Congratulations! With the Obama tax deal passing both the House and Senate, we have prevented the largest tax hike in American history. On New Year’s Day, we will not be forced to surrender more money in the form of income taxes to the federal government. As we have already noted, the tax deal was full of notable flaws and did not go far enough. We still pay way too much in taxes.
This tax deal brings more economic certainty. But temporarily keeping tax rates the same will not significantly boost the economy. We need a bold solution. It’s clear that the Founding Fathers would have vehemently opposed an income tax—let alone the current top rate of 35 percent. As Thomas Jefferson said “a wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor and bread it has earned.”
As we saw throughout the entire tax deal debate, we still face a fierce opposition. We will continue to push for permanent fundamental tax reform that replaces the current system with one that is far simpler, fairer, and flatter. This includes an overhaul of the entire tax code and major spending reductions.
These tax cuts will not cost taxpayers a dime. Recently, some lawmakers have espoused the flawed rhetoric that extending all of the 2001 and 2003 tax cuts would cost $855 billion. In response to the tax deal, Peter Welch (D-VT) and colleagues write that “digging the country deeper into debt to pay for misguided tax policy is irresponsible and simply doesn’t make sense.” However, we do not need to “pay” to tax cuts.
As Ron Paul legislative director Norman Singleton notes, “to say cutting taxes or not allowing taxes to raise ‘cost government money’ or increases the deficit is like saying when I stop my pocket from being picked I am costing the mugger money.” The question arises: who owns the money that you have earned? The government or yourself? To say that tax cuts cost the government money implies that all your income belongs to government in the first place.
Tax cuts allow individuals to keep more of their paycheck. It is not a “millionaire giveaway” or “millionaire welfare” as some have suggested. The government is not handing out any money to any person. This just means that individuals will choose how to spend more of their money instead of Washington bureaucrats. More of our money will go directly towards things we personally value. That can only be a good thing.
The popular assertion that tax cuts—or keeping the tax rates the same—will increase the deficit is false. In fact, top earners actually paid a higher share of taxes under the 2001 and 2003 tax cuts. These tax cuts lowered income tax rates across the board, expanding the economy by giving all individuals more incentive to create wealth by letting them keep more of every dollar they earned. According to the Tax Foundation, top 1 percent of earners paid 37.42 percent of federal income tax in 2000. By 2007, their tax share had increased to 40.41 percent. On the other hand, Americans in the bottom 50 percent of filers paid a smaller share of taxes between 2001 and 2008. The recession has played a major role in reducing the share of taxes collected in recent years. The Tax Foundation found that “each year from 2005 to 2007, the top 1 percent’s constantly growing share of income earned and taxes paid set a record.”
This tax deal puts us in a better position to achieve the goals of fundamental tax reform. We still have a lot of work to do. It is still outrageous that the average American who makes roughly $37,000 annually has to surrender 25 percent of their income to the federal government. From rich to poor, we all deserve to keep more of what we earn.