Unfair for 155 years

“Nothing about it is fair.”

— Bill Nelson, U.S. Senate, D-Fla.

That was our senior senator’s commentary earlier this week on the Republican-controlled Senate’s teetering-and-tottering attempt at tax reform.

Now that was certainly a profound observation. Of course, nothing about it is fair!

The U.S. tax system has never been fair. 

When Abraham Lincoln and Congress adopted the first income tax in 1862 to help fund the War between the States, it called for a 3% tax on all net income greater than $600 a year. Mind you, at the time, a man’s all-wool suit cost all of $6. This was clearly a tax-the-rich scheme. 

And from Lincoln’s first income tax to the adoption of the 16th Amendment in 1913, legalizing the income tax, historical accounts of the national debates about the adoption of the income tax show that much of the fervor for the tax came from politicians who wanted to soak the rich, who wanted a graduated tax based on one’s “ability to pay.” 

For 155 years, tax fairness has been nothing but a meaningless, political bromide. To be sure, what is fair to progressive Sen. Nelson probably is not fair to you. When it comes to U.S. taxation, “fair” is a fairy tale.

Nelson lamented the proposed cut in the corporate income tax rate from 38.9% to 20%, while subchapter S and other pass-through corporations — according to drafts of the Senate bill — would not receive the same treatment.

“Why give a huge, multinational corporate tax cut, which in essence swells the deficit $1.4 trillion and the same time gives little relief, if any, to the middle class?” Nelson asked.

This is a rehearsed, progressive talking point. Let’s rip it:

For starters, consider what eminent economist Walter Williams at George Mason University recently wrote about corporate income taxes:

“The fact of the matter — which even leftist economists understand, though they might not publicly admit it — is corporations do not pay taxes. 

“An important subject area in economics is called tax incidence. It holds that the entity upon whom a tax is levied does not necessarily bear its full burden. Some of it can be shifted to another party. 

“If a tax is levied on a corporation, it will have one of four responses or some combination thereof. It will raise the price of its product, lower dividends, cut salaries or lay off workers. In each case, a flesh-and-blood person bears the tax burden. 

“The important point is that corporations are legal fictions and as such do not pay taxes. Corporations are merely tax collectors for the government.”

So critics such as Nelson who yap about cutting taxes for the corporate rich, clearly are economic truth-deniers. If the corporate tax is reduced from 39% to 20%, what will those corporations do with that additional income and capital they were previously required to send to the Federal Black Hole? They will do the opposite of what they did when they were taxed:

They either will raise dividends for shareholders (who will spend or invest, creating more jobs); raise the salaries of their employees (who will spend or save, thus lifting their standards of living); or they will reinvest in their business (hire more people or purchase more machinery — both of which fuels economic growth). All of these will help the middle class and generate more tax revenue for the government, thus reducing the federal deficit.

That assumes, of course, Congress doesn’t continue to outspend what it takes in. A big assumption. 

 Sure, Nelson is right. Cutting the corporate tax but not the Subchapter S income tax to 20% is not fair. But if the choice is one tax cut or no cut, give us the corporate income tax cut. 

Finally, we couldn’t help but chuckle when we read that while Sen. Nelson laments the Republican tax-reform plan being completely unfair, the Tampa Bay Times duly noted: 

“Nelson did manage to get something in the bill … Citrus growers would get a deduction for new trees replacing those savaged by greening disease.”

How ironic. A true politician: He laments dispensing special favors for one group, while at the same time he slips in amendments that will dispense favors to another group.

Who knows whether Congress will have the fortitude to deliver tax cuts to President Trump. As we have noted before, nothing ever really changes in Washington: Congress spends and taxes more than it should. Until there’s a one-rate flat tax for all, the national tax system will always be unfair.