For the sake of this argument, let's divide the population
into three groups. The first group consists of children, dependents,
retirees, and those who manage to live off government handouts like disability,
food stamps, etc. This group does not earn enough income to contribute to
income taxes.
The
second group consists of people with regular employment, either with employers
or in their own businesses. They earn enough income to pay taxes, but
they generally compete for interchangeable jobs in a transparent, free job
market. As a result, individually, they do not have a lot of influence
over the level of income their jobs generate. Also, due to their large
number, if they manage to increase income through collective bargaining, any
increases are immediately absorbed by inflation in the prices of the goods and
services they purchase from each other.
The
third group consists of people with a specialized skill or education.
These individuals can more or less set their own income: when you ask a
Harrison Ford or a Hillary Clinton what you need to pay her to do some work for
you, she is not easily replaced, and she does not need to know what the prevailing
wage is for the job.
This
is where the dirty secret comes in: people in the third group typically set an
expectation for themselves of how much money they want to take home. Then
they add taxes to that and set the result as the price of their services.
They do not really "pay" any taxes from an "income"
that is limited in some way. Their taxes are paid by their customers, and
they merely "pass them along" to government, exactly as a retailer
does with sales taxes.
This
is true also of the people in the second group: their taxes are included in the
level of their income and are paid by their employers or their customers.
But the people in the second group do not have the flexibility to decide
how much they want to take home. If they do that, they run a high risk of
losing the job to somebody else who is willing to work for the income offered.
It
is useless to try to get the "rich to pay their fair share" through
progressive taxes. If we doubled the highest federal income tax bracket
from 39.6% to 79%, Mr. Ford would merely charge $34.9 million per movie instead
of $25 million. He would still take home the same $15 million, but now
middle-class theatergoers, DVD buyers, and movie streamers would be charged an
additional $9.9 million to see him in action. With movie stars and
celebrity politicians, at least we have a choice: to buy their services or not.
But what of the surgeon you need to save your life or the accountant you
need to make sure you file your taxes correctly so you don't go to jail?
The
bottom line is that all income taxes are paid (deducted from an inflexible
income) only by the people in the second group, or the "middle
class." Any tax increase is ultimately paid by them only, in the
hard day-to-day facts of higher taxes and higher prices. Government
handouts eventually rise with inflation. The third group can charge what
it wants to.
But
what of the other taxes, you say? Sales taxes, property taxes, capital
gains taxes, estate taxes? What if we limit their tax deductions?
The third group can easily factor those things into their prices as well:
if Mr. Ford needs a new helicopter, that cost is what he'll charge for his next
movie. If there are sales taxes, they are easily included. A new
home for Mrs. Clinton with new real estate taxes? Included in the fee for
the next speech about the need for higher taxes.
So
isn't there anything we can do about this? Yes, we can implement schemes
like the new proposed "single-payer health care system" (Senate Bill
562) in California. If we make it illegal for all those third-group
professionals to set their own prices, then we can surely get them to work for
less, can't we? History shows us what we would have to do to maintain
such a system: Communist countries, where everything is essentially single-payer,
have to imprison, torture, and murder on average 20% of their population to get
the others to cooperate for the "greater good of the workers."
No,
the only things proven to contain third-group prices are increased competition
and increased free-market transparency. Stock brokers used to belong to
the third group. Now their income is fiercely competitive.
Here is an idea: each year, we take the
amount that our politicians spend, add any budget overruns from prior years,
and divide it by the value of everything that has changed ownership that year.
Then we get the banks to deduct the tax for each dollar that changes
hands equally. Now everybody (and every corporation) pays "his equal
share" of the policies, defense, and handouts we vote for. The three
groups still operate the same way, but at least the middle class no longer
penalizes itself for its class envy.
