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Be careful about taxing the rich
by Don C. Brunell
President, Association of
Over the last couple of years, weve heard Democrats rail against President Bushs tax cuts. Now that they are in charge, they should think twice about taxing the rich. If they follow through with their threat to undo Bushs tax cuts, they may hurt themselves and, inadvertently, the rest of us.
According to an October Wall Street Journal editorial, a federal revenue tidal wave is sweeping the country a tsunami of tax collections. Corporate tax payments are up 76 percent, and personal income tax payments have risen more than 30 percent since 2004.
Internal Revenue Service data released in September shows that the top one percent of income earners pay 37 percent of federal income taxes. These are the rich who Democrats claim arent paying their fair share.
In reality, history shows that lower tax rates inevitably lead to higher tax revenues, as people and businesses with more money in their pockets put that money to work in the economy, thereby increasing overall tax revenues.
While our federal budget has climbed by nearly 50 percent over the last six years, the federal budget deficit dropped by $260 billion this year. The main reason is a healthy economy, which has produced $521 billion in new tax collections in the last two fiscal years. Even after adjusting for inflation, those tax collections are the largest in American history.
As for the federal budget deficit, The Wall Street Journal concludes, it is about two percent of our $13 trillion economy and well below the average 2.7% over the last 40 years.
In both Washingtons, Democrats increased their political clout in the last election. But rather than start hacking away at tax cuts and tax incentives, they should proceed with caution.
Thanks to a recovered economy in our state, Democrats will return to Olympia with a fat revenue surplus, perhaps as much as $2 billion.
Much of the credit for that surplus goes to former Gov. Locke and Senate Republicans who embraced the Priorities of Government process (POG) in 2003. This process acknowledges that government cannot do everything and requires lawmakers to decide which programs are most important and most cost-effective. By making hard choices and not raising taxes, they eliminated a $2.7 billion revenue deficit that year, even though Washingtons economy was reeling from the impacts of 9-11 and the national recession. Then last year, Gov. Gregoire and Democrats left a chunk of the surplus in the bank which is a positive trend going into this next budget cycle (2007-09).
There will be lots of opportunities to spend more in 2007, but fiscal restraint should be the primary goal. Many veteran lawmakers in Olympia remember the aftermath of the 1993 legislative session the last time Democrat lawmakers jumped on the tax increase bandwagon. They raised Business and Occupation taxes on employers and imposed a new round of costs on business for everything from health care to workers compensation.
The result: A record turnaround in the 1994 election. Democrats lost control of the house and barely held onto the state senate, 25-24. In that same election, Republicans won house seats in four Congressional seats including Washingtons fifth where Democrat Majority Leader Tom Foley was evicted.
As voters, we need to hold our elected officials accountable and insist that they jettison pork barrel spending and use our tax dollars only for necessary, effective programs. Raising taxes or fees is not an option. The results are often politically disastrous and counterproductive for jobs and our economy.
We cant lose sight of the fact that tax cuts are working. People and corporations across the board pay more to government when they can keep more of their money to spend on expanding their businesses, inventing new products, and providing new jobs. As a result, their workers have more money to buy a new car or sock money away for a rainy day or their childrens college education.
Tax cuts work, and if Democrats in Congress and our state Legislature can resist the temptation to raise taxes and fees and instead prioritize spending on necessary, cost-effective programs, they will avoid the backlash that swept across the nation in 1994.