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The Public Policy
Taxing the Poor
Inflation is the meanest tax — and it even affects welfare benefits in cruel ways.
(Page 2 of 2)
Someone who is trying to climb out of poverty by working their way up can easily reach a point where a $10,000 increase in pay can cost them $15,000 in lost benefits that they no longer qualify for.
That amounts to a marginal tax rate of 150 percent — far more than millionaires pay. Some government policies help some people at the expense of other people. But some policies can hurt welfare recipients, the taxpayers and others, all at the same time, even though in different ways.
Why? Because we are too easily impressed by lofty political rhetoric and too little interested in the reality behind the words.
COPYRIGHT 2012 CREATORS.COM
About the Author
Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His website is www.tsowell.com. To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate Web page at www.creators.com.
OP4| 12.11.12 @ 7:37AM
And Congress has never, ever indexed our tax brackets (or the AMT) to inflation. They love it when the lower and middle class are inflated into higher brackets without any real increase in income.
Al Brooks, bleedingheartlib | 12.11.12 @ 11:04AM
"That demagogue was Adolf Hitler, and the public's loss of faith in their irresponsible government may well have contributed toward his Nazi movement's growth."
Of course!
Sowell is a bit senescent to write something so obvious.
John Navratil| 12.11.12 @ 5:10PM
Perhaps he was merely responding to a nonnescient electorate.
Von Mises Jr| 12.11.12 @ 7:57AM
Inflation not only crushes the poor in a slow grind, it also destroys many middle class people with bubbles and busts.
The housing bubble was an inflationary phenomenon where government forced banks to put people in houses they could not afford pushing vast amounts of money into the housing market. At first, it seems like a win-win. Your equity in a home was like an ATM machine. You even get to pay back in cheaper dollars for those with any economic insight. But then deflation left many upside down and bankrupt.
This is now happening in student loans. College tuitions have risen about five times the normal rate of inflation. So when a kid gets out of college with huge loans and the job market collapses, Ben "The Bank" Bernanke has succeeded in destroying kids lives along with their parents.
But if the dollar or markets don't collapse beforehand, the biggest bubble is the government bubble. And it will eventually destroy the 80% not in government work when the promises to the 20% become unsustainable.
Student loan debt totals about $1 trillion and government pensions are touted at about $2.5 trillion in the red. Buckle up.
JimH| 12.11.12 @ 8:00AM
Everyone keeps talking about the top brackets. Did not the Bush cuts also remove many low income people from paying income tax? Not that I think it a bad thing. I believe all should have some skin in the game; but will they now be rejoining the tax rolls.
Cobalt| 12.11.12 @ 8:27AM
"Inflation is the one form of taxation that can be imposed without legislation."
-Milton Friedman
Mike G| 12.11.12 @ 8:29AM
Why are we talking about inflation? There's no inflation in this country. Ignore the fact that food and gas prices are rising every week. That has nothing to do with inflation. Inflation is only determined by the things you DON'T need buy every week (i.e., refrigerators, automobiles, etc.).
c. j. acworth| 12.11.12 @ 8:40AM
Inflation is the reason I'm buying freeze-dried food and ammunition, not because I think I'm going to hold off the Obamazombie Apocalypse here in my little fortress of solitude in New Hampshire. Look at it this way.
Right now I can buy freeze-dried food for 2-3 bucks a serving. The stuff lasts for 25 years in it's original container, probably longer than I have to live. In a couple of years I retire. 10 years from now how much will that single serving cost at the grocery store? $6? $10? More? When Helicopter Ben Bernanke gets through, a greenback will be a fancy piece of T-paper. At least I'll be able to eat one meal a day on the cheap, whatever the other two cost. Same thing with the ammo. Sure I might have to defend myself sometime, but lets get real. A lone individual will be overrun pretty quick, however well armed he is. You gotta sleep sometime. But how much will a brick of .22's cost 10-15 years from now? Assuming of course Obama hasn't succeeded in banning private gun ownership, in which case they'll be priceless.
JP| 12.11.12 @ 8:47AM
There are inflation calculators online. I occaisonally use them out of curiousity. I calculated what $1000 in 2000 would be worth today, and I came up with $771.00. That is, since 2000, the value of the dollar lost 23%.
JP| 12.11.12 @ 8:48AM
If you had $100 in 1911 today it would be worth $4.
Petronius| 12.11.12 @ 9:51AM
The tax policies of liberals are about one thing: depriving ordinary people of disposable income because they Don't like what WE do with it.
RichTex| 12.11.12 @ 11:32AM
While Dr. Sowell’s article is on inflation, it does point out that about half of the county (the “47%”) pay no income taxes. While they do pay FICA taxes, those taxes are believed by most to be “investments” or “insurance premiums” to be returned to the taxpayer upon retirement or disability. So we have a substantial proportion of the population which has no personal interest in assuring that the federal government maintains some degree of financial responsibility.
Years ago, there was a southern comedian named Brother Dave Gardner. (He died in 1983.) In one of his comedy acts, he proposed taxing the poor on the grounds that it would give them the incentive to rise above poverty and would give also give them a personal stake in resolving the government’s financial mess. He had a point: It’s about time we revamp our tax system so that everyone has some skin in the game. This can be done through a flat tax or a consumption tax; I don’t have a personal preference for either.
Now don’t scream at me, you liberals/socialists/Marxists (and isn't that a redundancy!), “But the poor don’t have any money!” We currently spend more in welfare per person below the poverty line than the median income of working Americans. Citizenship entails responsibility. So does the privilege of living in this country for those who are not citizens. Everyone, even the “poor”, should exercise it.
JD| 12.11.12 @ 12:22PM
Over 20% of Americans pay no net taxes even with FICA included, because their non-FICA has gone so far negative.
JD| 12.11.12 @ 12:24PM
As Ross Kaminsky pointed out recently, we spend about $1 trillion annually on welfare programs in this country. That's $20,000 apiece for 50 million people. There are less than 50 million people below the poverty line.
If that money were being distributed efficiently (which it isn't, since government is in charge), then it should be impossible for anyone to have less than $30,000/year. $40,000, if you consider what opportunities to work exist.
Grzmlyk| 12.11.12 @ 2:28PM
But then the poor would disappear.
Can't have that! You have to keep them poor and angry at the 1 percent. That's the whole Democrat game. Sure, they're all for importing a new underclass in the form of illegal aliens - er, I mean "undocumented Americans" - but if you solved poverty, what in the world would Democrats do?
Ditto racism. Racism is the elixer of life for the liberal class. It is the sweet nectar of instant resentment on the one hand and paralyzing guilt on the other. Racism is the best thing that happened to the Democrat party since, well, since poverty.
And don't forget that the real objective of poverty programs isn't the poor at all; it's the burgeoning bureaucracy. For every dollar the taxpayer spends to help the poor, the poor receive maybe 30 cents. The rest goes to those millions of faceless millionaire pencil pushers, lawyers, lobbyists, congressmen, staffers and Democrat party apparatchiks. The more "poor" there are, the more of these parasites pop up like weeds in the garden.
The most insidious thing about inflation, beyond what Sowell lays out, is that the people never recognize whose hand is in their pocket; when gas prices rise, they blame Big Oil; when retail prices rise, they blame Big Retail; when food prices rise, they blame Big Grocery.
And then they look beatifically upon the government, the nihilistic agent of their destruction, as their white knight savior. Ironic, no? No. Tragic.
John Navratil| 12.11.12 @ 4:33PM
Grzmlyk,
And all our children would be above average ;)
Actually, we could all make above $1 million per, today, and still there would be poor. In this country, poverty is defined as not having access to good or services available to the average person. If everyone had a jet and I had to putz around in a King Air, I would be poor! So, gimme' my damn jet you capitalist bastard!
JD| 12.11.12 @ 4:53PM
The poor HAVE disappeared, if you define poor by African standards.
And they have disappeared if you define poor as "having less to spend each year than the federal poverty limit".
The key is that the Left does not define poverty in terms of what a person has to spend, but rather, defines it in terms of what a person produces. This is terribly ironic, given their insistence that spending, not production, drives economies.
The Left could redistribute a million dollars per year to an unemployed person, but he would still be defined as poor so long as they measure poverty in terms of pre-tax income, which is how they measure it.
Measuring well-being in terms of pre-tax income is patently absurd in a society that increasingly divorces pre-tax income from what he has to spend, unless of course one's purpose is to justify further divorcing!
JD| 12.11.12 @ 12:26PM
Inflation actually doesn't hurt a lot of the poor IF Democrats, through unions, welfare, and wage laws, can keep their incomes up with inflation.
This is because they have no savings to depreciate, and many in fact have DEBTS whose balance is also reduced by inflation.
People with negative net worth and incomes tied to inflation LIKE inflation.
wolf| 12.11.12 @ 1:25PM
inflation..according to the MSM dosent really exist...its hardly ever mentioned in all the financial coverage..debt ceiling/fiscal cliff...and just general financial coverage..
does it matter/do most people realize its impact?
well I sure do..six years ago or so..my local bank was paying over 5% interest on CD accounts. today you would be lucky to find 1% on amounts under 10k / 2-3 year term notes..
if your paying bank fees..they will eat up that pale interest payment..so basically your paying the bank to "hide" your money..
Jessica@PaydayLoans@ | 12.25.12 @ 7:37AM
Well, I am sure there should be justice. If a person is wealthy and his/her income allows to pay taxes then they should be hire. It’s not right when the secretary living through loans pays higher tax than a wealthy person. People with low and middle income should pay an affordable tax, it depends on their income. I think that Obama and Congress finally should fix this problem and define what taxes people should pay. It’s also important to create normal tax conditions for every one, it should not be such a mess.