Happy (Belated) Tax Day- Why It’s Time for Reform
by Dan Horning | GWU
Tuesday, April 17, 2012 was Tax Day in the United States of America. Congratulations. The average American had to work from January 1 until April 17 to meet their Federal income tax bill this year. So, whatever Americans earn from April 18 until December 31 will go towards all those other, pesky little things in life, like food and heating and beer. So let’s do shots now, people- we’re running out of time before that April 17 date gets pushed farther into the spring next year.
What’s that, you say? Yes, I’m using sarcasm to illustrate a major point: next year, taxes on middle class Americans are going to increase dramatically. Even more importantly, the current tax code is an unfair burden on all Americans, and needs to be scrapped and resent to the drawing board. According to the Heritage Foundation, taxes will go up by $500 billion in 2013, because of the expiration of the Bush tax cuts, the 2009 stimulus tax cuts, and the payroll tax cuts, President Obama’s health care law, and various other gaps in tax law such as the Alternative Minimum Tax (AMT).
Those are taxes that will hit ALL Americans, but will especially hurt lower and middle income earners. Even though standard economic trends illustrate a (tepid) recovery, the reality on the ground isn’t anywhere near what economists in DC and New York are saying.
So, why don’t we just do what Barack Obama, Congressional Democrats, Occupy Wall Street, and others are saying? Why don’t we just tax the rich? That’ll solve all our problems, right?
Hate to break it to you, but not really. The “Buffet Rule,” which would place a 30% tax on income earned over $1 million, is the populist answer to Warren Buffet, who claims to pay a lower tax rate than his secretary. Ignoring the fact that Buffet openly takes advantage of all the unfair loopholes in the tax code (as well as the fact that he reinvests his money into the economy at a lower tax rate of 15%), let’s check a few numbers. According to the Joint Committee on Taxation in Congress, over 10 years, the Buffet Rule would generate $46.7 billion worth of new tax revenue between 2012 and 2022. That’s $4.67 billion a year. That money would fund the government for only one day a year.
This illustrates the major problem with the modern political discourse: it seeks a one line, populist appeal to try and solve problems, but which in reality will do almost nothing to actually help the financial health of our Republic. And at the same time, it instigates class warfare. The President never actually defined what “fair share” was for the rich; heck, he didn’t even qualify for the rule he pushed for, based on his 2011 tax returns.
What if, for once, instead of trying to compose a one-line catch phrase to win an election, President Obama worked with both sides of Congress to make a budget? You know, one that doesn’t tax our way into debt and doesn’t leave us like Greece. Pennsylvania Senator Pat Toomey proposed a budget that should appeal to everyone: it lowers rates across the board by 20%, closes special interest loopholes and deductions, reforms the Super Committee sequester cuts to Defense, and starts to block grant social welfare programs like Medicare back to the states.
What if, instead of talking about returning fiscal accountability to Capitol Hill, Congress actually cut spending, and reduced the amount of borrowing? For every dollar of programming the government wants to do, it only has 58 cents to do it with. It has to borrow another 42 cents to fill the difference. That’s no way to run a government. Our $15 trillion debt is already buying us a road to Athens. That’s one more shovel ready project we can’t afford.
Tax Freedom Day, the day on which the average American has to work up to in order to fulfill their federal tax burden, is falling later and later in the year. In 2009 it fell on April 10, and this year on April 17. Will it be April 24 next year? May 1 in 2020? Americans dread the idea that they will have to keep working and working only to see little return on their investment, and that is what will happen if nothing is done to reform the status quo. And the status quo needs to change, and change now. We can see Greece from our house.Dan Horning is a Philadelphia native and senior at The George Washington University. An International Affairs major concentrating in international development and international economics, Dan has worked on a number of political campaigns and is a self described public policy nerd.