Jim Hickey’s American Politics

Let's Get Real.

GOP Leaders Eying Consumption Taxes to Close Budget Shortfalls

Despite the class envy often pushed by the political left about the rich not paying their fair share of taxes, the top 2% of income earners pay over 50% of the taxes. Fully one in three people do not pay taxes at all. While they do have taxes withheld from their paychecks, end of year tax credits more than offset the taxes they have paid over the course of the year. For this reason, Ray Lane points out that 50% of people pay less than 15% of the tax revenue. For some GOP governors, they are looking for other ways of increasing tax revenue apart from income taxes.

One example of this is Ohio Governor John Kasich, a 2016 presidential hopeful. The governor has proposed a big tax cut in the state income tax. The governor has also increased taxes on consumption items such as cigarettes. The political left correctly argues that increases on consumptions taxes are effectively tax increases on the poor. The left believes this is inherently unfair of the GOP. That said, the practice does have precedence. President Roosevelt increased income taxes and capital gains taxes on the rich during his first term in office. However, those tax increases backfired with tax collections from the rich fall by 50% over the period 1933 to 1937. President Roosevelt increased consumption taxes on lipstick, popcorn, movie tickets, and an array of items many of which were used by the poor. Those taxes successfully made up for tax revenue lost from the wealthy so that total tax collections increased by 7% over the same period. In short, the poor paid for a substantial part of the New Deal.

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