Walter E. Williams
by Walter E. Williams: Good
D.C.-based Tax Foundation does a yeoman's job of keeping track of
how much we're paying in taxes and who's paying what. It turns out
that American taxpayers worked this year from Jan. 1 to April 17,
107 days, to earn enough money to pay their federal, state and local
tax bills. That statistic requires some clarification, and I ask
my readers to help me examine it.
the Congressional Budget Office, Congress will spend $3.8 trillion
this year, about 24 percent of our $15 trillion gross domestic product.
But federal tax revenue will be much less, only $2.5 trillion, or
16 percent of the GDP. That means there's a shortfall of $1.3 trillion.
Some people, including economists, say there's a deficit. That's
true, but only in an accounting sense, not in any meaningful economic
sense. Let's look at it.
spends $3.8 trillion out of this year's $15 trillion GDP, what must
it do to accomplish that goal? If you said it must "find a way to
force us not to spend $3.8 trillion privately," go to the head of
the class. One way to force us to spend $3.8 trillion less is to
tax us that amount, but we're being taxed only $2.5 trillion. Where
does the extra $1.3 trillion come from? It surely doesn't come from
the tooth fairy, Santa Claus or the Easter Bunny.
The fact of
business is that if Congress spends $3.8 trillion of what we produce
this year, it necessarily must force us to spend $3.8 trillion less
privately this year. The most honest way to force us to do that
is through taxation. Another way is to enter the bond market and
make interest rates higher than they otherwise would be, thereby
forcing us to spend less on private investment in homes and businesses.
Then there is debasement of the currency through inflation, which
is taxation by stealth.
A common but
misleading argument is that future generations of Americans will
pay for today's spending. Think about it. Is it possible for someone
who has yet to be born to pick up the tab for what we do today?
Pose the question another way. When we fought World War II, were
the resources used and the sacrifices made to fight the war produced
between 1941 and 1945, or were they produced and sacrificed in 1980,
1990 or 2000? Subsequent generations benefited from our fighting
the war by being born into a free nation. Congresses profligate
spending will burden future generations through making them heirs
to less capital and, hence, less wealth.
line is that whatever Congress consumes this year is produced this
year, not in 2020, 2030 or 2040. That means, in the real economic
sense, the federal budget is always balanced.
of focusing on how the federal government has grown from 3 or 4
percent of our GDP – as it was from 1787 to 1920 – to today's 24
percent, our attention has been diverted to tax fairness demagoguery.
Let's look at tax fairness. According to Internal
Revenue Service data for 2009, the top 1 percent of American
income earners paid almost 37 percent of federal income taxes. The
top 10 percent paid about 70 percent of federal income taxes, and
the top 50 percent paid nearly 98 percent. Roughly 47 percent of
Americans pay no federal income tax. Here's my fairness question
to you: What standard of fairness dictates that the top 10 percent
of income earners pay 70 percent of the income tax burden while
47 percent of Americans pay nothing?
The fact that
the income tax burden is distributed so unevenly produces great
politically borne fiscal problems. People who pay little or no income
taxes become natural constituents for big-spending politicians.
After all, if you pay no income taxes, what do you care if income
taxes are raised? Also, you won't be enthusiastic about tax cuts;
you'll see them as a threat to your handouts.
E. Williams is the John M. Olin distinguished professor of economics
at George Mason University, and a nationally syndicated columnist.
To find out more about Walter E. Williams and read features by other
Creators Syndicate columnists and cartoonists, visit the Creators
Syndicate web page.
© 2012 Creators Syndicate, Inc.
Best of Walter E. Williams