No Taxation Without Representation
Krayton Kerns
3.1.06
Our founding fathers almost had it right in 1776 when they coined the phrase, “No taxation without representation!” They were so close.
After 230 years we are finding that “taxation with representation” isn’t such a great idea either. When the personal income tax was levied in 1913, the wild ride began. Innocently enough, the 16th Amendment allowed congress to start with rates varying from 1% to 7% (for incomes over $500,000). At that time, less than 1% of the U.S. population paid any income taxes at all.
In 1941 the top marginal rate maxed out at 94% on all income over $1,000,000. (Boy, if you earned $999,999 mowing lawns you would sure hate to have anyone give you a one dollar tip.)
In 1981, and again in 1986, Ronald Reagan lowered the top marginal rate to 28%. The economy began the largest expansion since World War II. Revenues to the federal treasury doubled. Democrats in Congress seized the opportunity to outspend the increase in revenues. They worked hard and were successful. The deficit grew.
In 1990, George H. Bush made the “read my lips” pledge, and then reversed his position and joined with the democrats to raise the top marginal rate to 31%. The economy stumbled as it was gathering itself, and George H. Bush became a one term president.
1993 brought us Bill Clinton, who “tried so hard to give us a middle class tax cut,” but just couldn’t find a way to get it done. He raised the top marginal rate to 36%, then tacked on an additional 10% surcharge and then had the audacity to make the tax increase retroactive. (That is the cowboy way of saying, “I don’t like your horse either.”) Fortunately, the Reagan recovery was still picking up steam and the economy grew vigorously through 1999. If you don’t believe that, take a look at the 75 year history of the Dow Jones Industrial Average. The explosion in the growth of the Dow began in the Reagan years.
By 2000, the amount we pay in federal income tax expressed as a percent of the GDP hit 20.8%. This is the highest level since World War II. To the liberal democrats, who gain their power by redistributing money, this still isn’t enough.
Next up, George W. Bush, in 2001: The economy had been stagnant or receding since 1999. Islamic extremists murdered three thousand American citizens on our home turf and leveled the financial center of New York City. George W. needed to stimulate the economy so he proposed lowering the top marginal tax rate to 33% and instituting changes in depreciation schedules to free up development capital. As typical, the democrats went nuts. “Tax cuts for the wealthy” is the mantra vomited by the liberal elite, “the poor get nothing from these tax cuts.” Well here are the facts presented in a way that even a dumb old cow doctor can understand:
Tax Cuts – A Simple Lesson In Economics
David Kamerschen, PhD
Every day ten friends go out for dinner. The bill for all ten comes to $100. The ten men decided to pay their bill like we pay our taxes and it goes like this:
The first four men (the poorest) pay nothing.
The fifth pays $1.
The sixth pays $3
The seventh pays $7
The eighth pays $12
The ninth pays $18.
The tenth man, (the richest) would pay $59.
Everything was fine as these ten good friends ate dinner everyday. Then one day the owner of the restaurant threw them a curve by saying, “Since you are all such good customers, I am going to reduce the cost of your daily meal by $20.”
So now the dinner for all ten only cost $80. The group still wanted to pay their bill the way they pay their taxes, but how could the group divide up the $20 windfall so that everyone would get his fair share?
The first four men were already eating for free, so that was a non-issue. But, if the remaining six divided the $20 evenly, then the fifth and sixth man would end up being “paid” to eat their meal. The restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he penciled out a plan:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth man now pays $2 instead of $3 (33% savings).
The seventh man now pays $5 instead of $7 (28% savings).
The eighth now pays $9 instead of $12 (25% savings).
The ninth now pays $14 instead of $18 (22% savings).
The tenth now pays $49 instead of $59 (16% savings).
Each of the six was better off than before, and the first four continued to eat for free, but once outside the men began to compare their savings.
“I only got a dollar out of the $20,” the sixth man said as he pointed to the tenth, “But he got $10.”
“Yeah, that’s right,” exclaimed the fifth man, “I only saved a dollar too, and it’s unfair that he got ten times more than me.”
“That’s true,” shouted the seventh man, “Why should he get $10 back when I got only $2. The wealthy get all the breaks.”
“Wait a minute,” yelled the first four men, “We didn’t get anything at all. The system exploits the poor!” So the nine men surrounded the tenth man and beat him up.
The next night, the tenth man was in the hospital, so the nine sat down and ate without him. But, when it came time to pay the bill, they discovered they didn’t have enough money between all of them to pay even half of the bill.
And that, ladies and gentleman, is how our tax system works. The ones who get the most money back from a reduction are those who paid the most in the first place. So the next time you hear some liberal pundit label the Bush tax cuts as “tax breaks for the wealthy,” you will know just how ignorant that is.
