Taxes

Instapundit: Why Everyone Should Pay Some Income Tax

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Instapundit Glenn Reynolds writes at USA Today about why it's a good idea to have everyone pay at least some income tax. After noting that yes, everyone gets hit with payroll taxes, there's this:

The point isn't whether people are "freeloaders" who don't pay any taxes. It's whether people have "skin in the game." If you take me to an expensive restaurant for dinner but let me put money in the parking meter out front, that doesn't provide me any incentive not to order the lobster. Splitting the check, on the other hand, will cause me to think twice. It's like health insurance, where experience shows that even a small co-pay makes a difference in what people spend….

I'd like to see a system where everyone pays some minimum amount of tax — enough to notice, say 2%-5% of gross income. And that amount should go up noticeably when the federal government spends more, and go down noticeably when it spends less.

In a given year, that might only affect some individuals by a few hundred dollars, but as anyone who has followed local-government property tax fights knows, people can get pretty exercised over a few hundred dollars when they know it's coming out of their pocket and not someone else's.

We're going to have to get federal spending and borrowing under control. Making over spending painful to the electorate is a good way to start. And a lot of Americans seem to get that. Politicians, take note.

Read the whole thing. 

I think the general logic here is strong, especially the part about taxes increases when spending increases. Former Reagan budget director David Stockman stresses this point in his writings as well: That we need to choose how much government we want and then pay for it in the moment we want it (or as close to it as possible). Here's a section from our 2011 interview with him:

You're kidding yourself if you think cutting taxes today is really cutting taxes. We're simply deferring massive tax increases into the future, unfairly and immorally putting huge debt burdens on future generations, and that is just wrong….

I think you would really have to sit down and make some very large and honest cuts….

Then, what is the welfare state that we're going to keep? And if that's 20 percent or 24 percent of GDP, then what is the optimum tax system that will raise 20 percent or 24 percent? And therefore, if we need to lower income taxes—which I believed at the time, and still do for incentive purposes, or because of bracket creep—then what alternative revenue mechanism, such as the value-added tax or some other consumption-oriented tax, do we need to put in place to fund the government we've concluded we need?

More Stockman here.

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  1. Re: Stockman alt text
    I predict that those big frame glasses will come back as we use them for Google glasses – like heads-up displays. Guarantee, we’ll all look like dorks in the future.

    1. Um, 80s glasses are already back. I see people in them all the time. It’s pretty awful.

      1. You got what you deserved.

        1. If people who did that first shit got what they deserved, this blog would have far fewer registered commenters and there would be far more space capsules headed for the sun right now.

          1. Sadly, Space X isn’t that far along yet (though I’m greatly looking forward to the day their spin off company “Space Xlimantion” goes live). For now we’ll have to settle for public ridicule.

  2. We’re going to have to get federal spending and borrowing under control. Making over spending painful to the electorate is a good way to start. And a lot of Americans seem to get that. Politicians, take note.

    Eliminate the mandatory payroll tax retentions and I guarantee you that people will find government painful enough – very quickly.

    1. Beat my to it by one minute?

    2. Exactly. If people have to make out a check, they’ll take notice.

    3. Ah yes, Friedman’s greatest gift to the enemy

      1. My understanding is that it was a former Macy’s executive that had moved to the Dark Side of the FDR administration that suggested it, an “installment program” for tax payment.

  3. MSNBC translation. Glenn Reynolds wants to throw poor people out in the streets to pay for tax cuts for the rich.

    1. One of the things I don’t get about the left is how they believe that fifty million Republicans are either rich or want the rich to be rewarded at their expense. Like it’s not a billion times more likely that there are other motivations at play.

      1. It’s hard to tell how much of their own shit either Team actually swallows and how much of it they’re just flinging to see if it sticks.

      2. They don’t. Look at any polling on taxing the rich. They are just distracted by fury at whichever godless minority the party is scapegoating at the moment.

        1. Don’t you ever get tired of being stupid.

          1. It’s like the sixth sense — the stupid people don’t even realize they’re stupid, or how much they terrify those that can perceive their stupidity.

        2. Question of the day, are rich people a minority?

          1. Numerically, yes, but by definition they are the least vulnerable one.

            1. I notice that you regularly refer to things “by definition”. It makes you a jackass.

              1. I registered for this site just so I could tell you how much I loved this comment.

            2. Why is that? Unlike a poor minority, there’s a decent financial incentive to victimize them. And their perceived lack of vulnerability gives demagogues more cover in demonizing them? Besides, even if we get rid of racism and bigotry, envy and resentment will always be with us.

            3. Because to Tony, a minority that is the least vulnerable must be made more vulnerable. It’s only fair.

          2. I bet some of them are atheists, too.

        3. Yup, the Republicans are the racist ones. Not the party saying “Sure, the country’s a mess, he broke all his promises, we’re at war with even more countries than before, but at least he’s black.”

          1. “And gay-friendly! And pro-women!” That’s what I hear, incessantly on Facebook….

      3. The ones that aren’t rich are the stupid ones who have been duped by the billionaires.

        And/or are racists.

  4. You want this to work though, make sure that there are no withholdings and people pay it out of pocket each year. Then, and only then, would they understand. Withholdings are designed to hide the pain. If we did withholdings and most people got returns they would still persist in the magical belief that it is the government, in its infinite mercy and beneficence, giving them money.

    1. I think that’s got to be a part of any reform.

    2. Also, eliminate all tax deductions. Make people pay the full price of government largess and then wait for whatever free ponies they’ve been promised to be distributed to them.

    3. Also, make Election Day 16 April.

    4. If withholding was eliminated, you’d suddenly see lots more support for a national VAT or sales tax.

  5. The problem with Stockman’s statement is, “we decide”.

    Who decides how much welfare state we want? Those who pay for it? Welfare recipients? Can we reconsider at regular intervals?

    Even if everyone pays a little income tax — a good idea, to be sure — that still doesn’t solve the tyranny of the majority problem.

    I’d propose something else in addition to “everybody pays something”. Every law that doesn’t simply guarantee a negative right has a sunset date, 5 years from the date it takes effect.

    1. Oh, and what is the source of that comic? I see the alt text says I’m not the only one who can’t fathom the argument being made.

      1. Not meant as a reply to BarryD’s comment?

      2. It seems to based on some bizarre idea that raising taxes lowers the cost of living.

        1. Buzzards gotta eat, same as worms.

  6. Taxes are a fee I pay to stay out of jail. I don’t connect them with anything the government does, and certainly don’t identify myself with anything the government does.

    1. Exactly. This kind of “we’re all in it together” rhetoric is tiring.

  7. I’d like to see a system where everyone pays some minimum amount of tax ? enough to notice, say 2%-5% of gross income.
    I have no problem with that, essentially agreeing with his “everyone having skin in the game” argument. And I have always favored a flat across-the-board rate. But here’s where it goes off the rails:

    And that amount should go up noticeably when the federal government spends more, and go down noticeably when it spends less.
    Because govt never spends less, so all anyone would ever see are “noticeable” increases. After a while, noticeable leads to revolt. Or alternatively, a series of deductions and credits and allowances that leads us right back where we are.

    1. After a while, noticeable leads to revolt

      I think that’s the point.

    2. I think the idea is that when people see their taxes going up, and at the same time their take home pay going down, they will demand restraint from the government. They will elect people who will reduce the size of government and in return their paychecks will get bigger.

      Is the plan perfect? No. But it is better than what we have now in which we have nearly half the country who do not have “skin in the game”.

    3. So what’s the solution? A (something stronger than Constitionally) mandated flat rate and a mandated balanced budget?

      1. a simple flat rate, to be sure. It’s fair in that everyone’s percentage burden is exactly the same, and it’s fair in that everyone plays by the same rule. A balanced budget would be nice but it is, by far, the more difficult of your two points to achieve.

        Flatten tax rates, eliminate social engineering-based deductions, AND reduce spending. Will it work? Hard to tell since we’ve never tried it. But doing other things has proven problematic.

        1. …and stop automatically withholding…force everyone to stroke a check every quarter.

          1. Not every quarter – once a year. If people had to cut a check for the full amount every year there would be rioting in the streets.

            1. Or less tax compliance like our “socially advanced” brethren in Europe.

              1. I think it’s “and” not “or”. See Europe. 🙂

  8. I’m all for strategies that persuade people to be more aware of the cost of the government programs they like. (Having one party deliver decades of propaganda that we can keep cutting taxes and never have to give up Medicare certainly hasn’t helped that cause.) But, of course, any change to the tax code will need to make it more, not less, progressive. Unless you think having more wealth inequality than the Gilded Age, the Roman Empire, or Colonial America when slavery was legal sounds like a good idea.

    1. So people will become more aware of the cost of government by having someone else pay for it. Makes sense.

    2. Less progressive? How much “less progressive” can we get from where we currently are? Right now, nearly half the population of the US pays no income tax. Do we need to make that 75% of the population to be truly “progressive”?

      The purpose of taxes if for the people of the nation to fund the business of the nation. If too many people are not paying into it, then it becomes “someone else’s problem” and we get where we are now. Right now, we have half the population thinking that we can continue our current levels of spending and increase that too simply by milking the upper 50% for more. That is not sustainable in any sense.

      1. The income tax is not the only tax. Our overall tax system is only barely progressive.

        And the reason there are so many people not paying income tax is because there are so many people who don’t make enough income to qualify. That means they can’t afford it without significantly negatively affecting their lifestyle. We can tax the rich a whole lot more without doing the same to theirs. And strategies for downward redistribution would make a broader income tax base, not to mention a stronger growing economy.

        1. taxing the rich does nothing toward creating financial responsibility among the spending class. It just creates the illusion of a golden goose; what happens when you run out of rich folks? And by any definition, “redistribution” is a failure; no state has ever prospered by taking from one to give to another.

        2. We can tax the rich a whole lot more without doing the same to theirs. And strategies for downward redistribution would make a broader income tax base, not to mention a stronger growing economy.

          As I’ve mentioned before, progressives also believe in “trickle-down economics”–they just don’t like it when it’s not the government doing the trickling.

          1. As I’ve mentioned before, progressives also believe in “trickle-down economics”–they just don’t like it when it’s not the government doing the trickling.

            It’s not trickle down when it’s government doing it, which includes QE3. Duh.

        3. If the goal is to reduce WEALTH inequality, making the highly progressive INCOME tax rate even more progressive is a terrible place to start.

        4. Re: Tony,

          The income tax is not the only tax. Our overall tax system is only barely progressive.

          No, it is quite progressive. It is just not yet so onerous that even Hollywood types would bail out, but it is getting there.

          That means they can’t afford it without significantly negatively affecting their lifestyle.

          I thought taxation was not theft but paying for civilization. How can they not afford civilization?

          And strategies for downward redistribution would make a broader income tax base, not to mention a stronger growing economy.

          There are two lies here, Tony.

          First, redistribution from the top to the bottom does not broaden the tax base. Income is generated from production, not from gifts from above.

          Second, it is clear you have NO idea what a growing economy entails or looks like. If spreading money around were the solution to a growing economy, we would have a growing economy already after QE1, QE2 and QE3. Since this is not the case, then what you’re saying is not only not true, it is a lie.

        5. Our tax system is the most progressive in the OECD.

          Do facts ever intrude into that vast expense of concrete known as your consciousness?

    3. ah yes, wealth inequality. The new liberal holy grail. The only way you can create equality is by eliminating achievement, by bringing down those at the higher levels.

      This maxim applies everywhere that equality is a goal – it’s why shared misery, for all but the ruling class, is the norm in centrally-planned societies.

      1. It is a strawman to say I want wealth equality. I want reduced wealth inequality. I see it as a virtuous goal in and of itself, but there are plenty of methods and reasons that can be consistent with libertarian ethics.

        1. What difference does a millionaire down the street make in my life? None, that I can think of. What difference does it make If my neighbor is as rich as Solomon? The only reason it would matter, is jealousy. Clearly, something that grips you.

        2. Re: Tony,

          It is a strawman to say I want wealth equality.

          But you you SAID you want more equality. Here, do you want to read your own words again?

          “Unless you think having more wealth inequality than the Gilded Age[…] sounds like a good idea.”

          That implies you think less wealth inequality is a good idea. If you’re being serious, then having total equality must be the best idea posible, with Inequality – zero.

          Otherwise you’re just backpedaling.

        3. T o n y| 10.2.12 @ 10:49AM |#
          “…I want reduced wealth inequality. I see it as a virtuous goal in and of itself,…”

          Yeah, but you’re an idiot, shithead.

          1. Re: Tony,

            Yeah, but you’re an idiot, shithead.

            You’re still not addressing the contradiction, Tony.

            Wanting less wealth inequality means, if you’re being serious, NO wealth inequality as a goal. Otherwise you will ALWAYS have wealth inequality, and thus your goal is not reached. That is what you’re implying.

            If it is not what you’re implying, then you’re not being serious or you’re just a charlatan. Which one is it?

    4. Unless you think having more wealth inequality than the Gilded Age, the Roman Empire, or Colonial America when slavery was legal sounds like a good idea.

      Considering your source for this claim was entirely speculative in nature, we’ll take it for what it’s worth.

      1. I learned today that the income tax ended slavery.

    5. Re: Tony,

      But, of course, any change to the tax code will need to make it more, not less, progressive.

      “Will need”?

      You must have your room filled with “Hello, Kitty” dolls.

      “Oh, it sounds so feel-good!”

      No reason, no rationale, just the logic of a 13 year old girl.

      Unless you think having more wealth inequality than the Gilded Age, the Roman Empire, or Colonial America when slavery was legal sounds like a good idea.

      The world meets again the nitwit who thinks Wealth = Money.

    6. Having one party deliver decades of propaganda that we can keep cutting taxes and never have to give up Medicare certainly hasn’t helped that cause.

      Since when did the Medicare tax get cut?

    7. The other party’s propaganda that we can raise taxes and it will be used to balance the budget rather than to finance more profligacy is more appealing to you?

  9. Since Reynolds says thay everyone gets hit with payroll taxes and that everyone should pay income tax, does that mean the solution is to change the name “payroll tax” to “income tax”?

    1. No. What he means is to have everyone pay an actual income tax. Many people do not consider the social security tax as a tax. They falsely believe it to be a retirement savings plan. The same for Medicaid taxes, especially for those that are currently using the program.

      1. and that is why some folks balk at the term “entitlement,” particularly with SS. They just want their money back. That many get back more than they put in only highlights the problems of continuing a 70-year old business model.

      2. Kind of an alternative minimum tax, but at the other end of the spectrum. I agree.

    2. This drives me nuts. Employees don’t have a payroll to tax, the employer does. The employee’s income is taxed. FICA is an income tax for the employee.

    3. Or just give up the charade, eliminate FICA, and increase the taxes on the bottom brackets by an equivalent amount.

  10. What the f is that cartoon supposed to mean anyway? Higher taxes stop a higher cost of living? (I think this is what the cartoonist intended.) Higher taxes cause a higher cost of living? People who pay higher taxes have the ability to stop the cost of living from rising? If you pay more in taxes, you won’t be able to keep the cost of living as low? Christ, it’s like Bok on an off day.

  11. After noting that yes, everyone gets hit with payroll taxes,

    In 2009 (the last year of numbers the CBO has released), the lowest quintile paid 8.3% in SS tax, and -9.3% in personal income tax. So, in net, they didnt pay any income tax.

  12. We could just go straight to the poll tax. Everyone that breathes pays.

    1. Wouldn’t a poll tax be everyone that votes pays?

      1. English history

      2. http://en.wikipedia.org/wiki/Poll_tax

        A poll tax (head tax or capitation tax, per U.S. English usage) is a tax of a portioned, fixed amount applied to an individual in accordance with the census (as opposed to a percentage of income).

        1. The word poll is an English word that once meant “head” – and still does, in some specialised contexts – hence the name poll tax for a per-person tax.

  13. I’d like to see a system where everyone pays some minimum amount of tax ? enough to notice, say 2%-5% of gross income.

    According to CBO, this was happening up thru 2007. 2008 was the first year that the total Federal tax burden of the lowest quintile fell below 5%.

    It went from 5.1% in 2007 to 1.5% in 2008 to 1.0% in 2009.

    The data I have tracks 1979-2009, the peak was 9.4% in 1984 for the lowest quintile.

    1. I don’t think it counts as ‘paying’ if you never got the money in the first place.

      1. Then I havent been paid in years, as my checks are direct deposited.

        1. Uh, receiving pay and paying are two different things.

          1. Same mechanism though.

            Each pay period, I get a piece of paper that says:

            Total amount paid, of that:
            $A was deposited in your account
            $B was sent to the city
            $C was sent to the state
            $D was sent to the Feds for income tax
            $E was sent to FICA

            I would prefer no withholding and having to write the checks, but its pretty clear to me from the stub. If everyone could rationalize it and compartmentalize it, withholding wouldnt really matter, its no different than physically writing the check.

            But not everyone can. But I can. I paid that tax.

    2. People don’t pay taxes when they aren’t working, and the plummeting Labor Participation Rate correlates rather well with that plummet in the tax burden of the lowest quintile.

  14. Republican mythology: the poor are a massive voting bloc sucking money away from the virtuous rich and hard-working middle classes so they can live high on the hog on food stamps and AFDC.

    Actually existing reality: the poor rarely vote, most government spending is on the military, interest, and the elderly (who mostly can’t work and do pay income taxes on Social Security).

    1. US Budget FY 2012:
      17% Healthcare
      16% Pensions
      15% Education
      14% Defense
      11% Welfare
      9% Other
      5% Protection
      5% Transportation
      5% Interest
      2% “General Gov’t”

      See: http://www.usgovernmentspending.com/us_budget_pie_chart

      In no universe is 14% a majority of anything. You really should learn to look shit up before you start drooling all over your keyboard and creating fake “mythology”.

      1. US Budget FY 2012

        lol, when did that pass?

        I know what you mean there, but I dont think that is technically accurate.

      2. 17 + 16 + 14 + 5 = 53 = majority

      3. Hey chuckles, do the math.

        17 + 16 + 14 + 5 = 52 = majority

        1. So what you’re saying is that there’s some combination of small pieces that adds up to more than 1/2?

      4. 17 + 16 + 14 + 5 + 5 = 57%

        57% 11%

        Time to re-review the 3 R’s, sport.

        1. 57% is greater than 11%. HTML got me.

      5. Judging by what the dirty Jerz wrote, he is saying that a combination of the Military (14%), interest(5%), and oldster spending (some combination of Healthcare, Pensions and Welfare?) constitutes most government spending. Just the latter two along account for 19% which is, compared to the remainder, a majority. Depending on how you cherry-pick your numbers, he is not wrong.

        I’d like to know what that 9% other constitutes and if it involves Men in Black and kickass alien murdering.

  15. Republicans started cutting taxes, with the explicit intention of reducing the number of low-income households liable to the federal income tax, back in the Eighties under Reagan. They continued with the Bush cuts in 2001. Now in 2012 Glenn decides that everyone should pay something. How long has he been asleep?

    1. Reynolds has actually been on this issue for some time. He didn’t really put it out there as a “policy proposal” until he started pimping his 2016 Presidential run.

    2. And yet, when Obama talked about getting rid of the Bush tax cuts, he was gonna keep the new 10% bracket and other cuts at the bottom end.

  16. I’m not sure the majority of Americans possess the mental faculties required to see a connection between increases in their own taxes and government spending. The conclusion most people would draw is “My taxes are too high! Whichever politician promises to cut my taxes and maintain/raise spending in my district gets my vote, unless my prepolitical biases get in the way.”

    “You see, it’s not that *I* don’t believe in fiscal responsibility and balanced budgets. It’s just that *I* have mouths to feed and six digits of debt to pay off. Let someone else handle it and keep the goodies coming my way.”

  17. If income or payroll tax has to exist, I would also like it to apply to everyone. At the same rate.

  18. In re the meaning of the cartoon, income taxes can be “anti-inflationary,” at least according to some schools of economic thought, if I remember my macroeconomic theory class correctly. The assumption underlying it is that the government either spends some part of the additional taxes collected on debt reduction or on classes of goods that consumers don’t buy (e.g., space shuttles), so the “too many dollars chasing too few goods” get diverted to a different market sector.

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