The Real Numbers vs The Propaganda

Guy Benson posted an article at Townhall today about taxes.

The article includes the following:

Democrats already have a well-worn, and misleading, talking point about it: 83 percent of the tax cuts go to the wealthiest 1 percent. That’s true for 2027 but only because most of the individual income tax changes expire by then…The important missing context is that the final tax legislation, which President Donald Trump signed into law Dec. 22, allows most of its individual income tax provisions to expire by 2027, making the tax benefit distribution more lopsided for the top 1 percent than in earlier years. In 2018, according to an analysis by the Tax Policy Center, the top 1 percent of income earners would glean 20.5 percent of the tax cut benefits — a sizable chunk, but far less than the figure that’s preferred by Democrats. And in 2025, that percentage would be 25.3 percent, with the top 1 percent (those earning above $837,800) getting an average tax cut of $61,090. Just two years later, in 2027, the percentage of tax benefits to this income group jumps to 82.8 percent, “because almost all individual income tax provisions would sunset after 2025,” explains TPC. 

The article explains who pays income taxes:

The much-maligned top one percent paid more than 37 percent of all federal income taxes that year, which is the most recent on record for which we have data.  The top three percent footed just over half of the total federal income tax bill.  And those in the top five percent were responsible for paying nearly 60 cents of every federal income tax dollar collected by Uncle Sam.  If you look at the black lines on the bar graph above, you will see that the federal income tax share paid by “the rich” far outpaced their respective portions of the nation’s overall earnings.  The bottom half of US earners — 50 percent of the country — paid approximately three percent of all federal income taxes in 2016, slightly less than the contributions of the top .001 percent alone.  The Left’s political stories about “fair shares” and “millionaires and billionaires” may pack a potent rhetorical punch in the service of fueling grievance politics and class warfare, but they’re not grounded in facts and omit crucial perspective.  It’s worth noting that in the latest NBC/WSJ poll, the GOP holds a record-high 15 point lead over Democrats on the economy.

It really is time to consider a flat tax, where deductions are very limited and everyone pays the same percentage. Our current tax code is demotivational–it does not encourage prosperity. However, in reality we need to fix the spending–that will eventually fix the tax code.

 

The Laffer Curve At Work

Yesterday CNS News reported that during the month of January (the first month the Trump tax cuts were in effect), the federal government ran a surplus.

The article reports:

January was the first month under the new tax law that President Donald Trump signed in December.

During January, the Treasury collected approximately $361,038,000,000 in total tax revenues and spent a total of approximately $311,802,000,000 to run a surplus of approximately $49,236,000,000.

Despite the monthly surplus of $49,236,000,000, the federal government is still running a deficit of approximately $175,718,000,000 for fiscal year 2018. That is because the government entered the month with a deficit of approximately $224,955,000,000.

The article also reports some of the history:

Over the last twenty fiscal years, going back to 1999, the federal government has run surpluses in the month of January 13 times and deficits 7 times. Six of the Januaries in which the federal government ran deficits overlapped President Barack Obama’s time in office—including January 2009, the month Obama was inaugurated, and the Januaries in 2010, 2011, 2012, 2014 and 2016.

If you are not familiar with the Laffer Curve, it is a financial theory that the website the balance describes as follows:

The Laffer Curve is a theory that states lower tax rates boost economic growth. It underpins supply-side economicsReaganomics and the Tea Party’s economic policies. Economist Arthur Laffer developed it in 1979.

The Laffer Curve describes how changes in tax rates affect government revenues in two ways. One is immediate, which Laffer describes as “arithmetic.” Every dollar in tax cuts translates directly to one less dollar in government revenue. 

The other effect is longer-term, which Laffer describes as the “economic” effect. It works in the opposite direction. Lower tax rates put money into the hands of taxpayers, who then spend it. It creates more business activity to meet consumer demand. For this, companies hire more workers, who then spend their additional income. This boost to economic growth generates a larger tax base. It eventually replaces any revenue lost from the tax cut.

This is an illustration of how the Laffer Curve works:

As you can see, there is a point where taxes reach a high point and the amount of revenue generated from taxes goes down. That is not a coincidence–that is what tax attorneys get paid for. One of the reasons we need to make the tax code simpler is that we need to take away the complexities that allow people to hide income and avoid taxes. I believe that was one of the goals of the Trump tax plan. It remains to be seen whether or not that goal was achieved.