One thing that President Obama and Gov. Mark Dayton have in common is their constant refrain of “tax the rich.” Every time there is discussion about budget deficits their call is for higher taxes on the rich. If there is a call to reduce government spending their immediate response is “we need a balanced approach,” shorthand for we need more tax revenue. So let’s have a balanced approach, a truly balanced approach to income taxes; let’s increase taxes on the poor, so everyone pays the same tax rate. Let’s get rid of the “Earned Income Tax Credit,” the tax program which actually gives low income people money and instead impose one simple tax rate for everyone. After all when we go to the grocery store we all pay the same for a gallon of milk or a loaf of bread. When we go to the gas station we all pay the same for a gallon of gas. If you buy a car or a television the price isn’t based on what you earn, the price is the same for everyone.
Why, if we are consuming governmental services should it be any different? We all benefit from a strong national defense, good public schools, and a well maintained transportation system. Why shouldn’t everyone pay a portion of the cost? Why should the cost of government services be any different for the person who earns $10,000 from the person who earns ten million dollars? Does the person who makes ten million dollars receive more government services than the person who earns $10,000? The likelihood is the person who earns $10,000 per year consumes more government services than the individual who makes ten million. At a minimum, a singular tax rate imposed on the rich and the poor would obviously still result in a rich person paying more in taxes.
But the mantra of the “rich don’t pay their fair share” is the code for more income redistribution. The progressives’ proposed solution for every budget shortfall is “tax the rich.” In the U.S. for over one hundred years, the system of taxing the rich to pay for government has been promoted as the solution. But a look at the facts shows it doesn’t work. One hundred years ago this month, in 1913, the states ratified the 16th Amendment to the Constitution which allowed the federal government to levy an income tax. Years earlier the Congress had passed an income tax but the Supreme Court struck it down as unconstitutional. In 1909 Congress passes a constitutional amendment and by 1913 three-fourths of the states had voted to ratify the 16th amendment.
Within eight months of adoption of the amendment Congress passed the first income tax code which featured a graduated tax schedule starting at 1 percent with seven tax brackets and a top rate of 7 percent.
If tax brackets were adjusted for inflation the bottom rate of 1 percent would apply to incomes of less than $460,000. In other words, only the very rich would have to pay more than 1 percent in Federal income tax. But, of course, there were numerous exemptions and deductions which meant that only 1 percent of the population paid one percent of their net income. Within three short years Congress raised the lowest tax rate from 1 to 2 percent and increased the top rate to 15 percent.
By 1918 another tax rate increase was passed raising the bottom rate to 6 percent and the top rate to 77 percent. But even with these dramatically increased rates only 5 percent of the population paid income taxes.
During the booming economy of the 1920’s Congress repeatedly cut tax rates ultimately returning to a bottom rate of 1 percent and a top rate of 25 percent. With the onset of the Great Depression, Congress soon returned to their tax and spend ways and raised tax rates to a low of 4 percent and a top rate of 79 percent. Later the top rate was raised to 90 percent and President Franklin D. Roosevelt even issued an Executive Order taxing all net income above $25,000 at a rate of 100 percent.
Another important income tax regulation that changed in the 1940s was the implementation of tax withholding by employers. This greatly eased tax collection and substantially reduced the awareness of how much tax was being collected which made it easier to raise taxes in the future.
Now fast forward to our current economic dilemma. Just weeks ago, Congress in response to out of control budget deficits and pressure from President Obama raised the income tax rate on the top 2 percent of earners; despite the fact that 49 percent of Americans pay zero federal income tax. Congress believes it’s okay to increase taxes on those who already pay 40 percent of total federal income taxes.
So let’s reverse the income tax policies of the last one hundred years and start taxing the poor. Instead of giving money to low income workers, let’s tax their wages. A simple flat tax rate of 10 percent should work. The individual who earns $10,000 would pay $1,000 in federal income tax and persons earning $1 million would pay $100,000, no exemptions and no deductions.
The liberals would pity the poor and, therefore, not want to increase taxes and the rich would pay their fair share. Everyone would contribute something to support needed government services for the benefit of society.
Phil Krinkie, a former eight-term Republican state representative from Lino Lakes who chaired the House Tax Committee for a while, is president of the Taxpayers League of Minnesota. You can contact him at: firstname.lastname@example.org.