I recently listened to Sen. Orrin Hatch, R-Utah, argue on the Senate floor against allowing President Obama to “raise” taxes. He showed a chart indicating an average tax rate of 18 percent since 1971. The Congressional Budget Office indicates that our tax rate will need to rise above 18 percent in the future to pay for the costs of government.
I was surprised at how low tax rates were beginning in 2001 on Hatch’ s chart, due to the Bush Jr. tax cuts, falling well below the historic 18 percent average that he cited. This substantially lower rate coincided with large increases in deficits and the debt. We borrowed more money when we were taxed at a historically low rate. Hatch is arguing to continue the Bush tax cuts and maintain an artificially low tax rate. The government was able to balance the budget in 2000 when the tax rate was close to the historic average of 18 percent on Hatch’ s chart.
Hatch stated in his speech that “Americans work too hard.” You have no idea how true that is. For earned incomes below $106,800 per year in 2010, hard-working Americans pay 15.3 percent of their income in payroll taxes.
Comparing the year 1979 with 2008, the Congressional Budget Office reports payroll taxes increased 20 percent (from 30 percent to 36 percent), while other taxes decreased as a percent of all taxes collected (e.g., income taxes decreased 4.3 percent, corporate taxes 14.3 percent and other taxes 22.2 percent).
Hatch wants to keep the top income tax rate of 35 percent and apply it only to incomes above $379,150. He also wants to maintain the capital-gains tax rate of 15 percent. Only the top 1.1 percent of taxpayers makes this much money, and most of them earn income through capital gains, paying a paltry 15 percent.
Hard-working Americans pay a higher rate in income taxes as well as more in payroll taxes, sales taxes and property taxes as a percentage of their income. The top 1 percent of income earners primarily pays income taxes. The Republican Party’s focus on income taxes alone ignores the huge and increasing contributions made by workers earning less than $100,000, or the bottom 87 percent of Americans.
According to IRS data, the income of the average American taxpayer in 1988 was $33,400. In 2008, it was $33,000 after adjusting for inflation. Workers have lost income. Meanwhile the richest 1 percent has seen their incomes grow by a third over the same time period.
Hatch said, “We cannot tax our way out of this problem.” It appears that we undertaxed our way into this problem.
When workers have more money, they will spend more, businesses will sell more, employees will be hired and growth will occur through demand-side economics—just like they taught me at the University of Utah. Supply-side economics has failed. When there is no demand, supply-side
theory will not work.
It is time to stop courting big money and special interests. It is time for Hatch to start working for the hard-working, taxpaying, lower 87 percent of his constituents.
Salt Lake City