Hi all-
A word about taxes. The current federal budget has a deficit of, depending on whose numbers you accept, between 1.4 and 1.6 trillion dollars. It is worth pointing out that the decimal point on that number is in the hundreds of billions, and alone is larger than almost all prior deficits.
Many are saying the only way out of the mess is to raise taxes. Is that true? How should we be taxed? What are taxes for?
Many comment on or complain about the 'fairness' of our taxation system. Phrases like 'people should pay their fair share' fly around. What is someone's 'fair share'? This question can only be answered in the context of being able to say what taxes are for.
If taxes are simply to run the government, then a fair share is the same proportion of income for everyone. Indeed, one could argue that, since lower income individuals get more benefit from taxes they should pay a greater percentage. This is of course ridiculous, because another reason taxes get paid is to fund governmental programs. If this is the reason we pay taxes, lower income individuals should not pay more simply because they get more benefit, because that is government's purpose in taxation- to fund programs of mutual benefit to the nation's citizens. We all benefit from programs that help our country and its citizens.
There are not a few who feel that taxation is a way of having the wealthy 'pay their fair share'. Sometimes this is phrased a bit more disingenuously, as 'the wealthiest need to help those who are less well off'. These phrases are nothing more than coded language for wealth-based wealth redistribution. Any governmental service is provided disproportionately to those who need it. It is fatuous to complain that housing aid goes to those without houses, or that medicare goes to the elderly. That is what those programs are for. It is a very different situation to tax someone more simply because they make more money than someone else. Such a policy has nothing to do with funding government, and everything to do with overt wealth redistribution.
A couple of tax facts are in order here. You can look these up anywhere. I am not yet able to embed the graphs for this. Without the tiniest question, when tax rates are between 16.5 and 20.0%, a decrease in tax rate leads to an increase in collections. Look up the graphs- no questions at all. This is one of the great distortions in US political argument- that deficits are somehow the result of inadequate taxes. Federal revenue goes UP when tax rates are lowered within the historical framework of marginal tax rates. Our deficits are not a result of inadequate revenue- they are from spending.
There are a couple of examples that confirm the pointlessness of high or differential tax rates. In 1992, a tax on yachts was instituted. It seems superficially fair to put a tax on such a symbol of wealth and gross personal consumption. Except that it had a completely different effect. The sales of yachts fell by about 2/3. Whole factories were idled. No wealthy person paid anything- they just didn't buy a yacht. On the other hand, thousands of 'working class people', who were supposed to benefit from this tax, lost their jobs, and the government lost the tax revenues of their taxes! Great idea, huh? Tax the wealthy, put the worker out of work. This fiasco was repealed after 18 months.
When marginal rates were quite high, various schemes were devised to avoid taxes. Income was deferred, or placed in children's names, or placed in tax exempt investments, or sheltered in insurance. All these schemes are legal, and part of the warren of exemptions and rules in our tax code. The wealthy can afford sophisticated accountants, whose fees are not even close to the savings they produce for their clients. Raising rates does NOT produce more income, it produces less.
Let us argue for a moment that we have a so-called 'flat tax'. No exemptions except a nominal one for basic food and housing (not food and housing as actually bought- that depends on income, but a level for survival). Everything else gets taxed at 15% (just as an argument)- earned income, alimony, investment income, stock sales, all forms of income.
The wealthiest 2-3% of the US control about 63% of its wealth. Under this idea, they would pay 63% of the tax. The poorest 2-3% of the US currently pay no tax, and with an exemption for food and housing, would still pay no tax. Everyone would pay a 'fair share'. The wealthy would pay a very disproportionate amount of tax, appropriate to their very disproportionate amount of wealth, but no more than that.
The absence of exemptions for mortgage interest takes away a stimulus for large mortgages. There are no special tax-exempt incomes, and therefore no way to invest and avoid tax. As an example, a friend I know well will pay about 35,000.00 on gross income of 410,000.00, or a total rate of less than 10%, all legally. Under a flat tax system, that person would pay 61,000.00.
People always envy success. When I got back 95% MCAT scores, I knew no one would love me for it, and they didn't. It was not until med school that I could celebrate with others who had done just as well. We all had had the experience of being shunned for doing well. People behave no differently with wealth. They are jealous and angry. And since there are many fewer wealthy voters, it is easy to take out that jealousy in the form of federal policy and taxes.
If our goal with taxes is to fund the government, then let's be about it. If our goal is simply to use federal policy to extract money from the wealthy, then it's a game where the goal becomes to avoid paying what amounts to a fine on success. Lots of wealthy people, who are also smart, competitive and aggressive, know how to play a game.
The solutions to our budget problems are not found in increased taxation, but in spending discipline.
Ted
A word about taxes. The current federal budget has a deficit of, depending on whose numbers you accept, between 1.4 and 1.6 trillion dollars. It is worth pointing out that the decimal point on that number is in the hundreds of billions, and alone is larger than almost all prior deficits.
Many are saying the only way out of the mess is to raise taxes. Is that true? How should we be taxed? What are taxes for?
Many comment on or complain about the 'fairness' of our taxation system. Phrases like 'people should pay their fair share' fly around. What is someone's 'fair share'? This question can only be answered in the context of being able to say what taxes are for.
If taxes are simply to run the government, then a fair share is the same proportion of income for everyone. Indeed, one could argue that, since lower income individuals get more benefit from taxes they should pay a greater percentage. This is of course ridiculous, because another reason taxes get paid is to fund governmental programs. If this is the reason we pay taxes, lower income individuals should not pay more simply because they get more benefit, because that is government's purpose in taxation- to fund programs of mutual benefit to the nation's citizens. We all benefit from programs that help our country and its citizens.
There are not a few who feel that taxation is a way of having the wealthy 'pay their fair share'. Sometimes this is phrased a bit more disingenuously, as 'the wealthiest need to help those who are less well off'. These phrases are nothing more than coded language for wealth-based wealth redistribution. Any governmental service is provided disproportionately to those who need it. It is fatuous to complain that housing aid goes to those without houses, or that medicare goes to the elderly. That is what those programs are for. It is a very different situation to tax someone more simply because they make more money than someone else. Such a policy has nothing to do with funding government, and everything to do with overt wealth redistribution.
A couple of tax facts are in order here. You can look these up anywhere. I am not yet able to embed the graphs for this. Without the tiniest question, when tax rates are between 16.5 and 20.0%, a decrease in tax rate leads to an increase in collections. Look up the graphs- no questions at all. This is one of the great distortions in US political argument- that deficits are somehow the result of inadequate taxes. Federal revenue goes UP when tax rates are lowered within the historical framework of marginal tax rates. Our deficits are not a result of inadequate revenue- they are from spending.
There are a couple of examples that confirm the pointlessness of high or differential tax rates. In 1992, a tax on yachts was instituted. It seems superficially fair to put a tax on such a symbol of wealth and gross personal consumption. Except that it had a completely different effect. The sales of yachts fell by about 2/3. Whole factories were idled. No wealthy person paid anything- they just didn't buy a yacht. On the other hand, thousands of 'working class people', who were supposed to benefit from this tax, lost their jobs, and the government lost the tax revenues of their taxes! Great idea, huh? Tax the wealthy, put the worker out of work. This fiasco was repealed after 18 months.
When marginal rates were quite high, various schemes were devised to avoid taxes. Income was deferred, or placed in children's names, or placed in tax exempt investments, or sheltered in insurance. All these schemes are legal, and part of the warren of exemptions and rules in our tax code. The wealthy can afford sophisticated accountants, whose fees are not even close to the savings they produce for their clients. Raising rates does NOT produce more income, it produces less.
Let us argue for a moment that we have a so-called 'flat tax'. No exemptions except a nominal one for basic food and housing (not food and housing as actually bought- that depends on income, but a level for survival). Everything else gets taxed at 15% (just as an argument)- earned income, alimony, investment income, stock sales, all forms of income.
The wealthiest 2-3% of the US control about 63% of its wealth. Under this idea, they would pay 63% of the tax. The poorest 2-3% of the US currently pay no tax, and with an exemption for food and housing, would still pay no tax. Everyone would pay a 'fair share'. The wealthy would pay a very disproportionate amount of tax, appropriate to their very disproportionate amount of wealth, but no more than that.
The absence of exemptions for mortgage interest takes away a stimulus for large mortgages. There are no special tax-exempt incomes, and therefore no way to invest and avoid tax. As an example, a friend I know well will pay about 35,000.00 on gross income of 410,000.00, or a total rate of less than 10%, all legally. Under a flat tax system, that person would pay 61,000.00.
People always envy success. When I got back 95% MCAT scores, I knew no one would love me for it, and they didn't. It was not until med school that I could celebrate with others who had done just as well. We all had had the experience of being shunned for doing well. People behave no differently with wealth. They are jealous and angry. And since there are many fewer wealthy voters, it is easy to take out that jealousy in the form of federal policy and taxes.
If our goal with taxes is to fund the government, then let's be about it. If our goal is simply to use federal policy to extract money from the wealthy, then it's a game where the goal becomes to avoid paying what amounts to a fine on success. Lots of wealthy people, who are also smart, competitive and aggressive, know how to play a game.
The solutions to our budget problems are not found in increased taxation, but in spending discipline.
Ted
At what point will the "wealthy" simply get tired of being taken advantage of by a confiscatory tax system and finally say "ENOUGH" ? If our brother cannot keep himself, should we not "keep" him ? But, if our brother is capable to keep himself, do we not owe to him the honor of keeping himself ? Rather than give him a fish, should we not teach him to fish .... Just a thought on social programs....
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