All Commentary
Saturday, July 1, 1995

Freedom from Taxes?

People Have a Right to More of Their Incomes

Mr. Bandow is a Senior Fellow at the Cato Institute and the author of The Politics of Envy: Statism as Theology (Transaction).

WASHINGTON—Income tax day may be behind us, but the pain is not over. We are still working for government, and we won’t be finished until the middle of this month.

According to the Tax Foundation, the average American had to labor 126 days—to May 6—to pay his or her taxes this year. Looked at another way, people devote two hours and 46 minutes of every workday to government. This is the latest Tax Freedom Day ever, as a result of the 1993 tax hikes. And May 6 is just the national average. If you live in Connecticut or New York, you labor for government till May 28. Residents of Washington, D.C., and New Jersey start working for themselves only on May 18. Residents of Hawaii are indentured servants until May 17. The least taxed citizens of America work three and one-half months for the government. Far more people labor four to five months for politicians before earning a penny for themselves.

Even these horrible numbers understate the impact of government on taxpayers. The Tax Foundation only looks at tax collections. The federal government, however, relies on deficits to expand its outlays and regulations to control even more private activities. Thus, the Washington-based Americans for Tax Reform estimates that while Americans may have finished with their taxes on May 6, Spending Freedom Day didn’t occur until May 16, when people stopped paying for government outlays. And Cost of Government Day, when citizens were finally free of the total expense of government, including regulation, is still to come, on July 9.

In short, the average American spends more than half of every year working for government. Did you feel liberated after April 15? You shouldn’t have—you had nearly three more months to go before the money you earned was truly your own.

This is unconscionable–feudal serfs were treated better than taxpayers today. People have a moral right to more of their incomes.

But you wouldn’t know it from the debate in Washington. A few legislators freely admit that they want to keep on spending, so they prefer tax hikes to cuts. The more subtle–seen as “responsible” politicians by the opinion-making elite–say that deficit reduction must take first priority. Of course, many of them are convenient converts to budget responsibility, having never before found a federal program they didn’t like.

Even many of the defenders of tax reduction seem half-hearted. Rather than simply returning money to people, letting them decide how to use it, they promote supply-side engineering: proposals for specific credits and the like. Moreover, even some tax-cutters fear being perceived as, horrors!, favoring the rich. Thus, they advocate denying any benefits to high earners.

Alas, no one in the nation’s capital is making the basic moral case; government is taking far too much of everyone’s income and Congress should just cut overall tax rates. Such an approach would also help serious tax-cutters confront their opponents’ shameless attempts at class war. The 1980s have been attacked as the decade of greed, but it appears that the 1990s will end up as the decade of envy. People don’t so much want more money for themselves as they want to take it away from those with more. Greed is bad enough, eating away at a person’s soul. Envy is far worse because it destroys not only individuals, but also communities, poisoning relations as everyone attempts to use the state to live off of everyone else.

Even today, the much maligned “rich” are paying a huge proportion of their incomes in taxes. Many people face a marginal rate of roughly 50 percent in federal taxes alone–income, Social Security, and Medicare. Added to that are state and local income taxes, real estate taxes, sales taxes, county business fees, and a host of other levies. By what right should transient majorities and influential minorities be able to divest people of two-thirds or more of every extra dollar they earn?

Not just the rich are subject to such extraordinary levies. The National Taxpayers Union reports that a family with an average median income of $52,895 pays an extraordinary $26,689 in taxes, more than half. Is that fair?

Particularly scandalous have been attempts to treat the 1981 across-the-board income tax rate reductions as unfairly skewed to the rich. That 25 percent cut provided more in tax cuts to the rich because the rich were paying so much more in taxes. It was simple fairness to give someone who paid, say, ten times as much in taxes more tax relief. Given the half dozen major tax hikes passed by Congress over the past decade, a new round of rate cuts would be the fairest reduction of all by offering benefits proportional to what people are already paying.

How to sell sizable tax cuts to a deficit-wary public? Tax reductions would help starve government, forcing it to be more responsible fiscally. Every tax hike in the 1980s was followed by higher, not lower, spending, irrespective of the promises made by successive Congresses and presidents.

Ultimately, the only way to stop the special interest looting that occurs daily in Washington is to cut off the money.

Consider the conventional wisdom that irresponsible tax cuts caused the massive deficits of the 1980s. Good try, but no cigar: federal revenues rose (in inflation-adjusted 1987 dollars) from $766.6 billion in 1981 to $894.7 billion in 1991, a hefty 16.7 percent increase. Unfortunately, spending rose more–from $867.7 billion to $1,123.2 billion over the same period, a jump of 29.4 percent (after inflation). Every extra dollar in taxes is an extra dollar for legislators to spend. Taxes are unlikely ever to catch up with outlays because politicians simply can’t be trusted with someone else’s credit card.

Of course, advocates of tax cuts also need to propose serious budget cuts, killing agencies and subsidies for Republican and Democratic allies alike. There’s little gain in taking nicks out of programs: interest groups will still resist and the public won’t care enough to voice its support. Instead, legislators need to take great whacks at spending, and let the public know that serious tax relief depends upon voters backing those great whacks.

Finally, if people want everyone to be better off, they should support policies to expand the nation’s economic pie rather than steal more from those who are economically successful. Yet the sort of class warfare represented by attempts to “soak the rich” actually reduces employment. Higher marginal rates discourage people from working and investing; confiscatory taxation reduces the availability of private investment capital. Indeed, it is the wealthy who provide much of the capital that business uses to employ people and expand operations. While large, investment-based incomes may seem scandalous to the envious, they help create the jobs that employ low- and middle-income Americans.

How to tell if last November’s electoral earthquake makes a real difference? The simplest test next year will be whether Tax Freedom Day and Cost of Government Day have shifted backward. Then we will know the truth of legislators’ claims to have the taxpayers’ best interests at heart.

  • Doug Bandow is a senior fellow at the Cato Institute and the author of a number of books on economics and politics. He writes regularly on military non-interventionism.