While reporting on the nationwide Tea Party Protest, Larry Kudlow spoke about the idea that the United States should become a tax haven; a country whose tax laws would encourage capital formation and attract investment capital from around the world to fuel not just a recovery but an economic resurgence. This very simple yet very powerful economic idea would produce greater prosperity for everyone, greater than all of the government handout programs enacted to date.
The Tea Party Movement shows the electorate is ready for just such an alternative. The outrage over the bailouts and growing government intervention into every part of our lives has finally touched a nerve. The progressives who are dismissing this movement as nothing more than a fringe group fail to understand that all change takes place at the margin. When Grandmothers and Grandfathers both democratic and republican are demonstrating not for increased benefits but for less spending they are the voters at the margin. What the Tea Party demonstrators instinctively understand is that this "Government Intrusion" is fueled by the ever growing tax burden they must bear.
Their furor grows as Federal, State and Local government spending increases, continue unabated during a recession, funded with a whole host of new taxes on them to pay for it all. The disconnect is striking as they watch the private sector cut jobs and expenses to regain profitability, while the ever expanding public sector continues to hire new workers and increase the pay and benefits of existing employees. Is this responsible government?
The key to capitalizing on this movement is to unite these disparate groups into a coalition of tax payers who have had enough and not fracturing this movement by segmenting them according to which tax they may or may not pay. Does it really matter if it is your income or real estate, or social security tax burden that is too high? Throughout last year's campaign we heard too often about how some people who were not paying income taxes were going to get a tax refund and not often enough about how taxes of all kinds have risen to unacceptable levels. All taxes are a tax on income.
The Democratic argument that we are simply going back to Clinton era tax rates is nothing if not disingenuous. When the top marginal rates were increased in the early 90's real estate, social security and sales taxes were nowhere near the level they are today. Politicians know that by dividing people according to which tax they pay they can turn one group of overburdened taxpayers against another and continue their reckless spending .
High rates of tax on labor (the social security combined rate is 15.6%, up to $106,800 of income), income ( the personal income tax rate is scheduled to return to 40+%) and capital ( divendend and capital gains rates are inceasing) serves only to assure that they remain scarce commodities. What this economy lacks is investors willing to deploy additional capital, to employ additional labor at higher income levels. More people earning more income can better provide for themselves, thus greatly reducing the need for government to provide services. Governments at all levels need to cut spending in order to reduce the tax burden on those who choose to work and invest their money to provide the jobs this economy needs so that individuals will have the resources to support themselves.