D e s e r t E x p o s u r e
May
2009
Taxing Problems
Protesting taxes and big government sounds like a good idea. But it helps to do the math.
Nobody likes paying taxes. For most Americans, April 15 is a day to bitch and moan; even if you're getting a refund, it never seems big enough. No wonder, then, that last month conservative activists picked Tax Day to vent their frustrations at "Tea Party" (short for "Taxed Enough Already") protests in Silver City, Las Cruces and 11 other cities across New Mexico. Nationwide, some 268,000 protesters attended 207 anti-tax gatherings — with interest whipped up by nonstop Fox News coverage and ranting CNBC commentator Rick Santelli.
Although ostensibly a grassroots, nonpartisan protest, the Tea Parties got a boost from a website sponsored by FreedomWorks, a group founded by Dick Armey, the former GOP House majority leader, Top Conservatives on Twitter, and Radio for Conservatives.
Whatever your party preference, it's hard to disagree with their ire over the pain of paying taxes or the ballooning federal deficit. But one wonders where the Tea Party protesters were during the last eight years, when President George W. Bush — who inherited a record budget surplus — ran up more debt faster than nearly all of his predecessors combined, just under $4.9 trillion. True, President Bush did cut taxes. According to an exhaustive study by the nonpartisan Congressional Budget Office, however, the biggest beneficiaries of the Bush tax cuts were families earning more than $1 million a year.
Funny, but when we drove by the Tea Party in Gough Park, not many of the protesters looked like millionaires. And the median household income in Grant County, after all, is less than $34,000 a year — well shy of the average $1.25 million earned by US households in the top one percent of income, who pocketed an average savings of $58,000 from the Bush tax cuts (70 percent more than the average Grant County family earns in a year). That top group saw their effective income-tax rates drop from 24.2 percent to 19.6 percent under Bush — double the percentage rate cut enjoyed by middle-income families.
President Obama has promised a tax cut for all families making less than $250,000 a year, which we suspect would benefit those Tea Party folks more than the cuts by the previous administration.
So why the anger? We understand the frustration over bailouts for banks and others who got us into the current economic mess. But most economists agree that this bitter pill is necessary medicine to avoid even worse economic woes. And nobody's happy about adding another trillion dollars or so to the deficit (already over $11 trillion, or almost $37,000 per citizen) next year. Again, though, most economists believe that without such largesse, the economy won't rebound — and deficits will grow even worse, because of plunging federal tax receipts.
The "Tea Party" label for these protests, while a clever publicity move, was also puzzling. The original Boston Tea Party, after all, famously protested "taxation without representation." But Americans are getting exactly what a solid majority voted for: Whether you agree with Obama's proposals or not, he's delivering on his campaign promises. That's how democracy works, and we don't seem to recall conservatives having any problem with it during the past eight years.
All that being said, we still sympathize with the anger over taxes and burgeoning deficits. But exactly where would the tax protesters slash the federal budget? Figures vary depending on which version of the 2010 budget you're talking about, but roughly speaking, the total comes to $3.5 trillion. Of that amount, only $500 billion or so represents non-defense discretionary spending.
So, unless you're prepared to also hack away at the nation's military — and we're betting few tax protesters would go that far — even if you simply eliminated the rest of the federal government, you'd still have a deficit of more than half a trillion bucks.
Or, of course, you could raise taxes to balance the budget. But that's not going to be very popular, is it?
The truth is, however, that as of 2004 (the most recent year for which figures are available) the overall effective tax rate for Americans — 20 percent — was the lowest at any time since 1979. At a minimum, it's hard to see how we can make any headway on the deficit without doing what candidate Obama proposed: Allow the Bush tax cuts for households earning more than $250,000 to expire, bring the top marginal tax rate to 39.6 percent.
Given the magnitude and intractability of the budget problem, protesters might do better to focus on more specific issues — such as the ever-growing complexity of the federal income tax. In the mid-1980s, 46 percent of all individual income-tax returns were completed by professional tax preparers. Today, that figure is more than 60 percent. As fond as we are of our own accountant, it's troubling that more than half of Americans can't prepare their own taxes. The federal tax code now contains more than 70,000 pages, and Americans spend an estimated $90 billion a year in time and money on tax compliance.
Again, however, President Obama appears to be out front on this issue, which you'd think would be earning him cheers from anti-tax advocates. On April 15, in fact, Obama called for simplifying the "monstrous tax code," including changes that would enable 40 percent of Americans to skip filing tax returns altogether.
Other taxing issues worth activists' scrutiny are closer to home, right here in New Mexico. For example, these are some things about taxes and spending in the Land of Enchantment that would tempt us to throw tea overboard:
- New Mexico's continuing over-reliance on the gross receipts tax. Despite
the exemption of food and clothing, the gross receipts tax remains regressive,
with no relation to ability to pay. A millionaire pays the same tax on a
box of Kleenex as a family on food stamps. Moreover, the extension of the
gross receipts tax to a wide range of business services — unlike many states with regular sales taxes — crimps small businesses and inhibits entrepreneurship. (Texas, for example, often cited as having higher sales taxes than New Mexico, taxes only goods, not services, making its true sales-tax burden far less.) And "pyramiding" of
gross receipts taxes inevitably leads to, in effect, paying taxes on taxes.
Tax-haters should be rejoicing at the failure of a measure in the last legislative session that would have raised gross receipts taxes even higher in order to boost statewide education spending. This regressive tax is the wrong place to look for more money for our schools.
- The profusion of taxes and fees that stifle small-business growth in New Mexico. If we want small businesses — which generate the majority of new jobs in America — to boost employment here, we need to stop nickel-and-diming them to death. Here's one small, silly example: As a "mom and pop" business, we pay state unemployment tax on our two "employees." Yet "mom" is highly unlikely to fire "pop," or vice versa, so we're paying for a "benefit" (unemployment compensation) we'll never collect. Already thus overburdened, most mom and pop enterprises would think long and hard about adding any "real" employees — and paying still more taxes.