Can We Please Have Some Sanity When It Comes to Taxes?

Or perhaps I should have titled this - I’m sorry I thought this was America. (Gold star for anyone who gets the reference.)

So for anyone who was not aware, 2008 is an election year. And I know what you are thinking – climate change, health care, education – yeah, yeah, yeah but how do the candidates' plans affect my taxes? In one line – McCain wants to cut everyone’s taxes (even corporations) and Obama wants to cut taxes on low and middle income people while raising taxes on the upper class and for capital gains (which affects you if you are reading this, unless you only have losing investments).

Below is a quick graph for you to glance at :

Now I am going to argue that the above table has very little meaning if we are trying to assess whose tax plan is fairer. A lot of people will look at the table and say – “That’s right rich people should pay more taxes.” Of course rich people should pay more taxes – no reasonable person would argue that every America should have the same nominal tax burden. But taxes should be proportional to the amount if income you receive. That is, if someone makes 1,000,000 dollars their tax burden should be roughly 10x that of someone who makes 100,000 dollars. Of, put another way, if a group of people earn 20% of the nation’s AGI (adjusted Gross Income), then they should pay about 20% of the nations taxes.

But that is not how the current system works – not even close. Today, in America, the top 1% of earners pay more taxes than the entire bottom 90%. So now all those people who say rich people should pay more taxes can stop complaining, because guess what? The upper class already does pay more taxes - a lot more. To appreciate just how much more – take a look at this chart from the IRS.

Whose Plan is Better?

Personally I think that any argument for cutting taxes must involve a reduction in spending. But both candidates are talking about spending more money! Cutting taxes and increasing spending - can you say declining dollar? Obama wants to spend 15 billion on clean energy, throw 10 billion at homeowners that bought houses out of their price ranges, and “make available a new national health plan to all Americans”. And McCain wants to stay in Iraq until our country is completely bankrupt. It’s possible that McCain thinks of the Iraqi resistance as bunch of young people on his lawn – and you know how old people hate young folk on their property.

I hate these deficits – and I want my dollars to be worth something in 30 years. Therefore I can’t get behind any tax cut without a talk about a cut in spending. But since this is America and you have to choose between two candidates that you don’t really like – McCain’s tax plan just seems fairer to me. It is only logical that people who earn 20% of the nation’s income should be responsible for about 20% of the nation’s tax burden. Obama is saying that the upper class (people who are making 21.2% of the nations income, but paying 39.38% of the nations taxes) are not paying enough taxes! Come on – I thought this was America?

Comments

[tvogel400:]

Well I guess I'll cross you off my "pay attention to list"

Do you remember the 50's, well during that decade the stage was set for American industrial/financial dominance.
The top tax rate was like 88% on income of more than $3 mill.
Your logic is very poor and your reasoning rather dumb.
The whole Upper end of the income brackets is not taxed enough in my mind.
The plan you like will lead us down the road the economic feudalism.
Personally I believe being worth $38 billion is imoral.
Just my $.02
Tom

2008 Sep 14 10:13 AM

[diagnodave:]

Your agrument is sound unless you count all the money that is sheltered, hidden, or not not reported ( you get the meaning). I know as a small buisness owner that anything even remotely related to my buisness is tax deductable I use it. The people who have W-2s don't get to hid any of their money from the IRS. Don't even get me started on all the money big buisness doesn't pay the government by sending jobs over seas. A fair approach would be to do a fair tax where the wealth pays a fair tax rate but it includes all of their money. Make the poor and lower income segments pay their fair share too. One last tidbit both McCain and Obama will crush the falling dallor. If you have any extra money invest in foreign countries because at least for the next 4 years the economy will suck (initially things will be good for about 4 months)
you'll see

2008 Sep 14 01:06 PM

[ezrasfund:]

Maybe if all the guys at the top at Lehman, Bear Sterns, etc had to pay a bit more in income taxes on their over-sized bonuses they would have left a bit more in the company, or been a bit more cautious about betting the ranch? At least the government would have had a few more dimes to help pay for cleaning up the mess. Higher taxes at very high income levels are not only fair but have a dampening effect on some of the excesses.

Signs of the problem? Warren Buffett challenging any CEO to show that they pay taxes at a higher rate than their secretaries...no one spoke up.

Surgeons in NYC feeling like paupers next to their ne'er-do-well college chums who make 10 times more than they do (or is it 100 times?)

2008 Sep 14 05:23 PM

[Steven Hansen:]

i think all this tax talk may be redundant. most big income earners have a whole bunch of losses this year.

the president's is powerless to change the tax code - it is congress.

there is no way to get more tax revenue from the bottom 75% of taxpayers and yet the the bottom 75% creates over 50% of consumer portion of GDP (which is 70% of the total GDP). The very rich need the 75% less fortunate taxpayers to keep the economy going. my argument is that the government needs to figure out how to get more money to this group to avoid a depression.

cutting government expenditures now is recessionary.

increasing taxes is now recessionary.

look for the national debt to grow no matter who is president.

2008 Sep 15 04:37 AM

[User 262581:]

Responding to Tom's comments, Sept 14.

Well Tom, in America, you have the "opportunity" to make $.02 or $38billion.

Your $.02 contribution is enough.

2008 Sep 15 10:46 AM

[mediapro:]

You know, I just love the protectors of those powerless wealthy individuals assualted by an unfair tax system. Now for some shocking realities:

1. The top 1% control 40% of all financial wealth. The top 20% another 52%, leaving the rest of us (80%) America's financial wealth at a whopping 8%.

2. In terms of inherited wealth only 1.6% inherit moe than $100,000. 91.9% receive nothing. Yet the "death tax" is the highest priority on the ultra-conservative agenda.

The author and the priveleged who post their crying pleas on this site are pigs at the trough of power, not the bastions of free-marketeering that they claim.

Wealth is a "resource" that is very useful in exercising power. That's obvious when we think of donations to political parties, payments to lobbyists, and grants to experts who are employed to think up new policies beneficial to the wealthy.

Are the rich taxed enough? As my favorite P.T. Barnum quote sums it up for the idiotic social and fiscal conservatives that believe they are, or will be, part of the 1%.

"Nobody ever died poor understimating the intelligence of the American public."

You rich-wannabes that defend lasseiz faire tax policy and trickle-down economics are now experiencing the chickens coming home to roost as LEH, Morgan, Bear, AIG demonstrate that the stench can also trickle back up to the pigs that opened the free credit window.

2008 Sep 15 03:39 PM

[devassocx:]

Looks like most here buy into the income tax concept.

Apparently, all the indoctrination since 1913 has worked well and a monster, nanny government is the result.

See how class envy works to divide the masses?

2008 Sep 15 04:36 PM

[mediapro:]

If you call the masses 80-99% of the American public, I guess you have a point. If you are opposed to the income tax, make your point with a non-regressive alternative to funding our neglected infrastructure and returning some of your wealth to the country that mades you so rich and knowledgeable.

2008 Sep 15 05:12 PM

[henarl:]

Okay mediapro, here's your alternative: Scrap the unjust, inefficient, grossly complex, constantly changing with each new Congress or Administration, income tax altogether, along with it's bloated and expensive IRS bureaucracy. Replace it with a value added tax collected similarly to the now existing state and local sales taxes. Collection and reporting would be done by the sellers with little cost to the government. Set the rate to equal or slightly exceed the amount now realized by the income tax (minus the huge overhead of the IRS). In this way we tax the consumers, not the producers. If the top 1% want to buy their 10 million dollar Hampton Mansions or their Bentleys, yachts, private jets, islands, etc. - sock it to them! If you save your money for retirement, you pay no tax until it is spent.
Some things should be subject to lesser rates, or exempt altogether, such as legitimate charitable contributions, medical care, education, etc. and some things should have a much larger rate such as political contributions (oh wait- that would kill this idea in Congress).

2008 Sep 15 08:37 PM

[mediapro:]

Nice try.

The VAT is THE most regressive structure of any income tax alternative, but here are the other reasons why yours is an extremely bad idea. There are four basic questions to ask before one adopts a new tax struture:

Will it be simple? Will it be fair? Will it raise enough money for the government? Will it be good for the economy?

1. Simplicity. A VAT tax is just a sales tax. If the Feds got their money that way, as many states now do, the price of everything would go up by maybe 20 percent, but the process could be simple. Retail businesses would have to collect the tax, but most of them already do for the states. Simplicity would be undermined only if some kinds of purchases -- food, electricity, medicines -- are exempted, yet to be fair... next qualifier... it must as you point out.

2. Fairness. A VAT tax hits the poor much harder than the rich, unless there are exemptions for necessities and surcharges for luxuries. As you pile on the exemptions, problems occur at the other two levels... bureaucratic oversight which you don't want and income adequacy to run the country. Corrections for fairness put an end to simplicity with every kind of tax.

3. Adequacy. The VAT tax, if it were hidden in the price of products (as it is in Europe) rather than added at the cash register, is nearly invisible. It would be the easiest to raise without howls of outrage -- good for budget balancing, bad if you're the type who wants a lot less government.

4. Economic impact. If you tax income, you discourage labor. If you tax capital gains, you discourage investment. Every dollar of income or capital gains tax costs the economy 30 to 40 cents in reduced economic activity. That's why the flat tax and the VAT tax aren't sufficiently radical departures from the present tax system. They still tax "goods" instead of "bads."

Though your VAT idea is a tried and true alternative in Europe, it has an equally massive enforcement and accounting bureaucracy, as the necessary exclusions and income adequacy criteria grew increasingly evident.

Also, do you really think that this is feasible? Unless it's a true end-product sales tax, and not a true VAT, every manufacturing and services base lobby would throw more money than the insurance industry did for Hillary-care alone.

I'm no fan of the income tax, but the question was is taxing the wealthy equitably compared to the labor tax on working stiffs? As an earlier poster pointed out, any small or large business person can play the deductions, offshore accounts and production game to mask their true income.

My personal preferrence would be to elevate the exclusion on SSC deductions to at least $1 million to take care of Social Security and Medicare account deficits. Why should people who make a gazzilion dolalrs a year stop paying into SS after $90K of income. Hike the marginal rate on upper income people on both income and capital gains to what it was under Clinton (remember our $287 Billion SURPLUS that's now a $600 Billion deficit and national debt that has grown from $5.7 Trillion to 9/7 Trillion in just seven years?). Cut military spending that now accounts for more than 35% of our discretionary budget, thus discouraging the harmful escapades of past Administraions who choose to declare their own personal wars.

Then add a new pollution tax that would discourage wasteful spending on smokestack technologies.

A tax of $300 per ton on the carbon content of fossil fuels, for example, (roughly equivalent to European gasoline taxes) would bring in $360 billion a year at present fuel-use rates. But raising the price that much would encourage energy efficiency measures that would decrease use rates and hence government income. Probably the only way to balance the budget would be a slow, steady increase in energy and materials taxes -- say five percent per year -- reducing other taxes until they are no longer needed. The slow price rise would give resource users time to make the efficiency improvements that are the real point of this tax.

2008 Sep 15 10:02 PM

[henarl:]

mediapro: I agree with much of what you say, especially on raising the limit on payroll deductions for SS & Medicare to 1 million or, better yet, eliminate the limit altogether. I would add slowly increasing the starting age for these benifits since people are now living much longer (say by 1 year every five years). These two changes should solve the SS & medicare shortfalls. Also, I agree with your idea on slowly increasing a carbon content tax on fossil fuels which would tend to accelerate alternative fuel programs.
I still believe a federal sales tax is superior to our current income tax on all four of your criteria. In order to be fair and adequate It would need to be imposed not only on retail sales but on all transfers of money including services, gifts, inheritance, transfers out of the country, barter, etc. Tough to enforce perhaps but no tougher than our present system and ANY tax will never be voluntary.

2008 Sep 16 02:03 AM

[mediapro:]

Thanks henarl.

Have you ever seen that commercial where the firefighters are running Congress? Maybe you and I should run for King and Prince. Heck, I'll even let you be King!

Actually, the complete VAT that you want is the model for most Europeans. They complain as loudly as we do about the income tax, and the pain is felt literally all the way to the pump. The taxes on petrol are what make the cost of driving so expensive. Yet, because of the compressed land area of Europe, a long history of mass transit, and now the amazing trends in solar and wind conversion especially in Germany and Holland, they are coming out of that experience and leading the way in alternatives.

When we ascend the throne, we'll still have to talk about how to throttle back your new VAT bureaucracy, but hey, smart people can always work things out!

2008 Sep 16 03:41 PM