RUSH: Jim in Arlington, Texas. Welcome to the EIB Network. Hello.
CALLER: (silence)
RUSH: Jim, are you there? There’s nobody on line three.
CALLER: Can you hear me, Rush?
RUSH: Jim, are you there, finally? It’s good thing I was patient.
CALLER: Can you hear me? Can you hear me?
RUSH: Yes, I hear you.
CALLER: Good, and I hear you fine. I want to talk about stop taxing income and instead tax purchases. That would simplify the process, reduce compliance costs, raise more revenue — and, most importantly, provide tax relief to the lower and the middle class.
RUSH: You want to replace the income tax with a consumption tax?
CALLER: Well, I like call it a purchase tax.
RUSH: Well, its’ the same thing. A purchase tax, a consumption tax. You go out and consume something, you buy it, you purchase it. So only a tax on the money you spend, not the money you earn?
CALLER: Well, actually, when you give a gift, that’s not a purchase. When you save money, that’s not a purchase. When you pay taxes, that’s not a purchase, and when you pay interest, that’s not a purchase. Everything else is pretty much a purchase.
RUSH: So you’re not saying a consumption tax? You’re saying a purchase tax?
CALLER: Exactly.
RUSH: Okay, so are you…? You’re taxed on…? How are you getting to this, “When you save money, that’s not a purchase”? What do you mean?
CALLER: Well, if you put money into savings, you’re not purchasing anything, so it won’t be taxed.
RUSH: But you are purchasing something. You’re purchasing money with it.
CALLER: No, you’re not.
RUSH: Yes, you are.
CALLER: You’re lending your money to an institution.
RUSH: No, no.
CALLER: And it’s paying you interest on that loan.
RUSH: Any time you use your money, it is a transaction. You are putting money in a savings account so that that money will grow, it will gain interest, and you will pay tax on that additional income, if there is any, depending on other factors in your tax payment.
CALLER: Under our present system, that’s correct.
RUSH: Ummm.
CALLER: But when you tax income — and interest is part of that — then you —
RUSH: Look, there’s one premise that I will not disagree with you on here. The income tax is probably the single best weapon against accruing wealth that has ever been imposed on people. The income tax is the biggest obstacle to accruing wealth, because, as you earn more, your tax rate increases and more of what you earn is taken from you for all kinds of strange premises such as “fairness,” to “make sure you pay your fair share” and this kind of thing.
There are many kind of arguments on different ways of raising revenue to run the government. There’s the flat tax, just 15%, 17% on everybody, everything. No deductions. That’s it. Consumption tax, purchase tax is another thing. That is considered to be fair because… Well, I tell you what, Jim, no matter what kind of tax you come up with, the left is still gonna say it’s unfair to the middle class and the poor.
They’re going to say, for example, under your system, “Well, the rich don’t have to spend as much money. They’ve got so much, they don’t have to spend it day to day to live. But the poor, they’ve got to spend almost everything they’ve got — and the middle class, they have to spend almost everything they’ve got, and so they are still going to be paying a greater percentage of tax than the rich.”
That’s always gonna be the argument the left uses to cement opposition to any kind of tax reform, because the tax code is not about fairness. The tax code today is not about raising revenue to run the government. The government wants you to think it is, and Civics 101 teaches you that it is, but that’s not the purpose of the tax system anymore. The purpose of the tax system is control.
The purpose of the tax system is social architecture. The purpose of the tax system is about many things other than actually raising revenue. If all you wanted to do, if the real reason for taxes was to fund the government, the first thing that would happen would be across-the-board tax cuts — and particularly on income, particularly on marginal income rates. If you did that… Here’s what happens every time you do it.
I’m talking about nationally. This is federal income tax. Every time you do it… Particularly at current tax levels, we got plenty of room to cut taxes. If you do that, what happens is that individuals end up with more purchasing power because more of what they earn remains in their possession, in their back pocket. By the same token, if you reduce tax revenues and cut tax rates on people, this ends up redounding positively to business.
You end up… The low-information voter asks, “Wait a minute, you cut taxes and raise revenue?” That’s exactly right. “How do you do it?” Because you create more jobs. And when you create more jobs, you’re creating more what? Taxpayers. More taxpayers paying less in taxes individually equals great revenue increases to Washington, if what you’re trying to is fund the government.
That’s not what the purpose of the tax code is anymore. I’ve run these numbers by people for a number of years here. But let’s go back — and this is a period of time that the left and the media wants to wipe out from everybody’s memory. In 1981, when Ronald Reagan was inaugurated and took office, the top marginal tax rate in this country was 70%. Now, very few people actually paid 70%, because the 70% was on the last dollars you earned.
You had to earn a lot of money to get to that bracket, but it was still there. There were a lot of shelters in that era. There were a lot of allowed deductions — purposely so — so that wealthy people could avoid the 70% rate. Well, Reagan said, “You know, this is convoluted, it’s crazy, it’s confiscatory, and it’s punitive.” So he designed to cut taxes. Well, when he left office in 1989, January of ’89, the top marginal tax rate was 28%.
There was a 70% top marginal rate in 1981 and it was 28% (for some people there was a bubble at 31%, but we’ll keep it at 28%) eight years later. What happened to the revenue collected by Washington? In 1981, the total take from taxes was around $500 billion. After reducing the top marginal rate from 70% to 28%, eight years later, the amount of money taken in by Washington had almost doubled to just shy of a $ trillion.
What else also happened?
We had two recessions between 1981 and ’84, not to mention the seventies that Jimmy Carter presided over. We reduced interest rates, we reduced employment, we reduced the deficit, all by cutting taxes. All kinds of new jobs were created because there was much more money circulating in the private sector. The American dream takes place in a big pie. Now, the left believes that that pie can never get any bigger than whatever it is at any given moment.
Therefore, the left believes — and the Democrat Party believes — that taxes and all of this are a zero-sum game. For example, the left believes that if somebody gets a tax cut somebody better get a tax increase so that the government doesn’t lose any money. By the same token, they believe that if somebody gets a raise, somebody has to get docked pay, because it all has to equal the same amount.
The difference? The way we look at it, that pie is always growing, and your individual piece of that pie and how big it is is totally up to you. But the way the pie grows — meaning the private sector, where you and I all live and work, everything but government. Where you and I live and work, that’s where the opportunity to create wealth is. Well, it used to be.
Now we have corporate cronyism, and if you’re in tight with the Regime, you can get rich sidling up to government. That’s another story. I want to stick with the private sector and theoretically here for a second. The way wealth is created is that pie gets bigger, and then people start doing what they can to get their piece of it and grow that — and it can continue to grow. It’s not a finite number. It’s not a static number that can’t get big.
It grows and grows and grows. It’s been the history of the country. But what it requires to grow is money, is capital. Now, the more government takes out of that pie, the smaller it gets. Government does this with taxes, and that’s especially what’s happening now. This government is taking as much of the private sector as it can. That’s why unemployment is what it is! That’s why 93 million Americans aren’t working.
It’s why most jobs that are available are for 30 hours max a week. It is why college graduates are fretting that they have no future and they can’t find jobs related to careers and career advancement, because the pie is shrinking. The government’s taking it bit by bit and growing and getting bigger. Now, a country and government that really valued its citizens and believed that its citizens were the engine of its greatness?
That government would make sure that pie is as big as possible and always growing, and the way you can get started on that is to cut taxes and allow people in the private sector to keep much more of what they earn, much more of what they produce. Which causes increased economic activity, which creates the need for more jobs, which creates growth in businesses which are successful.
It just feeds off itself. And that, in a very abbreviated form, is the story of 1980s. It worked so well that the Democrat Party and the media have been engaged in impugning those eight years ever since they ended, beginning with Bill Clinton.
Well, you might even say beginning with George H. W. Bush but really intensifying with Bill Clinton and on now into Obama. There’s simply… You can talk about the tax code being revised. The consumption tax, spending tax, savings tax, flat tax, what have you. But until a fundamental theoretical decision, philosophical decision is made, none of it’s gonna matter.
If the government’s gonna keep growing, if people are gonna continue to support an expanding government that takes care of more and more people in a shoddy way — and if the private sector is gonna continue to shrink and therefore fewer people have a chance to get whatever size piece of it — we’re gonna continue to have economy in decline, which is what we have now. It’s just a damn shame. It is so unnecessary.
But if you’re the Democrat Party, and if you structured yourself on the belief that most people don’t know the right things to do in life, most people aren’t capable of making the best decisions for themselves, most people aren’t capable of the wise use of their own money? They won’t spend it the way liberal Democrats think they should spend it, so the Democrats have taken that power away from you.
You have less money to spend.
They are now buying votes about it, growing the government, any number of things. It’s real simple. It is simple. And this is not simplistic at all. It is very, very simple. It’s worked every time it’s tried, just like abstinence and abortion. It works every time it’s tried. But because it works so well, it constitutes the greatest threat the Democrat Party faces. Your ability to run your life economically, your opportunity to get a bigger piece of that pie, your opportunity become economically secure and independent?
That’s the biggest threat they face, because that means you don’t need them. That means you need less of them. That means you don’t need food stamps, you don’t need welfare, you don’t need their help with any number of things. And that’s not good for them. So they’re not interested in your personal advancement. Oh, they’ll say they are, but they don’t do anything of any sort to back up that supposed interest or desire.