And that’s what will happen in the United States if entitlements aren’t reformed.

P.P.S. Since I’m a fan of the flat tax, does that mean I like the countries with lower scores in column 3 of the Tax Foundation table? Yes and no. A lower score obviously means that a nation’s tax code isn’t biased against successful taxpayers, but it’s also important to look at the overall size of the public sector. Sweden’s tax system isn’t very progressive, for instance, but everyone pays a lot because of a bloated government. It’s far better to be in Switzerland, which has the right combination of a modest-sized government and a non-discriminatory tax regime.

hillary and bernie
  • daves

    Don’t be fooled by the propaganda.

    There has been a clear and continuous downward trend in the top marginal tax rates since 1932, and Americans now enjoy the lowest tax rates they have in three generations.
    Analysis: Correlating Marginal Tax Rates and Unemployment

    The data for the top marginal tax rates (Tax Foundation, 2012) and the unemployment rates for each year (U.S. Department of Labor, 2012) from 1948 to 2011 were compiled. These numbers were entered into a Pearson product-moment correlation analysis, two tailed, to test for the strength and direction of correlation and for statistical significance. The results indicated that there was a statistically significant negative correlation, r(64) = -.31, p = .013, in the relationship between top marginal tax rates and the unemployment rate in the 64 years from 1948 to 2011. This means that when taxes were high, during that same period unemployment tended to be low, suggesting a stronger economy. And when taxes were low, during the same period unemployment tended to be high, indicating a weaker economy. It is important to note that this is not a political argument; it is a mathematical one. This is what the numbers tell us when this statistical analysis is conducted.

    • BruceD13

      Let’s have an objective reference, please.

      • daves
        • BruceD13

          Counterpunch? They’re hardly an objective reference. They have ideological axes to grind. Get a peer-reviewed journal or neutral source.

          The author, “JOSHUA A. CUEVAS Ph.D. is an Educational Psychologist and Assistant Professor, College of Education…” Are you kidding me? An educational psychologist? Get someone with expertise in the field like an economist or statistician. This guy’s outside his area of expertise.

          Even so, I read through the article and it sounds at least halfway intelligent. But he never cites his sources specifically or shows his data or provides any kind of adequate link to his specific data. He says he does all this statistical stuff but never shows nor adequately references the data that he supposedly specifically used.

          The original Conservative Republican News article above is much better referenced and documented, and is MUCH more credible.

  • Robert

    Increase taxes on the Middle Class, the Corporate Business owners have made sure there is no Middle Class it simply rich and poor. The rich according to their income never pay enough. I never knew any rich wondering where the money was going to come from for the kids college, the car repair, the home payment, when the jobs were moved out of the state or country. All you person fall right into the PROPAGANDA that the rich spread that if the ta base was lower they would stay in this country with jobs, all BS check the tax rate in the countries they moved to, its on the internet each countries tax rates. In most cases it is the cheap labor, in any industry just like in the company I once owned the major cost was labor, and when that is the major cost you expect production, and then the Unions come in not to protect your work environment but to slow production down so you have to hire more people. Most of the problems is with the work ethics of the American Population they expect good pay for half ass work.
    IF I HAD TO PAY TWICE WHAT I HAD TO PAY IN TAXES IT WOULD NOT BOTHER ME BECAUSE I NEVER WANED TO BE RICH AND THE POWER THAT COMES WITH MONEY WAS NEVER A DESIRE.
    SO WHY IS IT YOU THINK THAT THE MIDDLE CLASS WILL GET TAX INCREASES.
    HAVE A NICE DAY

Sign up for our FREE newsletter!

Name:
Email:
Sign up to receive daily updates, political news, action letters and additional messages from Conservative Republican News

View our Privacy Policy

Join our FREE Newsletter!