We Owe Bobby Jindal - The American Spectator | USA News and Politics
We Owe Bobby Jindal

Even failed candidates sometimes had good ideas. So it was with Louisiana Gov. Bobby Jindal. He sharply challenged conventional wisdom when he proposed a tax reform plan that ensured everyone paid at least some income tax.

His bottom rate was just two percent. But he would have killed most of the deductions and credits that allow those with low incomes to pay nothing.

Jindal’s idea should outlive his dismal candidacy because other GOP presidential wannabees propose going in the other direction. Former Gov. Jeb Bush would double the standard deduction and figured that another 15 million Americans would “no longer bear any income-tax liability.”

Billionaire turned populist Donald Trump would do much the same. He would drop individuals making less than $25,000 and married couples making less than $50,000 annually from the tax rolls. He figured that the percentage of households paying no income tax would drop from 36 percent to 50 percent, knocking 31 million households off of the rolls.

In fact, the Tax Policy Center figures that already 45.3 percent of American households — 77.5 million out of 171.3 million — won’t pay any income tax this year. This is the highest since 1940, when application of the income tax was greatly expanded. Trump’s plan would probably push that to well over half. The current nonpayers are divided roughly equally between those who don’t earn enough money and those who are eligible for credits and deductions which offset their earnings.

Indeed, refundable tax credits have turned an increasing number of “taxpayers” into tax consumers. In a report for the Tax Foundation a couple years ago William Freeland, William McBride, and Ed Gerrish figured that a family earning $45,000 could collect $274 after taking the standard deduction, personal exemption, two child credits, and Earned Income Tax Credit. Credits for child care, education, and hybrid vehicles also might be available.

The percentage of nonpayers has varied over time. It was just 16 percent in 1969. It subsequently rose and fell again, only to start its current upward rise under the Reagan tax reform. Particularly pernicious are tax credits. The Tax Foundation figures that their real, inflation-adjusted value increased tenfold between 1990 and 2010. Middle class families also are eligible for more credits: the share of nonpayers earning above $50,000 rose from one percent to 12 percent between just 2001 and 2009.

The idea of reducing taxes to nothing, especially on those who don’t earn much, is superficially attractive. But it’s actually dangerous for a democratic republic, especially one based on limited government and individual rights. As Jindal explained, “We simply must require that every American has some skin in this game. If we have generations of Americans who never pay any taxes, it will be very easy for them to turn a blind eye to absurd government spending.”

His point was simple but powerful. If government programs don’t obviously cost you something, there’s no reason to be against government programs. Even stupid ones. Irrational ones. Envious ones. And counterproductive ones. At least so long as you perceive some possible benefit from them. It’s a form of “fiscal illusion.” 

Of course, many who don’t pay income taxes are hit by payroll taxes. But income taxes are the most visible federal levy. They also are what formally funds most of the programs received by nonpayers. Although in truth tax revenues are fungible, the payroll tax typically is seen as dedicated to Social Security and Medicare. Thus, someone who opposes a payroll tax hike still might embrace a tax and spend policy based on the income tax.

The Tax Foundation concluded:

Basic economic theory tells us that consumers will respond to a drop in the price of a product by demanding more. By extension, economists predict that as the price of government goes down for a citizen, he or she will then demand more of it. When the cost of government is shifted away from a citizen through deficit spending or progressive taxation, this creates disproportionate demand.

For nonpayers truly dedicated to living at everyone else’s expense, there is no obvious reason to stop.

That certainly appears to be our experience. The federal income tax was permanently established only a century ago and dramatically expanded during World War II. Since then it has become the engine of big government growth.

Of course, government expenditures have risen year in and year out, irrespective of the share of nonpayers. The system’s overall bias toward an expanded state may overwhelm any additional impact from the rising number of nonpayers. Nevertheless, the Tax Foundation recorded a stronger relationship between that number and transfer payments: 

After the late 1960s, with the start of the Great Society programs, the growth of transfer payments and the growth of nonpayers begin to move closer together. For example, the percentage of nonpayers spiked in 1975 to nearly 26 percent. This spike corresponds to a sharp increase in transfer spending. Over the past 25 years, the two trends seem to track each other quite closely, with both reaching their 60-year peak in 2009 and 2010.

This suggests that real tax reform should involve more than simplifying and reducing taxes. It should ensure a minimum level of burden-sharing by everyone, including lower-income workers.

The wealthy already pay the vast majority of income taxes. The top one percent of taxpayers paid 38.1 percent in 2012 (the latest available figures). The top five percent were responsible for 58.9 percent and the top ten percent paid 70.2 percent of income tax collections. Thus, proposals to massively expand the welfare state by shaking a bit of change loose from the pockets of the rich are a delusion. Already the top 50 percent taxpayers cover 97.2 percent of collections. Expanding the number of nonpayers inevitably increases the burden on fewer and fewer payers.

Bobby Jindal won’t be president, but he got tax reform right. As he explained, “in America, everyone is expected to help row the boat. Independence, not dependence, is the root of the American dream. It’s time we had the guts to say so in public.” He did. The rest of the presidential candidates should follow.

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