Beware of misdirection in debate on taxes

No tax increase on the super-rich will even put a small dent in the US tax shortfall, Dr. Cornwall writes.

Tina Fineberg/AP/File
In this April 2008 file photo, Dana Pinero, of New York, foreground, waits in line to mail tax returns for both herself and her boyfriend at the James A. Farley Main Post Office in New York. Tax increases on the super-rich won't make up for the nation's deficit, Dr. Cornwall writes.

So why are we hearing all the attention being paid to taxing those making over $250,000 in the current debate over how to increase revenues to the government?

We are told that it is part of Pres. Obama’s “Buffett Rule” that increases taxes on a mythical group of super-rich people, many of whom we are being told are more than happy to pay more taxes since they are so wealthy.

We are also told that this is “only” 2% of the tax paying population.  While that is true — well actually they are 1.8% of tax payers to be exact — we are still looking at increasing taxes on over 2.5 million people according to IRS data. 

Current deficit is about $1,100,000,000,000 (that’s $1.1 Trillion, but I had to just put all the zeroes out there at least once), or $440,000 for each “rich” household – per year!!  Clearly no tax increase on these people will even put a small dent in this tax shortfall.

And just who are these 2.5 million rich people?  According to many surveys, including a recent report from the consulting firm the Spectrem Group, about 15-25% of them are entrepreneurs.  The very same entrepreneurs we need to be growing their businesses to help get us out of this economic mess we are in.

Again – so why are the politicians leading with the message of “let’s soak the rich”?

I am convinced that the reason is that they are setting us up for what is yet to come.  They are setting the table to make the real tax increase more palatable to the masses.

There continues to be significant discussion of adding a Value Added Tax system to our current tax burden to help fund our every growing bloated federal government.  I am not the first to make this warning, but I am amazed at how little attention the VAT tax is getting in the press.  All we hear about is that we are about to tax the super-rich a little more.

However, the VAT tax has never been very popular with the Democrats because it is such a flat tax.  (But what it does have one thing going for it – it is so very European.)  So they need cover if they are going to agree to adding a VAT tax system in America.

So here is how I think this will all go down over the coming months…

There will be a compromise in which the top marginal rates are increased, at least moderately — probably about to where they were before the Bush tax cuts.  That will give cover to the Democrats.

Then there will be the implementation of the VAT tax.  That will allow Republicans to say that even though they really did not want to increase our taxes, at least they did so with a flatter tax system rather than agreeing to huge increases and more progressivity in income tax rates.

And all of America then will be stuck with an ever expanding government that now has a brand new massive tax program to help the politicians expand it even more.

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