Brian Wesbury at The DC, here:
What most people don’t realize is that the U.S. has gorged so much (boosting spending from roughly 18% of GDP in 2000 to 24% of GDP today), that the only way to pay for it is to tax the middle class. ...
The money is in the middle. And the only way our politicians can get it is to follow Europe’s lead and institute a national sales tax or Value-Added Tax (VAT). This is the elephant in the room that is never talked about. Those who are using the debt ceiling in an attempt to cut spending are actually saving the middle class from tax hikes — not the millionaires and billionaires.
It's a frequently repeated claim that the money is in the middle, but it's just not true, no matter how often it is said.
If all the (reported) income in America were poured into a giant hour glass, you'd have to start it and wait about twenty minutes to begin to visualize how all the money is actually distributed.
A snapshot taken at that moment would show $5.7 trillion in adjusted gross income still in the top, and $2.8 trillion in AGI in the bottom. The kicker is that 35 million tax returns split what's on top, while the remaining 105 million tax returns, 75 percent of the total, divvy up what's on the bottom.
The money's definitely not "in the middle."
It's hard to get agreement on what's middle class in America, especially since it is a conceit of our society that everyone is middle class. The rich aspire down to it to escape notice, the poor up to it to escape the indignities of dependence.
But no matter what smoke anyone tries to blow up your bottom, the biggest single pile of money remains with the top 25 percent:
Top 10 percent = 14 million tax returns (10 percent of the total) = $3.9 trillion in AGI
The next 25-10 percent = 21 million tax returns (15 percent of the total) = $1.8 trillion in AGI
The next 50-25 percent = 35 million tax returns (25 percent of the total) = $1.7 trillion in AGI
The bottom 50 percent = 70 million tax returns (50 percent of the total) = $1.1 trillion in AGI.
It's ridiculous to think that a VAT tax will somehow generate huge piles of new tax revenue on the backs of the middle class. The VAT will hurt them just like Social Security and Medicare taxes hurt them because it's regressive, not because they have a lot of untapped money they're going to be parting with.
Considering how much tax evasion there already is in America of the unreported income variety, variously estimated (here at $2 trillion, resulting in a tax gap of $500 billion), a VAT will fail simply because it will drive more and more of the economy underground where cash is king and credit cards, checks, invoices and receipts are anathema. Think of it as the inverse of how the rich escape high rates of taxation, for example by shifting to capital gains away from ordinary income. A quicker way to become Greece I cannot think of.
Setting money free to move around openly is the key to an effective tax policy. But bringing it out into the open where it can be captured and taxed depends on perceptions of fairness.
As long as too many people think some people should pay taxes at a higher rate just because they have more, we're not going to get there.
It's a frequently repeated claim that the money is in the middle, but it's just not true, no matter how often it is said.
If all the (reported) income in America were poured into a giant hour glass, you'd have to start it and wait about twenty minutes to begin to visualize how all the money is actually distributed.
A snapshot taken at that moment would show $5.7 trillion in adjusted gross income still in the top, and $2.8 trillion in AGI in the bottom. The kicker is that 35 million tax returns split what's on top, while the remaining 105 million tax returns, 75 percent of the total, divvy up what's on the bottom.
The money's definitely not "in the middle."
It's hard to get agreement on what's middle class in America, especially since it is a conceit of our society that everyone is middle class. The rich aspire down to it to escape notice, the poor up to it to escape the indignities of dependence.
But no matter what smoke anyone tries to blow up your bottom, the biggest single pile of money remains with the top 25 percent:
Top 10 percent = 14 million tax returns (10 percent of the total) = $3.9 trillion in AGI
The next 25-10 percent = 21 million tax returns (15 percent of the total) = $1.8 trillion in AGI
The next 50-25 percent = 35 million tax returns (25 percent of the total) = $1.7 trillion in AGI
The bottom 50 percent = 70 million tax returns (50 percent of the total) = $1.1 trillion in AGI.
It's ridiculous to think that a VAT tax will somehow generate huge piles of new tax revenue on the backs of the middle class. The VAT will hurt them just like Social Security and Medicare taxes hurt them because it's regressive, not because they have a lot of untapped money they're going to be parting with.
Considering how much tax evasion there already is in America of the unreported income variety, variously estimated (here at $2 trillion, resulting in a tax gap of $500 billion), a VAT will fail simply because it will drive more and more of the economy underground where cash is king and credit cards, checks, invoices and receipts are anathema. Think of it as the inverse of how the rich escape high rates of taxation, for example by shifting to capital gains away from ordinary income. A quicker way to become Greece I cannot think of.
Setting money free to move around openly is the key to an effective tax policy. But bringing it out into the open where it can be captured and taxed depends on perceptions of fairness.
As long as too many people think some people should pay taxes at a higher rate just because they have more, we're not going to get there.
