Copyright 1997-2016 by Liberty Issues and Michael J. Hihn. All rights reserved.
"Cato doesn't know what tax rate we pay now. ...
Moore also confuses gross income with taxable
income. I'm not making this up, as you can see for
In previous columns, I've
ridiculed -- with documentation -- the GOP notion that tax cuts of $100-250 billion
per year can pay for themselves. Apparently they can pay for themselves
-- if we believe they can -- a notion I now call Tinkerbelle
The latest example of Tinkerbelle Economics comes
(sadly) from the
libertarian Cato Institute. Cato's ''Maxtax'' was announced in a January 14,
Street Journal op-ed, written by Stephen Moore.
Review (2/10/97) chirps that the plan combines ''policy wonkery, political
savvy, and conceptual elegance.''
Well, no. It's a large tax
increase for most taxpayers, a tax cut for only the top 0.8%
media has again failed to apply healthy skepticism to what they want to
believe. So my readers get another scoop.
recall Hihn's Law (Tax Quacks):
It's impossible to replace the federal income tax with a single-rate tax on
income or consumption -- without either (a) ballooning the deficit, or (b)
creating huge tax increases on the middle class.
does both, massive deficits and a large tax increase on the
middle class. The "plan" was created by Cato's Stephen
Moore, yet another Tax Quack. Moore doesn't know what tax rate we
Over 70% of all taxpayers now pay no more than the 15%
marginal income tax rate. But Moore states a tax rate of 17.35%
''would lower marginal tax rates for virtually all taxpayers.'' This is a
also confuses gross and taxable income. He
describes his Maxtax as a tax on gross income. (emphasis added)
""Why not allow every taxpayer to
choose between the current income tax system or an alternative
post maximum tax (MAXTAX) with a flat rate of 25 percent of
gross income that could be filled out on a postcard
return? Only one deduction would be permitted under the
MAXTAX: a credit for the payroll tax paidó7.65 percent for a
salaried worker and 15.3 percent for a self-employed worker.
Incredibly, he compares his
tax on Gross Income with the current rate on Taxable Income.
current income tax rate of 28% for middle-income households earning $40,000 per
year would fall to 17.5% ...''
28% was the current rate on
Taxable income .... starting at $40,100 ... after all
current deductions. On average, that's on an
Adjusted Gross Income of $60,300 ... the top 12% of
all taxpayers. The average rate at $40,000 taxable was
10.4% x $40,000 = $4,160.
17.35% x $60,300 = $10,462 (a tax cut!!!!)
Maxtax cuts taxes on only the top 0.8%, with a hefty tax increase
for everyone else!
Don't take my word for it.
341 shows 1996 IRS average effective tax
rates by income level. See the column Tax As a
percent of AGI. Compare with Cato's Maxtax at 17.35%.
If you don't want to plow through the entire IRS booklet,
this is just that Table.
|Adjusted Gross Income
|$30,000 - 39,999
|$40,000 - 49,999
|$50,000 - 74,999
25%, no FICA rebate
|$75,000 - 99,999
|$200,000 - 499,999
|$500,000 - 999,999
1993 data, but
1996 Table latest available at the time.
Does not include
larger FICA rebate to self-employed
= 954,000 of 113,605,000 returns
* = full 25% (no FICA rebate)
is yet another feature of Tinkerbelle Economics: falsely describe a tax
cut for the very rich as a tax cut for ''virtually all taxpayers.''
No problem! Moore claims his plan will be subjected to
''ferocious opposition of Washington's army of special interests.'' Dick
Armey said virtually the same thing, and you've already seen
how bogus his flat tax
is. Cato's is actually worse.
When their plans are attacked as ''another tax cut for the rich'' -- which it is -- conservatives
have already been warned to expect another conspiracy by those evil
progressives. Check my sources.
HOW IT WORKS
self-employed get that larger FICA rebate. So the primary beneficiaries of Cato's Maxtax are the
rich, and/or the self-employed. These just happen to be
the primary contributors to Cato.
If you support tax cuts for
the highest-income taxpayers -- as I do -- then be honest enough to say so.
This forces you to do what Kennedy and Reagan did, cut taxes across
the board. Their tax cuts launched the only peacetime
booms since the 1920s. That's what Moore claims. But
you've just confirmed the sad truth.
Oh yeah, you also have to cut spending.
UPDATES include easier links for you to confirm.