We've Hit The Tipping Point with Over 50% Not Paying Taxes
My friend Dan Mitchell, senior fellow at the Cato Institute, had a frightening blog post today. According to the Ways and Means Committee, 51% of households paid no income tax in 2009. Click here for his piece.
This is a dangerous tipping point as with over half of households paying no taxes, the incentives to increase government spending are horribly skewed in the voting population. Why not vote for increased spending when it costs you nothing…. at least not immediately? As we’ve seen across the world, the entire economy suffers when the government consumes too much of the economy, but that doesn’t always sink in when an individual is at the polling booth, looking for the easiest way to protect their own short-term interests.
Aside from the obvious moral hazard of this type of code, skewing the tax burden so heavily towards the higher income earners makes for vastly more volatile tax receipts than would result from a more broad-based system. Higher income earners tend to have more volatile income levels, thus their annual tax payments vary more. Government typically does not cut spending when there is a decline in tax receipts, but rather continues to increase expenditures year after year, regardless of receipts. Simple math leads one to recognize that a system which generates volatile receipts and a government that tends to spend above the highest tax receipt level, will generate deficits more often than not thus growing national debt will be the name of the game. This is not a sustainable system.
