Tax Analysts Blog

Tax the Poor to Promote Growth?

Posted on Oct 13, 2010

In today's Wall Street Journal Sen. Jon Kyl of Arizona offers his cure for joblessness ("A Growth Agenda for America"). After the now-familiar Republican rants about the failure of Keynesian economics (at odds with what most economists think) and the need to reduce the size of government (but without any vote-killing specifics) Kyl makes some good suggestions. He wants to lower the corporate rate and flatten the upper-end individuals rates and pay for it by simplifying the code and getting rid of targeted tax breaks. That's classic 1986-style tax reform. Perhaps he should co-sponsor the similarly themed, bipartisan Wyden-Gregg proposal. But then Kyl adds something out of left field:

And here's something else: Every American with income should pay some level of taxes. Why? Not to raise additional revenue (the rate should be very low and payment simple), but because every American should have a stake in the cost and size of our government.

Well, contrary to Kyl's implication, most Americans already do pay taxes. The primary tax burden for low-income workers comes in the form of payroll taxes. What Kyl means to say is that all Americans should pay income taxes.

Of course, by spreading the burden of the income tax this idea would reduce political support for the income tax. It would steal votes right out from the Democratic base. It's great politics. (Admit it Democrats, don't you have secret Republican urges every year around April 15th?)

But it's lousy economics. Despite Kyl's expressed desire for this tax increase not to raise revenue or add complexity, it would necessarily raise revenue and add complexity. And it would be an added burden for American families that are struggling the most.

So this idea is anti-growth and can hardly be considered a boost to the fairness of the tax system. The proposal is wrapped in the cloak of good government--it would get low-income people more involved in democracy. Well, they may or may not be. I am no political scientist but there must be other non-punitive ways of promoting political involvement. I am an economist and I can assure you this has absolutely nothing to do with economic growth. On the contrary, economists who try to reduce the drag of our complex Code on the economy push to get as many people off the income tax rolls as possible. Is this a left wing agenda? No, it is just stupid to require individuals to file and agonize over tax returns when so little revenue is at stake.

But Kyl is hardly alone on this point. Republicans utter it repeatedly. You may like it for reasons of politics or good government. But as part of a "growth agenda"? No.

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