Dwight Watt Internet Article #20

#20 - Surpluses, Tax Cuts, and Tobacco Settlements 2/16/1999

#20 - Surpluses, Tax Cuts, and Tobacco Settlements

Finally after 30 years we have once again balanced the national budget. We now have a surplus and surpluses are projected for the next few years. The question is what to do with this surplus. The Republicans say return it as a tax cut and the Democrats say lets spend it.

The budget may be balanced, but we have a huge national debt that grows larger daily due to the nature of compound interest. Obviously the United States government has done at least the minimum of services we all agree on, as we have spent for years with no concern to income.

Who paid for this surplus? Where did the money come from that there is a surplus of? In today's government, it came mostly from the income tax. In days long past it came from tariffs, etc., but now we basically fund the government on the income tax.

The income tax is largely paid by those with higher incomes (incomes, not savings or net worth's) and less by those with lower incomes. The very lowest incomes actually often pay a negative income tax (they receive back more than they pay in) through such things as earned income credit, credit for children, etc. When we raise the income tax we raise it more on the higher incomes than on the lower incomes. It is a progressive tax.

Now that we have a surplus there appears to me to be a natural order it should be used. First it should be used to pay down our debt. If we paid the debt off, or even reduced it, the government would need less money as the interest costs would go down. Cut your balances on your Discover/Master/Visa Card and you have more money to spend each month. Not only that, but also this will secure Social Security as it is invested in government bonds and notes.

Second, once that is done, then cut tax rates across the board. True, as the Democrats will cry out, the highest incomes will get the biggest cuts. However who paid in the most on the taxes? The highest incomes.

Move the Alternative Minimum Tax (AMT) up to a higher level. The AMT was adopted years ago to make sure the rich were paying enough taxes. Now middle income people who have mortgage interest, state taxes and contribute at a decent rate to their church and/or charities are getting hit by it.

In a related note, the states have settled with the tobacco companies. The amount is supposed to be that amount the states spent on Medicare and Medicaid expenses for tobacco related illnesses and to be reimbursed for that. Now the issue in the states is where to spend that money. There should be only one place. Give it as a refund to the taxpayers who funded the state expenditures in the first place. The basis of the lawsuit was to recover expenses already incurred (paid by the taxpayer, so use same logic and refund it to them) and future expenses (so we do not need to increase taxes to cover this as we already have the money, so put it in real trust funds for this).

In both the surplus and the tobacco settlements, Congress and the state legislatures need to remember who supplied the moneymaking the surplus or to pay the medical expenses. It was not created by the government, did not appear out of thin air or was given by the money fairy (first cousin of the tooth fairy, but richer, the money fairy's father is the rich uncle you have always heard of), but was earned by hard work by a tax paying citizen of the United States or the state.


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Copyright 1999.