Critical Issue the Sex Obsessed Media Ignores

In the second debate, just after Hillary Clinton avoided answering a question and instead demanded that DonaldTrump publish his tax returns Moderator Anderson Cooper jumped in with, “Actually on the topic of taxes, we have a question from Spencer Moss.”

The question from Mr. Moss:

Good evening.  My question is what specific tax provisions will you change to ensure the wealthiest Americans pay their fair share in taxes?

This question was an obvious setup to favor the Clinton campaign because it was based on an unproved assumption that is at the central feature of her campaign, the funding source that makes possible billions in new benefits and entitlements she promises to enact if elected.  That never-examined assumption is that “the wealthiest” don’t pay a “fair share” of income tax.

Neither candidate offered a coherent answer and Trump missed an opportunity to call out the obvious bias the moderators demonstrated in selecting that particular question.

fair-share-dualTrump’s answer should have begun with a rhetorical question: What share of total income tax revenue would be a “fair share?”  He could have presented the data captured in our graphs, drawn directly from annual reports issued by the IRS.  Most economic commentary comes from so-called “studies” which are estimates based on indirect sources of data.  But the data in IRS’s statistical reports comes directly from the millions of tax returns it receives each year.  The most recent IRS report is for the 2014 tax year.

Contrary to the perception Mrs. Clinton and the media continuously plant in the mind of the public, IRS data show that the SHARE of taxes paid by the top bracket earners is astoundingly high.  As the charts show, the top 5% of income earners pay 57% of all income tax revenue received by the government.

The average top-one-percent taxpayer, earning over $500,000, pays 99 times as much as the average bottom 95% taxpayer, earning less than $200,000.

Just one of every 100 taxpayers (Over $500,000) is paying an average of $350 of every $1,000 the IRS collects.  Ninety five of every 100 taxpayers pay an average of $4.52 each of every $1,000 the IRS collects.

Mrs. Clinton should be put on the spot with a simple question:  If the problem in America is the rich don’t pay their “fair share” what share would be “fair”?

We at Liberty Works have been skeptical of Donald Trump’s campaign. But we enthusiastically endorse his courageous tax cut proposal.  He’s received too little credit from Conservatives and free market supporters.  He should have promoted it as his answer to this rigged debate question.

Trump would dramatically reduce income tax rates for all businesses, from the largest corporations to the smallest mom & pop enterprise.  What makes his idea courageous? Read on.

Trump’s proposal is courageous because he knew the entire phalanx of political-media-academia elites would stampede to the cameras and keyboards to revile and denounce him, thundering the same accusation: “Trump’s plan is cruel to the poor and middle class while giving even more money to the wealthiest!”  Indeed, part of Mrs. Clinton’s answer to the debate question was:

His plan will give the wealthy and corporations the biggest tax cuts they have ever had. More than the Bush tax cuts by at least a factor of two. Donald always takes care of Donald and people like Donald. And this would be a massive gift. And  the way that he talks about his tax cuts would end up raising taxes on middle class families. 

But Trump’s cutting-edge proposal would energize what has been the moribund Obama economy with a new, low tax rate on all businesses, from huge corporations to modest mom and pop enterprises. He would set a maximum 15% tax rate on all business income.  Currently the maximums are 35% for large corporations and 39.6% for “pass through” medium size and small businesses.  We’ll explain pass through in a moment.

So what is Mrs. Clinton’s tax platform? In her campaign events she bellows endlessly that the rich, including those who own businesses and create jobs must begin to “pay their fair SHARE.”  She plans to increase taxes on business because, in her words,

“We’ll go where the money is!”

The national media don’t ask her the obvious followup question, what share of income tax paid would be “fair?”  But we know what the answer would be:  MORE!

business-owner-dualWhat do the IRS statistics tell us about these highest income earners? How do they earn their wealth?  As the chart below shows, most of them – 89% – are business owners.

These businesses are organized – in IRS speak – as “pass through entities.”  They are sole proprietorships, S-Corporations, LLCs and partnerships who, under IRS rules, do not submit business tax returns like large corporations do.  Instead all business revenue, expenses and profits “pass through” to the owners’ personal tax returns.  According to census data 55% of all business employment is in pass-through companies.

Typically, these owners keep a portion of profits for personal/family consumption and leave a portion in the business to reinvest in improvements, upgrades and expansions or to pay down debt. But both portions – all income – is combined and reported as a lump sum, on a single tax return which does not differentiate.

Most of these high income taxpayers are the owners of of the “middle market” businesses that create nearly all the new jobs in America.

Middle market is generally defined as a business with annual gross sales in the millions.  They’re bigger than “small businesses” with less than $1 million in sales and – typically – a dozen or fewer employees, but smaller than “big business,” the huge corporations with annual sales in the billions and thousands of employees. One survey found that middle market businesses  average 367 employees each.

Should the rest of us, the 95% who earn less than $200,000, be for or against taxing away more of the profits of these businesses?  Is there a downside that Democrats’ emotionally charged campaign slogans don’t disclose as they encourage us to resent these business owner taxpayers? 

Yes!

These high income business builders don’t react to tax hikes by moving their families into smaller homes or buying cheaper cuts of beef.  When government shrinks their after-tax income they react with shrinking investments in the start-ups and expansions that generate new jobs and raise the demand for employees which results in higher wages.  This is why Mrs. Clinton’s call for targeting these specific business owners for higher taxes directly contradicts her vague promises to help small business create jobs.

In a rational world the government would set lower, not higher tax rates on these entrepreneurs and investors, to benefit the middle class.  This is exactly what Donald Trump has proposed.

Nothing the government could do would juice the economy and increase the demand for employees more rapidly than Donald Trump’s proposal to tax business income at no more than 15%.  The share of income tax paid by the top one percent would likely decline slightly.  But so what?  We have a simple choice: tax increases designed to raise the SHARE of taxes paid by business owners, or tax cuts to free them to create jobs – which also creates tax payers –  and to raise wages and spread prosperity?

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