Morici: To Boost Growth, Everyone Should Pay Income Tax
With 46% of Americans paying no income taxes and many more who pay very little, it is no wonder federal spending is at record levels. It's simply too easy to vote for politicians who promise free health-care services and other worthy benefits by raising taxes on someone else -- the wealthy.
Taxing the well off is not free. It slows growth, smothers jobs creation and pushes down wages for the middle class and working poor.
Much of the U.S. economy is not large multinationals but are innovative startups, the local restaurant and other small business services that are mostly organized as limited liability corporations and pay the highest personal tax rates. For those jobs creators the combination of federal, state and local taxes often increases the bite on income to well above 50%.
The impact is large and negative. During the Obama years, unemployment peaked at 10% and the economy has since grown at a 2.1% pace.
Over the comparable Reagan years, when taxes, especially on the well-off were lower but more voters paid at least some income taxes, unemployment peaked at 10.8% -- but the economy grew at 5.3%.
Simply, with lower taxes on the wealthy and more voters with skin in the game, the federal government did less and the economy did better -- many more jobs were created and workers had more power to bargain for decent wages than they do now.
The highest marginal federal tax bracket is about 40%, but with so few Americans paying significant taxes the average income tax rate is about 12%.
To exercise some restraint on federal spending, why not require everyone to pay at least 6% of their income in taxes and set the maximum rate of 18%? That's about what Barack and Michelle Obama paid on their 2012 income. Folks in the middle would pay something in between so that the average take is still 12% of income.