Regressing to the Mean

On the growing conservative push to shift the tax burden downwards.

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In what could prove to be one of the most significant elections of the year, Rep. Jim DeMint (R-SC) beat former governor David Beasley on Wednesday to win the Republican nomination for South Carolina’s Senate race. Normally, Senate primaries wouldn’t count as “significant”, but in this case DeMint will certainly be a figure to watch. Armed with a proposal to replace the income tax with a statewide sales tax, DeMint is spearheading a new conservative movement: the drive for a more regressive tax system.

The sales tax, of course, is already a highly regressive tax, hitting low-income families the hardest. To show he’s not that heartless, DeMint has proposed a refund for families below the poverty line. But, reports The Washington Post:

Under such a plan, those just above the poverty line likely would see a substantial tax increase. That might not go over well in South Carolina, where nearly a third of the population lives on incomes twice the poverty level or less.

Raising taxes on the poor? It’s the latest conservative idea, and one initiated by DeMint himself. In a watershed 2001 lecture at the Heritage Foundation, DeMint railed against government dependency, grumbling that “the extreme progressiveness of our tax code has reduced, and in some cases eliminated the price of government for a growing majority of voters.” Too many poor people are all handouts, no tax burden. To remedy this, DeMint explained, America needs a new tax code, one “that allows all voters to see and feel the cost of government.”

The idea caught on, reaching a popular audience in November, 2002, when The Wall Street Journal‘s editors denounced America’s “lucky duckies”–those poverty-line taxpayers who pay minimal income tax. Lucky duckies indeed: After all, a worker making only $12,000 a year pays a mere 4 percent of his income in taxes. Says the Journal, “It ain’t peanuts, but not enough to get his or her blood boiling with tax rage.” Naturally, the only way to fire up that “tax rage”–a necessary item if the poor are ever going to vote Republican–is to tax the poor even harder:

Workers who pay little or no taxes can hardly be expected to care about tax relief for everybody else. They are also that much more detached from recognizing the costs of government.

On the merits–any merits–the Journal‘s argument is ridiculous. For starters, the Journal focused only at income tax. When you start heaping on payroll taxes, local taxes, sales taxes, and excise taxes, the percentages start to tilt heavily against the poor. E.J. Dionne threw down a few illuminating figures in response to the Journal‘s rant:

According to Sims’s figures, the bottom 20 percent of Illinois residents pay 10.8 percent of their income in sales and excise taxes, compared with only 1.4 percent paid by the top 1 percent of earners. In California, the comparable figures are 7.4 percent and 1.0 percent; in Arizona, 8.1 percent and 1.2 percent; in Colorado, 5.1 percent and 0.8 percent.

Slate‘s Timothy Noah continued the onslaught of rebuttals, noting that, among other things, wealthy taxpayers actually receive more in government benefits:

In a 1992 article for the Atlantic, Phillip Longman and Neil Howe uncovered Congressional Budget Office data showing that U.S. households with income over $100,000 averaged $5,690 in federal cash and in-kind benefits, while households with income under $10,000 averaged $5,560. If you added in tax benefits such as the mortgage interest deduction, the average federal subsidy for the under-$10,000 group stayed about the same while the average for the over-$100,000 group rose to $9,280.

Not to mention that those making under $10,000 don’t exactly have it easy.

Nevertheless, actual facts have hardly stopped conservatives from pushing harder for regressive tax measures. Back in 2002, the Treasury Department hinted that it might be necessary for the tax burden to be shifted downwards. Likewise, the Club for Growth, a conservative anti-tax group, has thrown its considerable weight behind candidates such as DeMint and Herman Cain, a Senate candidate in Georgia who has also proposed replacing the income tax with a statewide sales tax.

Even more interesting is the fact that the anti-tax crusade — led by groups like the Club for Growth or Grover Norquist’s Americans for Tax Reform — has inadvertently led many Republicans to lay down regressive tax measures when they absolutely need to raise revenue. Idaho governor Dirk Kempthorne signed Norquist’s infamous “no-tax pledge” in 2002, but when confronted last year with a $30 million budgetary shortfall, he enacted a temporary one-cent increase in sales tax, and a 29-cent increase in cigarette taxes. Presumably, a tariff aimed at low-income folks was the least offensive maneuver he could muster up.

Faced with mounting deficits of their own, other Republican governors have followed suit with similar tactics. The list includes Ohio Gov. Bob Taft (sales tax), Arkansas Gov. Mike Huckabee (sales tax), Georgia Gov. Sonny Perdue (cigarette tax), South Dakota Gov. Mike Rounds (cigarette tax) and Maryland Gov. Bob Ehrlich (property tax). In Pennsylvania, Democratic Gov. Ed Rendell saw his proposal for an increased income tax thwarted by the legislature, and is now eyeing an increased sales tax as a means of balancing the budget.

Nowhere is this trend more visible than in Texas. Republican Gov. Rick Perry has long pledged not to raise taxes, and draws perennial raves from Norquist’s group. But recently, in order to raise much-needed revenue for school districts, Perry called for a “sin tax” — a levy on beer, cigarettes, and strip clubs. The move was to accompany with a vast property tax cut, handing back billions to affluent homeowners. Sin taxes are problematic for a number of reasons — they provide unreliable sources of revenue, and they encourage government support for tobacco and alcohol sales — but more than anything else, they disproportionately afflict those on the low end of the income scale. Nevertheless, Grover Norquist has yet to denounce Perry’s proposal, a sign that certain tax shifts onto the backs of the “lucky duckies” may be perfectly acceptable to the anti-tax crusaders. (Fortunately, the Texas legislature isn’t quite as reckless as Perry –proposing instead a broad-based business tax to fund education.)

How much influence can anti-tax advocacy groups really wield? Quite a bit, it turns out. The Club for Growth spent millions trying to help ultraconservative Rep. Pat Toomey unseat moderate Republican Sen. Arlen Specter in Pennsylvania’s Senate primary. During the race the group’s president, Stephen Moore, explained his support for Toomey:

“The message is that somebody’s watching over the shoulder of the moderate Republicans, and if they keep voting for bigger government programs and higher taxes they’re going to be defeated,” Moore said. “It will have a very disciplining effect.”

Although Toomey was unsuccessful, the crusade marches on. The club has aired ads attacking moderate Senators who wanted to scale down Bush’s 2003 tax cut, such as George Voinovich (R-OH) and Olympia Snowe (R-ME). On the state level, they have targeted “Republican in Name Only” lawmakers who the group deems insufficiently conservative.

Little wonder, then, that state legislatures feel pressured to avoid tax increases at all costs. But as many states face mounting budget deficits, the fervor for tax cuts will crash against the hard wall of reality. In that case, states around the country may continue to resort to sales taxes, excise taxes, and other regressive levies — they do, after all, come primarily at the expense of those “lucky duckies.”


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