published Friday, May 13th, 2011

Tax tipping point reached

It has been known for some time that various tax credits and exemptions were reducing, bit by bit, the percentage of American households that have to pay federal income taxes. But a recent congressional analysis finds that we have at last reached a dangerous tipping point: In 2009, 51 percent of all U.S. households did not have to pay a penny in federal income taxes.

That figure, by the Joint Committee on Taxation, obviously includes many millions of not just low-income but middle-income Americans.

That is a troubling development.

We favor low taxes across the board. Keeping more money in Americans’ pockets is a vital way to promote economic development and jobs, because the people who earned the money can spend it on goods and services or invest it in productive ventures.

But with most households now having zero federal income tax liability, they have an alarming incentive to vote for lawmakers who will provide them greater benefits by imposing still higher taxes on the minority who must shoulder the entire bill.

The trouble is, higher rates on the dwindling percentage of Americans who must pay the taxes discourage them from investing and taking the entrepreneurial risks that create jobs and wealth. They have less motivation to take those risks if they realize that a bigger share of any profits they generate will be confiscated by Washington.

That ultimately means less tax revenue to support the services that taxes provide. When that happens, of course, there will be calls for even higher taxes to make up the lost revenue, and the destructive cycle will repeat itself — weakening our economy every time.

It’s commonplace these days to hear calls for more taxes on “the rich.” Unfortunately for all of us, too few people in Washington seem to be thinking about the painful real-world results of policies that punish entrepreneurship, hard work and success.

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