Editorials

Some political candidates, usually running for national office, talk about raising taxes on the wealthy and it might appear the idea would have appeal since most people are not wealthy.

Taxpayers at all levels, however, should be aware that a tax imposed on the wealthy likely will also hit them, if not immediately, at some time in the not so distant future.

This idea of having only the wealthy pay taxes is not new. For instance, the income tax originally was aimed at only the wealthiest Americans, points out Steve Stanek, a Heartland Institute research fellow and managing editor of Budget & Tax News

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The federal tax on telephone service also was originally planned as falling exclusively on the wealthiest Americans, he said. And the notorious "alternative minimum tax" was conceived in 1969 after Congress learned 155 high income earners were able, perfectly legally, to avoid paying income tax through tax shelters, deductions, credits, etc.

After starting as a tax on those 155 big earners, the AMT now hits more than 4 million households and would ensnare more than 20 million without temporary "fixes" approved each year by Congress.

Stanek notes a difference between the two presumptive major party candidates for president on the tax issue.

Sen. John McCain, the presumptive Republican nominee, supports extending the 2001 and 2003 federal tax cuts that are to begin expiring in 2010. He also wants to eliminate the AMT.

Sen. Barack Obama, the presumptive Democratic candidate, has repeatedly dodged taking a position on AMT reform. Stanek said it is important to know what Obama thinks about the AMT, citing a Congressional Budget Office report saying if Congress does not reform or eliminate the AMT, by tax year 2010 (payable in 2011), "One in five taxpayers will have AMT liability and nearly every married taxpayer with income between $100,000 and $500,000 will owe the alternative tax."

A married couple with four children and an income of $100,000 would pay $2,700 more in taxes under the AMT, an analysis by Deloitte Tax shows.

Obama has openly advocated raising taxes on high income earners, whom he defines as earning about $250,000, and proposed lifting the income limit on the payroll tax for Social Security and Medicare, now at $102,000.

Persons earning more than $250,000 a year could be hit with an effective tax rate of more than 55 percent even before state taxes, according to Tax Policy Center, a joint think tank of the left-leaning Brookings Institution and Urban Institute.

"These high-income earners are the people whose investments drive the economy and create jobs for the rest of us," said Stanek. "Obama wants that money to go to the government instead."

Proposals he has made include nearly doubling the tax on capital gains and dividends, to 28 percent from 15 percent, an action Stanek says would hurt virtually everyone who has a 401(k), Individual Retirement Account, pension or similar vehicle, as the higher taxes reduce the value of investments.

So this particular "tax on the rich" would impact tens of millions of middle-income people even though Obama has promised that group he would not raise their taxes. Investment money for U.S. businesses also would be further reduced, making them less productive and competitive.

Then there is the idea of a "windfall profits tax" on energy companies Obama and other Democrats want. Stanek notes this would further raise the cost of gasoline and other fuels and reduce domestic energy production, increasing foreign energy dependence. That is what happened when a windfall profits tax was imposed in 1980, which is the reason it was repealed in 1988.

Profit margins of the American oil industry are not out of line in comparison to other industries, Stanek pointed out. In 2007, oil had a profit margin of 8.3 cents per dollar of sales, compared to 8.9 cents for the manufacturing industry, 13.7 for computer equipment makers, 14.5 for electronics firms and 19.1 for tobacco and beverage companies.

McCain has not been a steady hand on taxes either, having voted to oppose the 2001 and 2003 cuts he now supports. He also recently spoke out on "obscene profits" of energy companies and denounced those who "speculate" in oil markets. Stanek said this "suggests an eagerness for more government intrusion, likely meaning punitive taxes such as those Obama supports."

Whatever source ideas come from taxing the rich, imposing windfall profits levies and expanding government, they are all just as bad.

Taxes are taxes no matter how politicians try to disguise them and they always wind up hitting pocketbooks all the way through the income scale.

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