Last fall, the Wall Street Journal ran an editorial entitled "The Non-Taxpaying Class." The editorial, which dubbed those too poor to pay taxes "lucky duckies," won the Journal widespread ridicule from big-hearted egalitarians throughout the world of media and punditry.
But the Wall Street Journal was right. There are now more than 16 million Americans who file tax returns but pay no taxes. And that's not because we're getting poorer. America is getting richer. Fewer people are paying taxes because more and more politicians are succumbing to class warfare, and granting more and more exemptions to an increasingly complex tax code.
The tax burden is climbing higher and higher up the income ladder. According to the Tax Foundation, the top one percent of income earners in America today make 20.8 percent of the income, but pay 37.4 percent of the taxes. The top quarter of income earners make 67.2 percent of the income, but pay 84 percent of the taxes.
On the other hand, the bottom 50 percent of income earners make 13 percent of the money, but shoulder just 3.9 percent of the tax burden.
The result? We're splitting into two Americas. We have an ever-growing America that demands new government programs and more government spending, and we have an ever-shrinking America that pays for the other America's demands. This is the very sort of factionalism our founding fathers (James Madison, particularly) feared might creep up should democracy get the best of us.
What's scary is that the problem is self-perpetuating. The more the tax burden falls on the wealthy, the easier it becomes for opponents of tax cuts to claim that a given tax cut plan "only benefits the wealthy." Of course it does. Because the wealthy are the only ones paying taxes. Nevertheless, it then becomes harder and harder to sell a tax cut to a voting public where 25 percent of voters pay 84 percent of taxes. That other 75 percent gets very protective.
It's time for a politician with moxie to stand up and say what no politician would never say: It's time to tax the poor.
The argument here isn't that the federal government needs more money. It isn't that the rich badly need tax relief. The argument is that if all Americans are to "benefit" from the ever-ballooning federal government, then all Americans should pay for it.
One critic of the Journal's editorial is Slate's Timothy Noah. Noah gave three reasons why he thinks the "tax the poor" argument fails. Let's take a look at them:
Problem 1: "Poor people have a lower election turnout rate than rich people."
Noah's point here is that the rich may pay more than their share of taxes, but they also vote in disproportionate numbers to the poor, thus rendering cries of democratic factionalism premature. He's right. And he might add that recent studies have shown the very filthy rich to disproportionately vote for Democrats.
But if we're headed down the road to hell, why wait until we actually get there to change direction? Voter demographics may say that the rich vote more often than the poor, but when the top half of income earners are paying 97 percent of income taxes -- and that number is growing -- that bottom half doesn't need to vote in overwhelming numbers to keep their share of the burden shrinking.
Problem 2: Rich people suck harder on the federal teat than poor people do.
Noah points to a 1994 Atlantic article stating that those with incomes over $100,000 averaged the same amount of federal cash and in-kind benefits as those with incomes under $10,000.
But to those making over $100,000, such benefits are tax deductions. Since those making under $10,000 don't pay federal income taxes (save for the payroll tax, which I'll get to), such benefits amount to handouts.
The two aren't comparable. An income tax deduction on your mortgage is a break from money you're already being asked to fork over. An earned income tax credit on income tax you never had to pay in the first place is, well, free money.
Problem 3: The tax code isn't all that progressive.
Noah points out that the Medicare and payroll tax are regressive -- poor people pay the same percentage of their incomes rich people do. True. But the Wall Street Journal's editorial board -- and most of us who agree with them -- aren't so fond of Medicare to begin with, and most of us believe that Americans should be given control and ownership of their payroll taxes, which effectively wouldn't make them taxes at all.
In fact, most of us believe that if Americans were allowed to own and invest their payroll taxes, the gap between rich and poor would shrink -- and at a far faster rate than tax redistributionists could ever achieve.
Noah goes on to say that state and local taxes are also decidedly progressive. Again, true. But the lot of state and local taxes amount to things like excise taxes -- taxes on liquor and tobacco, for example (I'd throw in state lotteries. Though not compulsory, they effectively function as a tax). There's no question such taxes overwhelmingly fall disproportionately on the poor. But it's invariably the left, not the right, that institutes "sin" taxes.
In both cases, it hardly seems fair to hold those of us who favor minimal taxation accountable for policies we oppose.
So what's the solution?
Clearly, a massive overhaul of the tax code is in order -- for the reasons outlined above and about a hundred others.
Personally, I'd favor a national sales tax, with allowances for necessities like food, clothing, housing and medicine. Others, such as blogger Megan McArdle, have suggested a "negative" income tax for the poorest of Americans. Instead of a standard earned income credit, low-income Americans would get a check from the federal government that would bring them to a fixed income level. The check would get smaller as they earned more, and would then phase out at a given amount -- McArdle suggests $28,000 per year.
Though such a plan isn't perfect (I'm not sure "work harder for the same income" is a desirable incentive to motivate the poor out of poverty), it is still intriguing because it's (a) politically palatable, and (b) would at least require Americans at all income levels to feel the bite of government spending. It would force even the poorest Americans to ask themselves whether a proposed new program is worth the slightly smaller "reverse" tax check it would require each month to pay for it.
Whatever the case, the tax gap is a significant problem. It isn't significant because we ought to feel sorry for rich people, or because our government needs more money. It's significant because we're already forcing our "investor class" overseas, because it's tyrannous for a class of non-payers to continue to procure benefits for themselves from payers, and because we may soon come to find out that we've "soaked" ourselves into an economy unfriendly to the principles that have made it prosperous.
Radley Balko is a writer living in Arlington, VA. He also maintains a weblog at www.theagitator.com.