Steven Malanga writes a must-read piece on the reality of who pays what in our convoluted tax system today. All the shrieks of outrage from politicians eager to exploit the disgust of voters for the excesses of Wall Street neglect the following fact: "Many Americans probably won’t pay a cent of the cost of this bailout. That’s because a rapidly increasing percentage of U.S. households legally pay no income taxes, and many others pay so little in taxes that they already get back more from the federal government in services than they send to Washington." As Malanga says, if you want to see who is really paying for the bailout (and most everything else) you need to drive through the area where the mansions are in your town.
While this information ought to cause some number of pitchforks to be lowered, it also ought to cause some deep questioning of our tax policies--to say nothing of our spending. Malanga notes, "Of the 138 million households who file tax returns, only about 16 million, or 11 percent, earn enough to pay more to the feds in taxes than they get back in services."
Neither Barack Obama nor John McCain are promising any kind of tax reform that seeks to reverse this trend. Indeed, according to Malanga, Obama would increase the number of households not paying any federal income tax to 44% while McCain’s plan comes in at just one percentage point lower. As we move ever closer toward a situation where more and more people have a "stake in growing government entitlements" and fewer people contribute to the financing of these entitlements, at what point do those paying the freight begin to ask, "Since when did it become just for me to work while you eat?" They will, trust me, find ways around such a disproportionate tax system . . . none of which will be of benefit to those of us most in need of their best efforts.
Malanga sums it nicely: "That’s a prescription for a static economy largely bereft of opportunity. On the other hand, we probably won’t have to worry about volatile markets in such a world." Indeed. Welcome to the stability of stagnation.