Most people know that the Democratic presidential candidates have promised to raise taxes on the highest-income Americans. What most people don't know is that both Democratic and Republican presidential candidates have promised to effectively raise taxes on all Americans. And most of these taxes fall most heavily on the poorest Americans.
The reason you may not have heard is that these taxes are hidden.
For example, several environmental initiatives raise taxes dramatically on the poorest Americans. The ethanol subsidies have more than doubled the price of corn over the last couple of years. As farmers shift land to corn production, they shift production away from other products. The price of wheat has quadrupled in the last few years.
The increased price of corn and other animal feed have caused the price of meat to rise. Pork prices have more than doubled in the last couple of years.
Inasmuch as poor Americans spend more of their income on food, this "tax" on food hits them disproportionately. Of course, we may want and choose to support environmental causes. But we should not hide the impact that these decisions have on Americans.
Presidential candidates have also attacked President Bush for not signing the Kyoto treaty. Presumably they would sign it. It is estimated that the Kyoto treaty initiatives would double utility bills for most Americans. Again, this "tax" falls disproportionately on the poorest Americans because they spend more of their income on utilities than wealthier Americans.
Another hidden tax comes from promised initiatives on free trade. Both candidates Hillary Clinton and Barack Obama have taken positions against the North American Free Trade Agreement (NAFTA). Free trade results in lower prices for goods and services. Americans choose to buy foreign-made products because they are higher quality (think of Chilean fruit or German cars) or because they are less expensive.
A 1989 International Trade Commission study demonstrated that in one industry, each job saved by free-trade restrictions costs consumers more than $74,000 per year in higher prices about twice the average salary. A study by the Federal Reserve Bank of New York showed that import restraints effectively raised taxes on the poorest households by 66 percent but only raised taxes on the wealthiest households by 5 percent.
Several current and former presidential candidates have promised to stand up to big businesses and force business to pay its "fair share" of taxes. But when candidates promise to raise taxes on business, consumers usually end up paying it.
Suppose television manufacturers pay more in taxes and that this tax amounts to $20 per television. It is unlikely they will pay workers or managers less. They still have to pay for all of the parts and supplies to make televisions. They must still pay interest on their debt. In short, other costs will not go down and total costs to make televisions will rise.
As a result, the greatest impact of raising taxes on business is to raise the price that businesses charge customers for their products or services. If every television costs $20 more, then again the poorest Americans pay a disproportionate share because they spend more of their income on goods and services than do wealthier Americans. Making business pay its "fair share" ultimately results in the poorest Americans paying more.
The top 20 percent of taxpayers make about 50 percent of all income and pay about 80 percent of all income taxes. The top 1 percent of taxpayers make about 22 percent of all income and pay about 35 percent of all income taxes. The bottom 50 percent of taxpayers pay less than 4 percent of all income taxes. These are visible taxes.
Hidden taxes hit everyone and are politically popular precisely because they are hidden. Hidden taxes often hit poorest Americans the hardest. The fact that they are hidden does not make them any less real.I believe we need to have a "Truth in Political Promises" initiative to force politicians to fully disclose the entire impact of their proposals. We may still choose to support the political proposals, but we can do so knowing the full costs and benefits.
Hal Heaton is affiliated with the BYU Center for Entrepreneurship. He can be reached via e-mail at [email protected].