Takers Vs. Producers. How Does A Democracy Last Over The Long Haul With Numbers Like These?

One of the big problems we have as a nation is that we’re engaging in a number of unsustainable practices that are politically unpopular to change.

Here’s one of them,

During the presidential election campaign many were dumbfounded upon hearing for the first time that at least a third of Americans pay no income taxes whatsoever. The Tax Foundation notes that in 2006, 45.6 million filers (33%) paid no income tax whatsoever. Under current law, in 2009 47 million filers–representing approximately 96 million individuals– will pay no income tax.

The Foundation maintains that under Obama’s tax plan 63 million filers– representing 44% of all returns– will pay no income tax. In contrast, in 1985, just 16.5% of filers paid no income tax.

It appears Obama wasn’t kidding about redistributing the wealth, although he appears to be somewhat late to the game.

At the other end of the spectrum, IRS data show that in 2006 the top 10% of all filers ($109,000 and above in taxable income) paid 71% of all income taxes. The top 25% ($65,000 and above) paid 86% of all income taxes.

Exempting huge swaths of the populace from the income tax burden while piling that burden on a shrinking cohort is a prescription for economic, political and social dysfunction.

It’s a bad idea for a society to have people who pay no income taxes. It’s an even worse idea to have 33% of the country not paying income taxes and it’s downright dangerous to our country to have 44% of the country not paying taxes.

Why? Because they get the benefit of government services but feel no pain when taxes go up. This can lead to — well, exactly what we have today and are likely to get more of — the most productive people in society are being loaded down with excessive taxes to fund services for people who pay no taxes.

The problem with this is it’s unsustainable over the long haul. Over time, the number of people not paying taxes creeps ever higher, the size of government grows ever larger, and the burden on the producers continues to metastasize. The problem is almost impossible to fix because such a large percentage of the voting population is comprised of takers. Eventually, you start hitting tipping points and you see changes in behavior.

The producers may…

* Decide to work less and relax more.
* Decide they have enough money and live off of what they’ve already made.
* Leave the country.
* Pay off the legislators to put in tax loopholes for them.
* Cheat on their taxes.

Once that happens, revenue drops, the government can’t pay its bill, and it’s in a real fix: further increases on the producers are likely to be counterproductive, but it’s politically unpalatable to raises taxes on the people paying no taxes.

So, the government runs ever larger massive deficits, has to lie regularly about taxes, and is forced to say ridiculous things like, “It’s patriotic to pay taxes” even as more businesses move overseas.

Any of this sounding familiar?

It does, right? This country has a reckoning coming for the foolish mistakes it has made already on the financial front and Obama is going to make the problem considerably worse.

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