What is all this talk in the news about the “fiscal cliff?” Is there any danger we might go over the cliff and suffer some kind of economic collapse?
The fiscal cliff, experts tell us, is a dangerous combination of tax hikes and spending cuts. These experts say that the solution for this situation is a combination of tax hikes and spending cuts — just not so much.
The Democratic leadership is demanding that the primary solution include a greater tax on the rich by ending the Bush era tax cuts for upper-income people. Their mantra currently is that rich Americans must “pay their fair share.” How many times have we heard that line?
A fact they usually leave out of the discussion is how much the well-to-do already pay as far as individual income taxes go. The top 25 percent of taxpayers currently pays 87 percent of all income taxes and the top 1 percent pays 37 percent of the total pot — numbers you likely will not hear from the mainstream media.
Furthermore, how do we decide what is the “fair share” the rich should pay? Obviously, it is easy for someone to come up with an amount someone else should pay as long as they don’t have to pay it.
One option would be to tax everyone at the same tax rate. That way, there is little or no manipulation of the tax code for the purpose of playing political favorites. If the rate were set at 10 percent for everyone for example, someone earning $100,000 would pay $10,000 and the person who earns $20,000 would pay $2,000 in income taxes.
In fact, in order to help those at the bottom of the income scale, a prudent, straight-forward plan could exempt the first $20,000 or so of income in order to help all households with basic living expenses.
If this single exemption were allowed, it would mean the person earning $20,000 would have no income tax liability and the citizen earning $100,000 would pay $8,000 in taxes. Someone earning $50,000 would have a $3,000 tax bill.
A plan so simple that most citizens could do their own taxes. The only issue would be whether to allow other credits and deductions, such as mortgage payments on your home or charitable contributions. However, the goal should be to eliminate all but the most essential possible exemptions or deductions. We could even dream of a one- or two-page tax form for personal filers.
What could be fairer than everyone paying the same rate? Progressives, unfortunately, have always argued that those who earn more should not just pay more in taxes but should pay at a higher tax rate, just because they can afford to.
But how does one decide what is a “fair” tax rate? Is it 20, 30, 50 percent? Once you abandon the same tax rate for all, you enter into a very subjective proposition deciding what the proper rate should be. What is ethical or moral about picking some arbitrary number as the basis for such a system that taxes people at substantially different rates? How can such discrimination be justified?
What’s really needed, of course, is a vibrant, strong economy that would go a long way toward generating the revenue needed to fund the government.
The question then becomes, which path moves us toward a strong economy? One based on more government spending with more taxes on the producers and more handouts to the takers? Or one based on investment in capital to buy the tools and machines that produce the goods people want and need?
There will be some kind of deal between the president and Congress. All the talk about the pitfalls of going over the cliff are spooking financial markets and making planning for the future very difficult, both for households and businesses.
You can expect great fanfare when a deal is announced. But any rejoicing will mask the bigger issue of long-term financial insolvency for our nation. Current programs are just not sustainable.
Our political leaders do not have the will to actually solve the problem. Since they do not have the courage to enact real solutions, their goal is a quick fix. Their biggest concern is their own re-election.
• George Michael, who lives in Williamsport, is a former principal of Grace Academy. His email address is firstname.lastname@example.org.