INTERVIEW: DAN MITCHELL — Senior Fellow, Cato Institute — discussed the ObamaCare tax vs. penalty rhetoric, the growing number of people on disability, whether America is becoming Europe and President Obama’s tax-the-rich speech yesterday.

ObamaCare: Is It a Tax or a Penalty? Dan examines the messaging.
Obama’s Class Warfare: President Obama Monday proposed a one-year extension of the Bush-era tax cuts for American families earning less than $250,000 a year.
Spain Given Extra Year To Reach Deficit Reduction Targets. Spain is getting another year to meet its deficit-reduction targets. The country was given until 2014 to meet its goals in exchange for budget savings and an aid package for banks. Euro zone ministers were concerned that Spain, their fourth-largest economy, was on the path to a full bailout which they could not afford. Spain has been hit hard with bad debts from the housing crash and worldwide recession.
AEI’s Arthur Brooks writes in the WSJ: “America Already Is Europe: In spending, debt and progressivity of taxes, the U.S. is as much a social-welfare state as Spain.

________________

President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

I wish we had a country where freedom was everywhere but instead we have many enslaved to the federal government. We need to get the government interference  out of our lives so we can truly be free again.

Dependence on Government vs. the American Dream

Alison Acosta Fraser

September 18, 2012 at 5:39 pm

Mother Jones has opened a broad debate about the role of government in our society.

In a clandestine tape recorded in May and obtained by the magazine, former Governor Mitt Romney (R-MA) remarked that 47 percent of taxpayers pay no federal income taxes. He notes, among other things, the increase in dependency on government in the country.

This is not a widely held secret: 47 percent of all tax filers paid no federal individual income taxes in 2009, and in 2011 that figure was 46 percent. This is all perfectly legitimate as taxpayers take advantage of various credits, deductions, exemptions, and the like. These filers are largely (but not exclusively) low-income Americans including seniors and students.

This doesn’t necessarily mean that these taxpayers are dependent on the federal government. (More on that later.) But it does raise a crucial issue for our democracy: Who should pay to fund the federal government?

Who Pays Taxes

At 47.4 percent of federal revenue, the federal income tax is by far the single largest source of revenue for the federal government. The payroll tax is next largest, raising 35.6 percent. But those revenues are reserved for Social Security and Medicare benefits. So the individual income tax funds the bulk of operations of the federal government, including such core things as national defense, homeland security, and the judicial system.

Shouldn’t all Americans have some stake, even if just a nominal one, in funding these government programs? Should nearly 50 percent of Americans really be exempt from funding the most basic constitutional functions of government—along with education, food stamps, energy, welfare, foreign aid, veterans’ benefits, housing, and so forth?

Do the non-taxpayers represent those Americans who are dependent on government? Not necessarily, but there is overlap. Many take advantage of Washington policies that remove their liability or even send them money, via the IRS, that they never paid in to begin with. But to really understand government dependence requires looking at the full panoply of government programs and direct benefits.

Who’s Dependent on the Government

The 2012 Heritage Index of Dependence on Government found that 63.7 million Americans received either Temporary Assistance for Needy Families, Social Security, or support for higher education—an 8 percent increase over the previous year. These same people were very likely to receive other federal benefits, such as Medicare or food stamps. Separately, The Wall Street Journal found that in 2011, 49 percent of Americans lived in a household where at least one member of the family received a government benefit.

So we find the nation at a tipping point. Nearly half of all taxpayers pay no income tax, while nearly half of all Americans receive direct government support for income, food, housing, medical care, school lunches, etc. This makes strong incentives for those who pay no income taxes to press for more and higher benefits. But government programs are rife with poor outcomes.

As Heritage scholar Robert Rector writes, “The federal government operates more than 80 means-tested welfare programs to provide cash, food, housing, medical care, and social services to poor and low-income people. President Obama has increased federal means-tested welfare spending by a third since taking office. Last year, combined federal and state spending on means-tested welfare hit $927 billion.” Yet according to the Census Bureau, 15 percent of the population still lives in poverty.

Growing these dependency programs, as the President would do, will balloon the federal checkbook. Moreover, government dependency erodes human dignity and civil society. As Curtis Dubay writes, “the goal of government policy shouldn’t be to make more people dependent. It should be to maximize the ability of all Americans to make the greatest use of their abilities so they can lead meaningful, purposeful lives.”

Can We Afford This?

We reach this tipping point just as the nation struggles to confront our twin crises of spending and debt. The total national debt just surpassed $16 trillion; total federal spending is projected to be nearly 23 percent of the economy in 2012; and, for the fourth year in a row, the federal government will run a deficit in excess of $1 trillion.

That’s just for starters. Nearly 78 million baby boomers are already starting to pour into Social Security and Medicare, while Medicaid is exploding. Within just one generation, total federal spending will reach nearly 36 percent of GDP, and debt held by the public will reach nearly 200 percent of GDP. (continues below chart)

This is unsustainable. But it is also economically and morally bankrupting. America is on the verge of becoming a nation in decline—economically stagnant and permanently debt-ridden, more dependent, and less self-governing.

Government should be smaller. Taxes should be flatter and should not penalize ordinary and low-income Americans for saving—whether for a car, a condo, or retirement. Federal dependency programs should be redesigned to not just assist low-income individuals, but also move them out of dependency. Social Security, Medicare, and Medicaid should be overhauled. The goal is to strengthen the safety net, not destroy it. The out-of-control growth of these programs virtually ensures their ultimate destruction, so we should act now.

These choices, while difficult, are not radical: extending the means testing in Medicare today further to fix the program’s finances while also embracing premium support to improve health care delivery and outcomes; extending means testing in Social Security further (after all, do Bill Gates or Warren Buffett really need Social Security?); gradually moving Social Security away from a benefit for everyone to a benefit that, unlike today, guarantees that seniors won’t live in poverty because their benefits are so low.

Ah, Mother Jones, these are the kinds of solutions that will help in Saving the American Dream.