10.01.2008 0

Taxing Ourselves into Poverty

  • On: 10/13/2008 11:45:08
  • In: Taxes
  • Despite the growing cost of commodities like food and energy, the Democratic-controlled Congress wants to raise taxes on individuals and businesses. But we need only to look at the 1970’s to see the foolishness of that proposal.

    In 1980, as the Carter administration was in its final months, and with the nation still reeling from the oil crisis of the 1970’s, Congress passed a “windfall profits tax” on the oil industry. Despite the initial idealistic claims of its supporters, it only brought in a fraction of the revenue the Feds had expected. And in the end, it hurt American oil companies—and the American people—by causing the nation to become more dependent on foreign oil.

    But some politicians still have not gotten the memo. Back in 2005, Senator Byron Dorgan (D-ND) pushed for the reinstatement of the windfall profit tax on oil companies, in response to the “high” gas prices of the day (a $3.069/gal average set a record). Dorgan would have taxed oil companies 50 percent on oil over $40/barrel. The price of oil in 2008 has topped $130/barrel, and some speculate it could reach as high as $150 this summer. Had Dorgan’s bill passed, one can only imagine the prices the American people would be facing now.

    The implications are clear. Taxing private industry, while seemingly politically popular in the short run, hurts consumers in the long haul, as the industry has less money with which to invest—and prepare for the hard times.

    Instead, Congress needs to decrease the tax burden on Americans, and allow businesses to invest more of their earned capital into research, development, and production of goods and services. The more they are allowed to do so, the lower prices will become—and the more benefit will get passed on to the American people.

    Even socialist Europe sees the logic, and corporations have seen their taxes drop an average of 14 percent in the past 12 years. As the Cato Institute pointed out last year, the combined Federal-State corporate tax level in the US has stayed at 40%, while European corporate taxes are nearing 24 percent on average. Currently, the United States has the second highest total corporate tax rate of any developed nation.

    Taxpayers have also benefited from recent cuts—but now they are in danger of losing their gains. The 2001 Bush tax cuts are set to expire at 11:59pm, December 31st, 2010. If they are not renewed, a family of four that earns $60,000 annually can expect to fork over an additional $1900 on April 15th, 2011.

    In 2003, President Bush and the Republican congress pushed through a capital gains tax cut, lowering the taxes from 20 percent to 15 percent. While Democrats decried it as helping the rich, the facts show otherwise: As of 2002, nearly half of US households (49.5 percent) had investments in the stock market. In 2005, 79 percent of individuals who reported capital gains on their investments earned less than $100,000 in income. That’s a far cry from the “wealthiest 1%” who uninformed politicians always love to target.

    And the tax cuts not only helped consumers and businesses; in the four years since the capital gains tax cut was enacted in 2003, the federal government experienced a major increase in revenue—coupled with a total turnaround of the stock market’s post-9/11 slump. Income tax revenue jumped from $940 billion (2003) to $1.589 trillion (2007). Total federal revenue was $2.568 trillion (2007), up from $1.782 trillion (2003).

    Yet in spite of all the overwhelming evidence, politicians today continue to repeat the same illogical mantras of their predecessors. Just yesterday, Senate Democrats attempted to pass yet another windfall profits tax bill, but fortunately failed to achieve the votes necessary to invoke cloture and debate.

    Democratic nominee Senator Barack Obama (D-IL) has gone on the record in favor of the windfall profits tax, as well as raising the capital gains tax. Additionally, he plans to repeal the portions of the Bush tax cuts that go to the top-earning Americans.

    Thankfully for the American people, some are still keeping their cool in the tax debate. Senator Charles Grassley (R-IA), speaking about the high prices of 1970’s-80’s stated that what “finally got the price of oil down when it was probably as high, considering inflation, as it is right now, was deregulating oil, reducing the taxes and allowing drilling in more places.”

    At least some politicians have a memory. Sadly, not enough of them do.

    ALG Prediction: A note to all investors and business owners: You can make your investment or business strategy based upon the two years of the Bush tax cuts left, but ALG News does not recommend it. If Mr. Obama is elected president, he and the Democratic-controlled congress will undoubtedly repeal the Bush tax cuts within the first 100 days—and add a whole slew of other taxes.

    But as they do so, they will only hurt the economy, the government’s revenue, private industry, and—most importantly of all—the hard-working American taxpayer. As Senator Grassley told his Democratic colleagues:

    “I would suggest to the Democrats that when you tax something, you get less of it. When you don’t tax so much, you get more of it.”

    If only they were listening.

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