Happy Tax Day

By Dr. Harold A. Black



I have long advocated for no mandatory withholding. Withholding should be optional. If people opted to pay all their federal income taxes on April 15 there would be a lot more pressure on our national politicians to reduce spending. Federal spending is out of control. It doesn’t really matter what party is in power, federal spending continues to grow. Once spending increased during economic downturns and decreased during periods of prosperity. No longer. Spending is completely independent of the nation’s economic health. Federal spending as a percent of GDP is steadily increasing. While on average it has been around 19%, the budget submitted to Congress by Biden is a jawdropping 24%.While the percentage of federal taxes to GDP has been around 17%, it is over 19% in the Biden budget, guaranteeing a larger deficit. Biden‘s claim in his State of the Union address “We’ve already cut the federal deficit by over $1 trillion” has to be given 10 Pinocchios. Biden did nothing to reduce the deficit. It declined due to the high levels of federal spending during the pandemic. Federal debt keeps climbing and the deficit with it to the point where the interest paid by the government on the debt will soon eclipse the budget for the Pentagon. In fact the deficit is now 25% higher than when Biden took office.

There is no political will to reduce spending regardless of which party is in the White House and which party controls the Congress. Even proposals to decrease the rate of increase in spending (mathematicians call this the second derivative) are greeted by howls of indignation in Congress and amongst the lobbyists for all the special interests feeding at the federal trough. Don’t get me wrong. We all belong to special interest groups and very few of us want to give up that subsidy from the Feds.

Biden’s budget is a whopping $7.3 trillion wish list with little chance of passage in the House. However, don’t be surprised if a large portion of it does pass. The budget also calls for a $5 trillion tax increase over 10 years. The resulting taxes would be among the highest in the developed world with a top individual rate of 45.4%, a capital gains tax of 49.8% and a corporate rate of 32.2% (estimates from the Cato Institute). Biden claims that over 10 years the deficit will be $3 trillion less. This is not true. What he is assuming is that the sharp increases in taxes will not decrease federal revenue growth. However, there will be increased incentives to move corporate activity offshore to lower-tax countries. There will be increased incentives by individuals to shelter income. Most economists would predict a slowdown in the rate of growth of federal tax receipts due to the increased tax burden resulting in a larger, not smaller, deficit. This has often been the case when taxes go up.

I have made several proposals to control federal spending – none of which have a snowball’s chance in Hades of being adopted. One is to limit federal spending to the historic level of 19% of the previous year’s GDP. This could only go up on a one-year basis if the president declared an emergency and received a two-thirds vote in Congress. I would institute a flat tax of 20 percent of income with no exemptions. That also could only change with a declaration of emergency from the president and a two-thirds vote in Congress.

I also know how to radically reduce federal spending while increasing the well-being of the poor. Generally, any proposal to reform welfare is met with howls of “You are trying to balance the budget on the backs of the poor!” Well currently, we spend $1.7 trillion on welfare programs. The poverty level for a family of four is $27,750. There are around 38 million poor in the United States. Thus, we spend $42,105 per poor person! I propose that we eliminate all welfare programs and administrators and simply give each poor person $10,000. A family of four would receive $40,000 with the amount decreasing for each additional child, eliminating poverty in the United States. If every poor person received $10,000 the total expenditure would be $380 billion rather than the $1.7 trillion we currently spend. Voila! Federal spending is decreased by $700 billion! So Happy Tax Day.