Obamacare and Ending the Bush Tax Cuts, Part Two

John ArmstrongPolitics

22obama-600 President Obama has made the rich a popular target in his rhetoric ever since he began his campaign for the presidency in 2008. He plays on the desires of the poor and the middle class for fairness and argues that they already pay enough. It is the rich who should carry more of the burden for the rest of us. So, how will the proposed federal health care program be paid for? We need to know. The president tells us we can have great health care and pay absolutely nothing.

Basic Armstrong Premise: Anyone who tells me that I can have something great and pay nothing, at least if they represent the government, is not telling me the whole truth and nothing but the truth. There is more here than meets the eye. The rich 1.2% will pay for the rest of us! In Obama's own words, “I think the best way to fund (health care) is for people like myself who have been very lucky, to pay a little bit more.” But a “little bit more” is the problem Where does it stop? Will Congress curtail spending? You know the answer. Neither party has shown such commitment to this end at all.

Scales for Health There is one huge oversight in Obama’s flowery rhetoric. President Bush did cut the tax rate for the rich but he also cut the tax rates for the middle class and the poor. (Most of the poor pay no federal taxes at all so we need to be really honest about this!) Federal taxes are at a 30-year low. It seems clear now that no matter what happens with health care this is all about to change and change rather significantly. Time will tell if the economy suffers further damage from these decisions but everything in my experience says that a huge federal expenditure will not only harm economic recovery but create monster programs that will be poorly and inefficiently administered by a government work force that is already too big. The private sector is still where real growth must come in any healthy national economy.

This problem of the federal income tax only scratches the surface of our problem. In Illinois the governor wants to more than double our state income tax. In addition, almost everything that we purchase is taxed; especially gasoline, automobiles, appliances, books, computers, etc. The president can tell us that the middle class is not impacted by this plan but most of us know better. Our government cannot spend the money that it spent in the last twelve months and not raise income taxes to pay the debt. By the way, all our communities are suffering too. We spend less, thus there is less revenue from sales tax, and our real estate taxes are declining in the next year or two which will have a trickle-down impact on local services and education. The problem is rather simple—we are not raising new income levels while congress votes to spend huge amounts of money on new programs that we are constantly assured will be paid for by the rich! (We can supposedly feel good about this answer since we feel like we are getting what belongs to us and not to the rich!) Most of us have this very uneasy feeling about this kind of class rhetoric. If it sounds like smoke and mirrors that is because it is smoke and mirrors. This is why Joe the Plumber’s words became an issue in the last presidential election. Instinctively we know Joe is right. We’ve been here before and this script is one that we know too well.

Income-tax-tom If we wanted a truly fair and revolutionary approach to taxes we would either adopt the “flat tax” or the “fair tax” approach. (Illinois is one of five states that had a flat tax in 2008.) Either the flat tax or the fair tax would change the whole ball game and give us a system that was genuinely fair. I expect no Democrat in Congress will ever pursue this idea. Governor Jerry Brown (D.-CA) actually did agree with the flat tax, as do Republicans like Trent Lott (R.-Miss) and Sam Brownback (R.-Kan.) in the Senate. Steve Forbes, a thoughtful champion of tax ideas that really make sense, championed the idea in the 1996 and 2000 elections. The appeal of the flat tax is in its simplicity and fairness. You fill out one or two simple forms and that’s it. Flat tax ideas leave the wealthy with more money to invest, which in turn generates a healthier economy. They also create a sense of fairness which is fundamental in our society.

Russia, and other nations in Eastern Europe, adopted a flat tax in order to slow corruption and tax evasion. Liberal Western politicians see this as proof that we do not need this idea in the West. But the day will come, at least in my view, when we may reap the whirlwind of these massive new programs we are now creating. Someday the ordinary American will likely become engaged in a grass roots tax payer’s revolt and only then will we likely see serious change.

I am increasingly persuaded that the younger generation will lead this revolt. Why? They are the very ones with the massive college bills. They are also the ones with the bad jobs or with no job at all. And every day they face more government interference in their lives in terms of taxes and crushing burdens. When they realize this, and see how big the tax burden they bear is in terms of millions of baby boomers who took advantage of this bad system, I think we will then see positive change. It could be too late but I think this nation is pretty resilient. I think we are very likely to find a way to correct the major mistakes of the past generation once we realize we have no choice.