Tax Reform 2013: Democrats and Republicans Aren't So Different After All

We often see Capitol Hill in divide over how they are going to spend our hard-earned money. The Democrats often try to use Middle America as their pitch to tax the rich more to give help to people in our country that need assistance. The Republicans claim we need to cut taxes so individuals can keep more of what they earn and that will stimulate the economy. They might not agree on how and who gets taxed but they definitely agree that we should be taxed and revenues should support a large federal government.

Whether it has been the Republicans in power or the Democrats, neither party has saved the tax payer any money. The government pie has continued to get larger, and now the average American is feeling how heavy that pie has gotten. Thirty-four percent of Americans at the age of 65 have no savings. That is up 4% in just four years. Families with two parent incomes have increased rapidly over the last forty years. 

Unemployment for millennials, people between the ages of 18 to 29, is at 12% (or even higher), and that number does not include people who stopped looking for work.

1947-2012 Here's a look at federal government tax revenues vs. spending from 1947-2012.

The graph above shows that both parties have been able to increase revenue to the government. Whether tax rates change for certain individuals or not, the government has one clear goal based on this graph: to take more of our money, and that appears to be very much a bipartisan effort. 

When Reagan cut taxes in the 80’s and lowered the top marginal tax rate, Republicans and probably even some Democrats were thrilled to be part of what seemed like a beneficial plan to the American taxpayers. In 1981 tax revenue to the federal government was $599 billion.  We jump to 1989 and tax revenue is up to $991 billion. If the goal was to cut taxes and make government smaller, that definitely was not achieved. Even with the bump in revenue, Reagan and Congress could not stop spending.  Notice the nice separation between the two lines from 81 to about the mid 90’s. This insatiable thirst by both parties to spend money that they did not have resulted in the debt ceiling being raised 17 times under Ronald Reagan. Keep in mind this was government working very efficiently for government. It is a shame government is not broken.

Under Obama we now have the demand to raise taxes on the wealthy, so we can spread the wealth with lower income classes. This is a complete change in direction from Reagan, but the pie continues to grow. Under Obama’s policies more people need government assistance to survive. We now have more people living in poverty than we had prior to his election. The chart above shows that the tax payer is not giving anything less. The blue line keeps going up, but it is never enough. Let's not forget that none of this could happen without both parties being in some form of agreement.   

It is fair to say that both sides definitely differ on who puts the ingredients into the pie, but the graph illustrates that both parties want that pie to grow. It is a blessing to our Federal government that they have the ability to borrow money, because apparently no matter who is baking the pie it is not big enough. So, the federal government sells bonds to the Federal Reserve to cover the rest of the bills. The Federal reserve then turns the printing press on and print more money to cover the rest of the bill. Democrats and Republicans have both used this tool. The negative to this use is it raises taxes across the board for everyone in the form of inflation. The bottom line is the more money the government gets, the less we have. Has anyone ever notice how nicely dressed our representatives are?

Editor's note: to read more on U.S. tax policy, see Brian Garst's article on why A Progressive Tax System Isn't the Best Solution to Income Inequality.