Tax Reform a Solution to Remedy Rich-Poor Income Gap


Ted sent this to the Washington Times hoping they will publish …

Op Ed
Tax reform is essential for the US to regain a more normal 3-5% GDP annual growth rate.  This Op Ed argues  that the Fair Tax changes economic dynamics and will enable more of the poor to better themselves.   Please consider publishing; I will then look forward to joining the on-line debate it will generate.
the Op Ed
Why do the gaps between the rich and poor continue to increase?  Two main factors are:
1 – Government policies that have encouraged many to become overly dependent on Government welfare programs.  Think of the Great Society programs that started in the mid 1960’s.  These and similar social welfare programs have grown and have cost $15 trillion with poverty levels today the same as in 1965.
2 – Archaic tax system that benefits the very rich at expense of the poor, small businesses and entrepreneurs.
This article will focus on the tax system.  First some statistics are in order.
While the income gap between rich and poor has widened astronomically since 1967, the gap between the rich and the middle class has widened the most.
In 1967, those in the lowest percentile of American earners made a median salary of $9,300. By 2010, that was up to $11,900, a 28 percent increase (measured in 2010 dollars).  The richest Americans, those in the 90th percentile, went from making a median of $85,800 in 1967 to $138,900 – a 62 percent increase. Median income households saw real earnings go from $40,800 in 1967 to $49,400, just a 21 percent increase.
This trend has continued under President Obama.   He claimed in 2008 that his economic policies would “foster economic growth from the bottom up and not just from the top down.” He said he’d put in place “an immediate rescue plan for the middle class” and would end the “tired, worn-out, trickle-down ideologies we’ve been seeing for so many years.”
 But what do we have instead?  Net worth increased by 21% for people with net worth of $500,000+ but decreased for all others 2009-2011.
Our tax system hurts the poor and middle class. They tend to be quite ignorant about tax policy, and come tax time, end up paying. The take advantage of the many loopholes that approach almost $900 billion per year.
The poor rely on the rich providing them with handouts and jobs.  New jobs are limited with a tax system that punishes success (income).  Only private sector jobs self sustain themselves, create ancillary jobs, new products, and jobs. Our tax system retards this entrepreneurial activity that in the past fueled our economy much faster.  Hence the poor stay poor while the rich become richer.
 Given our tax system, Many of the poor lack incentives to better themselves. Many have developed a mindset that entrenches them to stay poor long term if not forever.  Many of the poor likely realize that income is heavily taxed so why risk getting a job when the Government provides so much?
 Furthermore, many of the rich and some large corporations benefit from billions in tax loopholes at expense of all others.  Do these tax loopholes generate a net increase in GDP growth? They likely do not. Why? Many of these loopholes favor companies that lobby politicians for loopholes that will enable them to better compete against small companies and new innovative entrepreneurial start ups – historically the main drivers for economic growth and new jobs.
The Fair Tax, in Congress as HR 25, provides incentives for all, by not taxing income and thus encouraging one to generate more income. Thus the Fair Tax changes economic dynamics and will enable more of the poor to better themselves.
The Fair Tax eliminates all deductions. It also eliminates federal personal and corporate income and payroll taxes and replaces that with a revenue neutral consumption tax. This will empower the private sector to significantly lead us back to prosperity as our businesses will be able to more strongly compete globally.
The elimination of federal income and payroll taxes will encourage all workers including the poor to improve their skills to earn more.  Upon examination, more of the poor will realize they can better themselves significantly by earning tax free income and not being punished by earning as much as they can.  This will encourage many to leap from their comfort zone of Government dependency.
The zero percent corporate income tax will entice domestic and foreign entrepreneurs to create new  businesses and jobs in the US.  The increased jobs growth will provide yet another incentive for the poor to strive for higher incomes.
The Fair Tax also further protects the truly poor via prebates up to poverty level to offset the consumption tax impact. To learn more please visit www.fairtax.org
Ted Hruzd
Quick BIO:
Ex Venture Capitalist, currently a Fitness Entrepreneur,
Founder and CEO of Home Run Fitness Entrepreneurs
For your reference I list appropriate resources …
Resources
U.S. Census Bureau: “Income, Poverty, and Health Insurance Coverage in the United States: 2011”
U.S. Census Bureau: “Income, Poverty, and Health Insurance Coverage: 2010”
Congressional Budget Office: “Trends in the Distribution of Household Income Between 1979 and 2007”
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About economics501

1 - free market Capitalist; 2 - Fitness Entrepreneur; 56 years old, VP at an Investment Bank in NYC, ex Venture Capitalist, happily married with 2 girls. Education: Rutgers and NYU. I allow Ted Hruzd, my friend to blog at will here. He has many posts here. I have known Ted since we were both students at NYU. Ted also works for an Investment Bank as a VP in Equity Global Markets. ------------------------- I was very very Socialist leaning as a 22 year old. I then strongly believed in Gov role in helping the poor. However, as a USDA Child Nutrition Programs, I personally accounted for millions of fraud, abuse, and waste of tax payer money. I came to believe that the poor would be best served with less Gov programs and more with direct aid via tax system. Then after 5 years I became a free market capitalist, was a venture capitalist in 2007 and helped start 2 high tech companies. I dedicate this site to champion free market capitalism as the best road to Prosperity. Please join in. If you disagree, fine, but please post with dignity and class and be civil. Argue with facts always.
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