Economics - What's Wrong With a "Targeted Tax Cut"? - Winfield Patterson

Experienced debaters know that the easiest way to win a debate in front of inexperienced judges is to redefine your opponent's terms in order to undermine his/her credibility. Technically, it's a fallacy - the straw man fallacy - to make a "straw man" of your opponent's position in order to make it easier to knock down.

For example:

BUSH: "I would give a tax cut to all tax payers, proportional to their tax payments"

GORE: "My opponent would give the biggest tax breaks to the richest one percent of Americans. I, however, would give tax cuts only to those people who met certain social and economic conditions, and continue to 'fight for working families'."

BUSH: "My opponent would allow Washington to decide who is deserving of tax relief, rather than simply relieving the tax burden."

If you believe what any debater says about their opponent, well, there's a term for people like you - "Fool". The truth is a little more slippery - they're both right.

How much did you save with tax credits last year?

New Democrats have been hog wild over the idea of "tax credits" for at least the last ten years. Why? Because a tax credit is not an exemption from being taxed - it's an increase in your refund, if you get one, or a decrease in the amount of money figured into your tax bill, (assuming you know about the tax credit and that you fit its parameters). Most people don't know about tax credits, or aren't able to afford the time to read through the tax code, or can't afford an accountant who already has. Therefore, the tax credit is only exercised by the rich, and the government keeps your money.

New Democrats love this because it makes it sound like they're doing something - addressing a social problem through the income tax code -- when in all actuality, they're not, and it isn't costing the government nearly as much as it could - or should. Notice: when a Democrat brings up a new tax credit, he always tells you how many people would "qualify" for it. And once it's in place, he talks about how much money was "given" to those who took advantage of it.

He never tells you how many people were qualified, but didn't take advantage of the tax credit, and how much money the government should have returned.

Overwhelmingly, the people in this category are the working poor, or the struggling middle class. The rich hire tax attorneys to prepare their taxes, the poor fill in the EZ form with a W2. It's the middle class, trying desperately to save their money, who can't afford a tax attorney, and can't take the time to read the whole code that get screwed the worst. In the best of situations, when both parents of a family are still together, more than likely both are working to pay off debts and get ahead. Who has the time?

It's this struggle the Dems depend upon for their "tax credits" to work. They absolutely cannot afford to have the income tax reduced across the board, or withdrawn entirely. They would be stuck without a platform.

Remember: the income tax required a constitutional amendment. Democrats sold us that amendment saying, "We'll only tax the rich". Of course, it wasn't long before the income tax slid further down the economic ladder. And now, we're all screwed. Nobody even doubts the morality of an income tax anymore - we take it on faith that the government is somehow allowed to take what we earn, we believe somehow that it's fair.

Allow me to make a counterproposal...

What if we were to abolish the income tax entirely? What if we replaced it with a 2% sales tax on securities? Wipe out the capital gains tax, the estate tax and the income tax, and just do this - a 2% sales tax on securities. Keep social security, keep Medicare, keep those withholdings, fine - but replace the federal income tax with a 2% sales tax on securities.

What would happen? A significant portion of the tax would be levied on foreign investors, the markets might gain some stability, and we would stop punishing people every week for earning money. With the resulting influx of dollars, savings would skyrocket, as would investment. Without capital gains, succeeding on Wall Street would cost you nothing - nothing but a minor entrance fee.

Of course, neither party has brought this one up. And I doubt they ever will.