I rarely get surprised these days by the pervasive economic illiteracy on the left. Yet precisely that happened when a friend sent me a link to an article in Forbes Magazine from back in April. The article claims that:
Walmart’s low-wage workers cost U.S. taxpayers an estimated $6.2 billion in public assistance including food stamps, Medicaid and subsidized housing, according to a report published to coincide with Tax Day, April 15.
The topic of this article is highly relevant. It is a clear attempt to shame corporate America for having received a much-needed tax cut, suggesting that if the Democrats win the House in November, they will be under heavy pressure from their support groups to reverse the Trump tax reform.
This point is reinforced by the fact that the report referred to in the Forbes article was published by Americans for Tax Fairness. This is a coalition that presents its sole goal – higher taxes – in the usual wrapping of leftist rhetoric. Here is what they say about taxes:
Everyone must pay their fair share. We need to reform our tax code, so it raises adequate revenues to meet critical needs in a fiscally responsible manner. This requires that wealthy Americans – the richest 2 percent – and corporations pay their fair share of taxes.
There is a lot to be said about the methodology of their study; for now, let us just note that the reason why tens of millions of working Americans receive various forms of government support is that Congress has created a welfare state. If there were no welfare state, there would be no “subsidies”, as Americans for Tax Fairness erroneously refers to entitlements.
However, mislabeling the welfare state is only one of their problems. Another problem is their argument on taxes. It is correct to characterize the federal tax system as unfair, but not in the way that Americans for Tax Fairness suggests.
It gets better, though. Their misrepresentation of welfare and their argument that the wealthier should pay higher taxes coalesce into a false accusation that America’s wealthy take advantage of the welfare state to somehow suppress low-income workers.
To make their argument work they need to somehow disconnect America’s businesses from the taxes that pay for the welfare state. Unfortunately, this mission is doomed before it gets off the ground.
Before the Trump tax reform, ten percent of the employed workforce in America paid 80 percent of all personal income taxes. Since personal income taxes account for 80 percent of federal tax revenue, this means that about 15 million people, out of a population of 320 million, paid 64 percent of the taxes that fund our nation’s welfare programs.
After the Trump tax reform, the burden of funding the federal government has been even more concentrated. With the cut in corporate income taxes and the changes to the personal tax code, that ten-percent top earning group now pays at least two thirds of all federal taxes.
And now for the $64,000 question of the day: who owns America’s large businesses? The answer, of course, is the wealthy. Jeff Bezos, Bill Gates, Michael Dell, Mark Zuckerberg, the Koch brothers, the Ford family, are all examples of very wealthy entrepreneurs who earn a lot of money – but also put their money to work in some of our nation’s largest and most successful businesses.
They are also part of the population that already provide the majority of the taxes that pay for our welfare state. In other words, our corporate founders, owners and executives already pay the bulk of the cost for the programs that some of their employees benefit from.
Perhaps the most absurd point behind the arguments for higher taxes on the rich is that such tax hikes somehow do not harm the people who work for those companies. Since the Trump tax cuts have benefited employees in businesses all over the country, it is not hard to imagine what would happen if the left got what it wanted and reversed those tax cuts.
As for the tax fairness argument, there is only one fair tax system, namely one where every person pays the same percentage in tax. As Dan Mitchell shows in this video, its advantages are easily explained in a minute. It might also be worth noting that wealthy taxpayers would still contribute much, much more toward funding government than people with regular incomes. The only downside is that sales of headache medication would decline substantially around April 15, as the flat tax would make our tax system fair, transparent and neutral to everyone’s efforts to earn more and grow their wealth.
