08.20.2010 0

It’s Time for Robin Hood to Back Off

By Rebekah Rast –

Robin Hood might be seen as a hero to the poor, but for those with money, he is a menace. Stealing from the rich to give to the poor is not the way a proper democracy, like America, should work.

For the sake of those with wealth, at least Robin Hood is just a fictional character who in one night will not climb through your window, take your money bags and hand them out to the less fortunate.

Unfortunately, the federal government has adopted a more modern-day Robin Hood approach to the federal income tax system.

A 2009 report by The Tax Foundation found that the top 1 percent of taxpayers filing returns from 2007 paid more in federal individual income taxes than the bottom 95 percent of taxpayers filing returns.

Meanwhile, the more financially disadvantaged can treat tax day as a payday and hold their arms wide open for all the government handouts they are entitled to.

This does not create a balanced system. And for the amount of money the federal government blows through, they aren’t getting enough revenue from taxes. Well, no wonder, when about 47 percent of Americans don’t have to pay a federal income tax.

“America is at a tipping point where those who take from the federal government are close to outnumbering those who put into the system,” says Bill Wilson, president of Americans for Limited Government (ALG). “When our system tips too far, where the takers outnumber the givers, America is no longer a Democracy, but a Tyranny.”

The federal income tax system cannot continue to function like it is.

The Obama Administration and his economists see the income tax structure in a dangerous light. Their understanding is the wealthy are not consuming all of their income so it’s better for the government to take it and redistribute through the system instead of letting the wealthy invest and spend it how they want. This way of thinking will only cause more trouble to an already troubled economy.

“This is a punishment on savings and investing,” says Bill Thomas, former Chairman of the House Ways and Means Committee from 2001 to 2006. “This is not a good policy to be investing in.”

As taxes become a more contentious topic with the 2001 and 2003 tax cuts set to expire Jan. 1, 2011, Obama has hinted favorably at the idea of keeping the tax cuts in place for low-income households and allowing them to expire for those at the top, forcing top-income earners to pay the rate of taxes that were in place prior to 2001. However this idea is not conducive to addressing the bloated U.S. deficit.

“The tax cuts are very unlikely to expire in their entirety,” says Alan Viard, resident scholar with American Enterprise Institute (AEI). “To extend the tax cuts without any budgetary levels for low-income earners while allowing them to expire at the top is bad because the top-level income earners are the ones who invest and spend in the U.S.”

Former Chairman Thomas agrees and adds, “It is illogical to say that we need to raise taxes while we are in this position,” he says. “We should not be raising taxes; instead we should possibly consider lowering them so more people will invest in the economy. Letting these taxes expire is not a smart thing to do.”

Congress has yet to deal with these expiring tax cuts, but nonetheless, if the top tax bracket were to increase to a 39.6 percent tax rate, it will greatly affect the competitive power of America.

Scott A. Hodge, president of The Tax Foundation, knows of some changes that should be made to the income tax system that would benefit the U.S. “I would cut the tax rates of the wealthy and broaden the tax base by limiting the tax cuts people are benefitting from,” he says. “This combination would improve U.S. competition.”

Others agree that this would be a good system to implement. “We should create a system with fewer credits and exemptions and have more people paying into the system,” says former Chairman Thomas. “Everyone should participate in the tax system, even if it’s a small amount.”

The income tax code is far too complicated to be completely overhauled. “It would be hard to change the system because we already have one in place,” Thomas says. “But we should make sure that we don’t punish [and] tax certain activities that are beneficial to the system, like saving and investing.”

America’s tax structure is out of sync with the rest of the world’s in many different ways. Because part of the tax code in place puts us at a competitive disadvantage, it is important that more Americans contribute to the system rather than depend on its handouts.

“America has become a sort of ATM machine for so many of its citizens,” says ALG’s Wilson. “Those who actually put into the system don’t receive much in return as it goes to those who do not contribute and live off government handouts.”

The idea of a higher tax rate on those who make America competitive through their investments and spending will only encourage our top investors and spenders to stop what they are doing.
“When America’s solution is to continue to tax it is clear that we are really behind the curve,” says Viard. “There is a real penalty on investments being done in the U.S.”

That penalty will lead to more jobs leaving the U.S., less capital for U.S.-based companies and a people absolutely dependent upon their government.

Hardly the type of government President John F. Kennedy had in mind when he gave his inaugural address on Jan. 20, 1961. “And so, my fellow Americans: ask not what your country can do for you — ask what you can do for your country.”

In the midst of unsustainable spending and a crumbling economy, Americans need to stop asking the government for handouts and start equally contributing to the system. Concurrently, the government needs to makes the necessary changes to the income tax code that will best help America to grow and flourish once again.

Rebekah Rast is the national correspondent of Americans for Limited Government (ALG) News Bureau.

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