According to President Obama, America's 400 wealthiest families pay just 18% of their income in federal taxes, while the average middle-income family pays 30%, and that's not fair. The President goes on to say we all should have to pay our "fair share" of taxes.
I agree 100%. That's great political rhetoric. I don't think you'll find anyone who wants to argue that some people should not pay their "fair share" while others pay more than they should.
The President's numbers are wrong. The IRS itself reports that middle-income workers pay an average 15% of their income in federal taxes, while the wealthiest Americans pay an average 26%. But for argument's sake let's ignore that for now.
The real problem is that the President, through the Buffett Rule tax bill he has pushed to a Senate vote this week, would create more of the crushing burden of tax regulations and rules that created these imbalances to begin with, without any significant improvement in tax revenues. If the Buffett rule raising the minimum tax on wealthy Americans to 30% became law, it would only generate $47 billion a year in new taxes, just one-half of one percent of the current Obama deficit spending.
How did we get to this place in our nation's tax history? In 1913 we created income tax, under the guise that only the wealthiest Americans would pay anything. The initial level at which income tax kicked in was around $500,000 a year in today's dollars, so the average citizen was led to believe this would never affect them. This was only going to hit "the rich." Some things never change.
Then came inflation and two World Wars, and suddenly the income tax that was only supposed to tax "the rich" was taxing everybody. So we created tax deductions and credits on everything from mortgage interest to targeted investments in order to encourage citizens to avoid those high taxes by doing something beneficial for the economy with their earnings.
Well, investors did indeed use those tax codes to invest and avoid paying the higher rates, until finally some people were paying no tax at all through clever investing. We responded in 1969 by creating the original version of the proposed Buffett Rule, the Alternative Minimum Tax. This was supposed to guarantee that the "the rich" paid a minimum 28% tax regardless of their deductions and credits.
But those whose only income is from investments don't pay the AMT, while inflation once again has pushed middle-income Americans into the AMT top rate of 28%. Congress now scrambles every year to approve a new waiver to keep this big tax increase from crushing middle-income families.
So we're back to the President and Senate Democrats proposing the same solution that got us into this mess in 1913, indignantly crying to selectively raise taxes on "the rich."
There is a right way to guarantee that all Americans pay their fair share of taxes -- The Fair Tax, H.R. 25, of which I am proud to cosponsor in the 112th Congress as I have in the past. The Fair Tax eliminates income, Social Security, and Medicare taxes entirely, and shuts down the IRS, through a simple 23% national sales tax. So instead of the very wealthy paying 18% of their income, and working folks paying 30%, we would all pay just 23% - but only on what we buy, instead of what we earn.
George Soros, Warren Buffett, Oprah Winfrey, and even the President would have to pay the same 23% tax as everybody else in the country. So would drug dealers and other criminals who pay no income tax on their illegal activities. There are exceptions for low-income families and those on Social Security. The price of retail goods would drop dramatically without having income taxes added to the price before it got to the store, and we would receive our paycheck with no taxes withheld. April 15 would become just a nice spring day, instead of a day of dread for millions of Americans.
True fairness, and greater freedom for all. Too bad the President and his party are doing everything possible to block it, by fanning the century-old flames of envy.