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Bill Leonard

Taxes Still a Great Republican Issue

Dick Morris had a piece in the New York Post saying Obama’s stimulus proposal will hurt the GOP politically.  Only three percent of all federal income tax payments come from the poorest half of the country, and the Obama plan will funnel more than $50 billion to the lowest half of the country, thereby wiping out any remaining federal tax liability.  In most cases, it would trigger a “refund” welfare check.   Morris thinks blue collar Americans will no longer be receptive to the message of tax cuts after the Obama stimulus gets delivered.  I disagree.

Morris is missing the point that the working people pay far more in other government fees and taxes than they do in income taxes.  The Bush tax cuts already took millions of lower income people completely off the tax roll.  Those cuts now make it easier to focus on how much a typical lower or middle income American gets withheld out of every paycheck through payroll and other taxes. The proposed Obama tax credit giveaway probably just covers social security taxes for working people. 

I agree with Morris that GOP-inspired tax revolts of the past have been sparked by blue collar outrage.  It is time to add all the tax and fee deductions from the working person’s paycheck — like payroll tax — then look at applying flat taxes and tax reform to those.

Singapore has another smart twist on this idea.  Rather than providing corporate bailout stimulus to help their economy, the Singaporean government is using tax policy to directly target labor costs.  They reduced the cost of labor for employers by cutting employers’ share of the payroll tax.  I can think of no better way to immediately reduce unemployment.

If you missed it, Art Laffer offers another great counter-view to Morris in a California tax piece at Fox and Hounds.  I encourage everyone to read this piece.  Laffer looks at our progressive tax scheme and concludes government can get the same revenue it is getting now with, you guessed it — lower and flatter taxes that are simply more efficient.   Laffer proposes that aside from sin taxes like cigarette taxes, every state and local tax be abolished. Not cut – eliminated entirely.  That means no local sales taxes, no property taxes, no state gas taxes and no state payroll taxes.  

In their place, Laffer proposes two single-rate flat taxes, one placed on business net sales, and one on personal unadjusted gross income. He defines a company’s net sales as total sales less purchases from other companies.  No deductions for businesses, and for individuals the only deductions allowed would be home mortgage interest, charitable contributions and rent on one’s primary residence (if the taxpayer is not a homeowner). No income level should be exempt – everybody pays. 

Laffer then calculated (without presuming a supply-side or Laffer Curve effect!) that in order to match current state and local revenues, the tax rate on California business net sales and on personal unadjusted gross income would be less than 6%, and this revenue would be much, much less volatile than our current structure.    

I submit that these chaotic and scary times is producing an atmosphere where voters are as receptive to big change and fresh ideas as they were in the days leading up to Proposition 13.  With leadership and a smart communications strategy, Dick Morris is totally wrong that Obama’s spending spree takes the message of tax cuts away from the GOP.