"Don't Tax You, Don't Tax Me"

Senator Russell Long of Louisiana once said that "[t]ax reform means, 'Don't tax you, don't tax me. Tax that fellow behind the tree.’" I thought of Senator Long when I read about a new Associated Press poll on how we should pay for the changes President Obama and Democrats in Congress want to make to our healthcare system.

According to the poll, 48% of the people opposed new taxes on insurance companies (versus 42% who supported them), and 51% opposed raising taxes on drug and medical device manufacturers (compared to 41% who approved of them). In both cases, I would imagine the people who opposed the tax increases were concerned, inter alia, that the insurance companies and manufacturers would just pass the increased taxes onto consumers and patients; i.e., them. (It can’t be because people like insurance companies.)

On the other hand, when people were asked if they would support a tax increase on those who earn above $250,000 per year, 57% said yes and 36% said no. In other words, "Don't tax you, don't tax me. Tax that fellow behind the tree".

There are, of course, at least, two problems with this approach. First, saying "let’s do something and let’s you pay for it" has a bad feel to it. If you are into the politics of envy or class warfare, it might be okay. But the general principle of thinking government ought to do something and you shouldn’t have to pay for it seems a little wrong to me. If you really believe in something, then you ought to be willing to pay at least a small amount for it yourself. After all, when it’s free, anything is fine.

The other problem is that it won’t work. The rich are not dumb. You generally don’t get rich by being stupid. If laws are passed to increase taxes on the rich, the rich are going to find ways to avoid as many of those increased taxes as possible. Loopholes; foreign trusts; all kinds of things. The tax consulting business will recover from the recession, assuming it ever had a recession, with a bang. Which means the increased taxes will not raise as much money as was expected.  And that means taxes will eventually have to go up on a large number of those people who originally thought that only the rich were going to have to pay.