Wednesday, July 09, 2008

The Tax Base Problem: Big and Getting Worse

The guys over at Powerline have an absolutely indispensible post regarding an upcoming release of tax data by the IRS, which Steve Moore previews today at WSJ.com. Astonishingly, 1% of taxpayers shoulder 40% of the income tax burden. No doubt populist sentiment and an ignorance of how our economy works would lead many to react to this news with a resounding "Excellent!" But the proper reaction ought to be "Oh, Shit!"

We have a "key man" problem here in America. What if many of that top 1% simply checked out? What if we demonized them so much and we beat them down so much with taxes that they simply take their ball and go home? Do we really think that vast riches will be left for the rest of us to share? Current events are apt here. Think about Tiger Woods's impending absence from the PGA tour. Tiger is the ultimate "have." In Tiger's absence will the wealth now be spread around to the have-nots? Maybe in the short term, other golfers will take home the prize money. But what about the throngs of fans that turn out and tune in to see Tiger's remarkbale feats? They'll check out too and eventually the prize money will dwindle as golf events attract less viewership and attendance. Sure, another Tiger could emerge, but then again maybe one won't. It's a risk. What if Bill Gates never existed? Would his billions just be dispersed throughout the land, with a little in your pocket and a little in mine? Nope. Those billions likely wouldn't exist and wouldn't be anybody's hands.

So what are the implications for the government? Well, they are quite serious. The government has made enormous commitments and its ability to meet those commitments rides on very small number of people. What if that 1% didn't go along or got hit by the proverbial bus? It actually happened in California in 2001. All those dot com stock option millionaires went bust and capital gains tax revenues disappeared, causing quite the financial strain on the Golden State's budget. Involuntarily or voluntarily, our most productive citizens could fail to contribute to tax receipts. What then? Those who love government and constantly tell us of the necessity of government "services" should be quite worried. The funding for their precious services hangs by a thread. Ever more steeply progressive taxation could actually, in the long run, turn out to be Big Government's Achilles' Heel.

UPDATE: Tigerlessness is already hurting...in Britain no less. I fear for the PGA Championship coming up here in Tiger's homeland.

0 Comments:

Post a Comment

<< Home