Peter asks for comments about the income tax, the EITC, and reparations over at his blog. A debate over income taxes ensues in the comments, and it perfectly illustrates our problems. Let me explain:
There are those who advocate for a 10-15% flat tax. This won’t work for one simple reason: that is nowhere near enough money. The US GDP is just over $27 trillion. The Federal government spends just under $7 trillion per year. In fact, it works out that the Federal government spends about 23% of GDP. This means that the flat tax would need to be about 24%.
Then came the people who wanted carve outs. The flat tax, they argue, should not be paid by anyone with large medical expenses, the poor, Social Security recipients, or half a dozen other special categories, which means that it wouldn’t be long before the new flat tax code would be just as byzantine as the current one.
There was a guy arguing that a flat or sales tax wouldn’t be fair because poor people would pay a higher proportion of their wages than rich people. Hogwash- flat tax means everyone pays the same flat percentage. Why do so many people want to punish success and reward failure, sloth, and laziness? Not only that, but many on the left say that the rich don’t pay enough taxes under the current system.
Then there are the types who say since the government always runs a deficit, why not eliminate all taxes and just run the government 100% on deficits.
Most people, even those who claim to be conservative, are wholly ignorant of the situation and only want the rules changed to benefit themselves.
Here is the problem:
The US government spends a total of $6.8 trillion a year. Of that amount, $3.7 trillion was mandatory spending, otherwise known as entitlements. In other words, money that has to be paid out by law: Social Security, Medicare, Medicaid, Unemployment Compensation, Refundable Tax Credits, Paycheck Protection Program (PPP), and other mandatory spending. Another $890 billion is interest on the debt that we already owe, bringing the total outlay for mandatory spending to $4.6 trillion. The government only collected $4.5 trillion in taxes. So without spending a dime on the rest of the things that the government must do: defense, courts, prisons, and all of the alphabet agencies, the government is already running a deficit of $100 billion. Add in all of those expenditures, and the deficit rises to $2.2 trillion.
There is no amount of cutting that is going to fix this. The math is eventually going to sink this fiscal ship. Those who think it will might as well buy a violin and learn how to play Nearer My God to Thee, for all of the good it will do.