100% Plus Taxation Still Key To Permanent Dem Majority
It’s not just handouts, it’s also givebacks
I have written several times about the implicit marginal rate which makes it economically irrational for a poor or lower-middle class wage earner to make more money because of the loss of government benefits the higher income incurs.
Back in November 2009, I saw the government benefits trap as a key political tool for Democrats, 100% Plus Taxation Key To Permanent Dem Majority:
In addition to all the other problems with highly subsidized, income-tested health care benefits, will come an even more permanent underclass which, being economically rational, will choose not to earn another dollar rather than lose more than a dollar of benefits.
Conservatives often speak of the Obama-Pelosi-Reid axis as seeking to create a permanent Democratic majority through big government handouts. This implicit marginal tax analysis shows that it is much worse than it seems; the permanent big-government majority will not be there by choice, but by government-created economic necessity….
A permanent, Democratic-voting majority living off government benefits with no way out. It really is that bad, and this really is a once-in-a-lifetime chance for the Democrats to achieve a permanent, economically-enslaved majority.
This chart I posted showed that the problem, implicit marginal rates in excess of 100% for wage earners moving from $30,000 of income to $50,000 of income:
It’s almost like I actually saw Julia, Sandra Fluke, and the Obama campaign 2012 coming.
At Zero Hedge today there is an article making similar points, When Work Is Punished: The Tragedy Of America’s Welfare State (emphasis in original):
Exactly two years ago, some of the more politically biased progressive media outlets (who are quite adept at creating and taking down their own strawmen arguments, if not quite as adept at using an abacus, let alone a calculator) took offense at our article “In Entitlement America, The Head Of A Household Of Four Making Minimum Wage Has More Disposable Income Than A Family Making $60,000 A Year.” In it we merely explained what has become the painful reality in America: for increasingly more it is now more lucrative – in the form of actual disposable income – to sit, do nothing, and collect various welfare entitlements, than to work. This is graphically, and very painfully confirmed, in the below chart from Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania (a state best known for its broke capital Harrisburg). As quantitied, and explained by Alexander, “the single mom is better off earnings gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income and benefits of $57,045.“
There are plenty of charts and other data at the link.
It’s worse than we think, if all we are focused on are handouts. It’s a combination of handouts and givebacks.
Donations tax deductible
to the full extent allowed by law.
“Fundamental transformation” all right.
Look at Scotland for a model. Once a people who were known for industry, skill, and invention, coming from living in a hard place to MAKE a living, they now are indolent people. Few men work anymore, and many who do are employed by the health system. Scots used to be almost a joke for their pride and sense of honor.
An English MP had a study done and found out that 90% of people living in Scotland are net takers from society. Most of the money, of course, comes from the SE and midlands of England.
This is exactly why the Conservatives should, and indeed must, push the “fairtax” argument.
In a Fairtax setting, income, and thus benefits, are not taxed, only the spending of those benefits is taxed, and only then when the household spending exceeds the HHS poverty guidelines based on family size, due to the pre-rebate (HHS guideline by family size /12) paid to EVERY household (monthly) of spending up to the poverty guidelines.
A Fairtax (consumption tax) system eliminates the “tax trap” created by taxing “income” (as a poor substitute for the estimated drain on use of society’s resources) and replaces it with a direct assessment of the economic resources utilized. Instead, income earned becomes irrelevant to the equation.
PROVIDED the Sixteenth Amendment is repealed, I like the FairTax idea or some variation.
The tax system as it exists is an affront to any people who make any pretense to being “free”.
Your comment is what I have been saying to all my friends pushing The Fair Tax. Until the 16th amendment is repealed I believe that any discussion concerning TFT is a waste of time and resources.
“PROVIDED the Sixteenth Amendment is repealed,”
You are mistaken. The 16th Amendment didn’t create the Federal income tax, which was passed in 1861, and repealing it would not get rid of the income tax. All the 16th Amendment did was overrule a Supreme Court decision (Pollock v. Farmers’ Loan & Trust Co.) that declared certain kinds income from property to be direct taxes. That meant they had to be apportioned. Which made a tax on all forms of income impossible. Want to get rid of the income tax? Pass an amendment that requires any tax on income from whatever source to be apportioned.
Your history is bad.
Fair Tax supporters would do well to concentrate on claims that are provable. Because it is a consumption tax it does address one of the huge flaws in the current system, the widespread cheating that occurs via the underground cash economy. People I know who prepared returns for places like H&R Block tell me there are an amazing number of people who present W-2s reporting income right up to point at which they max out on the EIC. When questioned many will reluctantly admit to quitting their on-the-books jobs when they reach that point and working for cash the rest of the year. Some of these people are quite industrious and it is shame we encourage them to commit tax fraud because of perverse tax incentives.
I remain skeptical of the rest of the claims made by those pushing the Fair Tax. They remind me too much of the magical thinking found 35 years ago during the big term limits push. Term limits were sold as a way to automatically reduce the motivation of politicians to spend. Both California and Michigan adopted term limits for their state legislatures and the result were the opposite. Far from being reformers, term limited legislators became rubber stamps for more experienced state bureaucrats and lobbyists, particularly public employee union lobbyists.
What happens when Caesar says that everything isn’t enough? Luke 20,25.
America is the ONLY country in the history of the WORLD which started off, first in 1777 with the Articles of Confederation and then in 1787 with the present Constitution, limiting the powers of the created government. That idea, that incredibly remarkable once-in-a-millennium-idea is still, to me, unbelievably wonderful.
Until you have a friendly Senate (maybe even the current House) and White House , any idea that taxation should be “fair”as you describe is not in the vocabulary–income redistribution via a “progressive” income tax is the desired policy of Washington since it’s only “fair” that those who have give it all in the name of “fairness”.
It’s scary, but Ayn Rand could be considered a prophet (Peace Be Upon Her)!
What I would like to know is where are the voices in opposition who have a stake in keeping the country as it has been. Romneys campaign at the close after the 1st debate was largely one of prevent defense to protect a lead he never had. The republicans in Congress seem largely to be intent in cutting a deal to maintain their turf. Chamber of Commerce types seemingly are doing likewise. The moneyed class is scrambling to make sure they are on the right side of the developing Fascism. Churches hunker down hoping to escape notice. In the past America there was a sense of a larger national purpose. Is that now gone? Is the new reality everyone for themselves? None of us want to face this may be true. Given our leadership class has largely rolled over, we as individuals have little choice but to resist as opportunities present. All the sellouts can not succeed if enough of us simply refuse to participate.
“One can only also hope that in addition to seeing their disposable income be eaten away by a kleptocratic entitlement state, that the disappearing middle class is also selling off its weaponry. Because if it isn’t, and if it finally decides it has had enough, the outcome will not be surprising at all: it will be the same old (one) that has occurred in virtually every revolution in the history of the world to date.” (from Zero Hedge article)
I’ve had enough. Let’s roll.
This is why I’m opposed to Grover Norquist’s no tax hike pledge. He includes elimination of refundable tax credits (ie. spending in the tax code) as a tax hike.
The Democrats, cleverly, have long since learned that the best way to permanently increase welfare payouts is to hide them as refundable tax credits. The ‘refundable’ part means that you receive it even if you end up getting more back than you paid in (even if you paid nothing in). Its gotten so bad that >30% of Americans have a tax liability of LESS THAN zero.
Obama greatly expanded on this. Remember the speech he gave when he signed the ‘stimulus’ bill? Of course not, you didn’t watch him (can’t blame you there). Anyway, he went on and on about how 1/3 of the bill was “tax cuts”. What tax rate did he reduce? Why, none of them. What he was talking about was refundable tax credits. The stimulus bill massively expanded them. He did this partly by eliminating the part-time job requirement of nearly all of them (not by eliminating the requirement, but by redefining the income level of a ‘part-time job’ to ZERO). Not kidding.
This is why the stimulus bill’s oft-quoted price tag of around $800 billion is completely bogus. The actual price tag, for just the first 10 years of it, is around $3.3 trillion. Its the gift that keeps giving. To Democrat constituents. For the rest of us, it represents nonstop permanent redistribution – out of our paychecks and into the tax refunds of Democrats.
This, btw, is the #1 reason why Senate D’s absolutely refuse to pass a budget. They haven’t even shown up for a meeting to work on one in over three years. If they were to create a budget, all the “temporary” spending in the ‘stimulus’ bill would have to either be terminated (The Horror!!!) or, to become truly permanent, the budget would have to pass both the Senate and House with the ‘stimulus’ bill’s “tax cuts” intact. No chance of that happening. Therefore, no budget.
If I were in Boehner’s position. I’d send a polite note, signed by every Republican in the House, congratulating O on his victory and informing Obama and Harry Reid that the House will, of course, pass a budget but will not under any circumstance pass either a continuing resolution (which is how spending keeps happening in lieu of a budget from the Senate) or any increase to the debt ceiling until the Senate D’s pass a budget.
Then, get every House R to start telling reporters, at every opportunity, to ask Harry Reid where the Senate budget is. Fiscal Cliff? We’ve passed a couple dozen pro-growth bills AND a budget, where’s the Democrat’s Senate budget? Go talk to Harry Reid! Govt. due to shut down due to debt ceiling or no budget passed? The House has ALREADY pased a budget, go talk to Harry Reid and ask him where the Democrat budget is!
Seriously, they should’ve started doing this 3 years ago.
Forget making a deal behind closed doors, between Boehner and Obama, and then having the House pass a bill that the D’s know in advance they can pass in the Senate (ie. a bill dictated to the House R’s by Obama and Senate D’s in private). Go through the regular procedure: House and Senate each pass a budget, then meet in conference committee to work out the differences. Simple. Cut Obama out of the loop. Put all the pressure on Senate D’s to actually pass a budget as a prerequisite for negotiations.
Its simple and understandable to the American public and even the dimmest reporter. “We’ve done our part already. Look, here it is. The House budget. Right here, see? It balances the budget within 10 years. We’re ready to negotiate. We’ve put our entire position down on paper, for all to see, voted on it, and it passed. When the Senate D’s pass their budget, give us a call. Thankyou.”
None of this matters since Boehner, McConnell, Pelosi and Reid are not looking out for us. They are looking out for themselves and enriching themselves at our expense. Obama is marked as “present”, but on the golf course. The lobbyists and special interests will take care of their patrons and nothing to help WE, THE PEOPLE will happen. These guys are a part of the permanent political class.
Letting the Bush tax cuts expire might actually do some good:
The percent of Americans with zero, or less, tax liability, oft-cited at 47% actually went up to 49.5%, officially, in 2011 and is probably above 50% now. That number will go down once we revert to the Clinton tax rates. This assumes, of course, that House R’s have the backbone to insist on all-or-nothing on these rates: either they all stay at the Bush level, or all go back to the Clinton level (The D’s want just the top rate to expire). The R’s have the advantage here: doing nothing is all that’s necessary, since all the cuts expire on Jan 1 under current law. All the cuts will expire and go up. The bottom rate would go from 10 to 15%. The other rates would all go up about 3% with the top rate going up by 4.6%. So, there’d by fewer people able to zero out their tax liability with tax credits. That’s a good thing – more people with skin in the game.
Sometimes you need to let the other side fail to prove a point. Remember how the D’s used to clamor for release of the Strategic Oil Reserve every time gas prices would go up? Idiotic, right? So, under Obama, they finally go their chance to try it. Proof: Idiotic. Gas prices didn’t fall. The oil released had to be replaced, at a later date and a higher price. Waste of money. Same with the D’s tax hikes. Obama’s sole economic agenda promise during this campaign cycle was to hike taxes. The D’s are absolutely convinced that hiking taxes will solve all our problems. Imbeciles. Let the tax cuts expire and watch what happens. The revenue will fall FAR short of estimates and not come close to closing the deficit. The unemployment rate will go up, not down. Income inequality will increase, not decrease, as more middle class people become lower class and as more lower class drop out of the workforce entirely. GDP growth will slow, at best, and we’ll probably go into another recession.
Yeah, all of that is bad, but none of it is difficult to reverse. Unlike Obamacare. Its not a permanent game changer resulting in the nation becoming a bunch of committed socialists, like every country that’s ever implemented a national ‘healthcare’ system. Its merely bad tax policy. Not that hard to reverse.
Let the tax cuts expire. Document the failure. Win an election as a result. Then implement real tax reform (drop the rates to 18-25% in exchange for eliminating tax credits – the more credits you eliminate, the lower you can move the rate).
[…] rates in excess of 100% for wage earners moving from $30,000 of income to $50,000 of income:please read the entire postWhat is interesting about the Obama Cliff is that it undoes some of this economic dichotomy because […]
A system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.
That is the point of taxation.
I’m living this now.
In California, the unemployment benefits are pretty good. What’s even better: there’s no payroll or state income tax on them.
What it all means: until I find a job, I’m trapped. I’d love to start my own business, and have plenty of ideas. But loans are impossible to get, given the restrictions right now. That’s a forgotten aspect of this.
In addition, taxes are murderous(the self-employed pay the entire FICA/Medicare tax, meaning DOUBLE what employees pay out of their paychecks). Regulations are ridiculous, with draconian penalties for even innocent mistakes.
Having run the numbers, if I started my own business, I’d have to earn literally double as a small businessman to equal my financial status on unemployment compensation, triple just to break even for the year.
In short, I’m trapped. It enrages, me. It’s led me to become very mystical of late: it certainly seems that the forces of evil have become completely and totally invincible, often through the completely unexpected treachery of conservative “friends” and “allies,” despite the best efforts of tens of millions of people. To quote from the Bible: “Quo vadis?” because “Eli, Eli, lama sabachtiani?”
It’s time to move, vote with your feet. If not somewhere in the US then Chile or Canada.
The “Flee California Now” Proposition
In the wake of Prop 30, businesses and the wealthy will pour out of California…as well they should. But they should flee in a smart way that gives the state no enforceable jurisdiction over them.
In reaction to the flight of money, California will tighten its grip by claiming more jurisdiction over those who leave. For years California has aggressively pursued financial émigrés. In 2006, for example, the Wall Street Journal described a California software entrepreneur named David Duffield who moved to Nevada. WSJ reported, “He spent $50 million on a lakeshore estate and started a Nevada property-development business. What’s more, by taking a big chunk of his wealth to Nevada, Mr. Duffield expected to save millions on taxes.” California cried “tax evasion” and presented Duffield with a $19 million tax bill. Renouncing California residency is apparently as difficult as renouncing U.S. citizenship.