The productive Americans who pay for government are precariously close to becoming a political irrelevancy. The only good news for them is that the folks trying to take their money may have jumped the gun.
And in the showdown between resentment and entitlement, timing is everything.
The current recession is so big and bad that people are anxious about the future, but it hasn’t been terrible or long enough to change the balance between the producers and the takers.
One reason liberal economists are so nostalgic for the Great Depression is that the depth of despair in the nation — a quarter of able men out of work and upheaval of the old social order — made lawmakers and voters open to a major shift in the way government operates.
By the time the New Deal got cooking in 1933, people had been traumatized by more than three years of brutal retraction. The newly industrialized economy had promised improvement for all, but instead delivered a series of shattering blows and raised serious questions about the viability of capitalism.
Plus, most Americans weren’t paying much for the cost of government. The bottom federal tax bracket of 1 percent started at $4,000 at a time when the estimated median income was $3,100. The top bracket, starting at $1 million, paid 63 percent to the federal government.
The income tax functioned as it had been designed to in 1913 — a tax on the wealthy to pay for the (comparatively) modest services provided by the federal government. Tariffs, excise taxes on liquor, and other income sources could handle most of the cost.
That’s not where we are today.
Now, personal income taxes account for 45 percent of federal revenues, with 12 percent coming from corporate taxes. And it’s not just the very wealthy who pay.
As government grew, the very wealthy could no longer shoulder the burden, so over the decades, the income tax became a common bond for working Americans. There was also the addition of a federal payroll tax for Social Security, later expanded to cover Medicaid.
Reflecting this shared sacrifice, today the bottom tax rate of 10 percent starts at $16,050, reaching up to a top rate of 38 percent for incomes over $357,700.
But we’ve seen in the past 30 years another major shift. As Republicans preached the virtues of low taxes, Democrats usually agreed only when taxes were cut for the bottom brackets.
Today, nearly 40 percent of American workers pay no income tax whatsoever thanks to things like the Earned Income Tax Credit and other deductions. On the other side of the ledger, the top 6 percent of earners cover 60 percent of all income taxes.
In 1980, the bottom half of earners accounted for 7 percent of all income taxes. Today it is less than 3 percent. Conversely, the top 10 percent once paid half of the taxes, rather than the 70 percent they do today.
The trend is away from the shared sacrifice of the post-New Deal era and a return to the old model of soaking the rich. The problem now, though, is that the price of government requires defining rich down. To make the nut on government spending, congressional mandarins have included your dentist and high school principal.
Still, somehow, non-taxpayers were still eligible for “tax refunds” when Washington sought to “stimulate” the economy out of its deepening torpor. By sending poor people $300 or $600, the hope was that they would act irrationally and buy Chinese-made, big-screen televisions or knobby tires for their pickup trucks, or whatever congressmen suppose their constituents like to buy.
Many of these poor folks were not as stupid as lawmakers had hoped and paid off bills or socked the money away in the face of a deepening economic storm.
Now Congress is preparing to help these folks again, whether they like it or not, with a massive new health care program. When magical thinking about long-term savings and other painless options came to naught, Democrats have fallen back on the old idea of going after Daddy Warbucks, who now more closely resembles a working stiff.
But this isn’t 1933 and there seems to be widespread horror at the lazy, expensive Washington way of doing things. That may not hold as the balance between consumers and producers continues to shift, but for now, the line is holding.
Chris Stirewalt is the political editor of The Washington Examiner. He can be reached at [email protected]
