Every attempt at tax reform results in liberals shrieking hysterically about “tax cuts for the rich” and how it will be done “on the backs of the poor”. They usually say that tax cuts, if any, should be given to the working class, by which they mean virtually destitute working people and not successful working people. The problem is that you can’t give tax cuts to those people because they don’t pay squat.
The graphic below illustrates the situation. It’s been around for a while and was found on Rush Limbaugh’s home page. As you can see the bottom 50% of wage earners pay virtually nothing in taxes. Also bear in mind that the people at the very bottom don’t pay taxes at all, they receive taxes in the form of transfer payments, the Earned Income Tax Credit for example. These so-called taxpayers are, in fact, tax freeloaders.
Tax Burden 2001
All too many of you will retort with something like, “So what? The rich should pay more.” Unfortunately, you’re rich. “What? I’m just getting by!” many will bluster. Yeah, I know what you mean, I’m just barely getting by too. What you’ll find in the same article, based on GAO figures is that that top 50% includes people earning as little as $26,000 a year. If I only earned $26K a year I would lose my house and probably my car as well.
An excerpt for Rush’s article on the subject illustrates the problem:
Think of it this way: less than four dollars out of every $100 paid in income taxes in the United States is paid by someone in the bottom 50% of wage earners. Are the top half millionaires? Noooo, more like “thousandaires.” The top 50% were those individuals or couples filing jointly who earned $26,000 and up in 1999. (The top 1% earned $293,000-plus.) Americans who want to are continuing to improve their lives – and those who don’t want to, aren’t. Here are the wage earners in each category and the percentages they pay:
Top 5% pay 53.25% of all income taxes (Down from 2000 figure: 56.47%). The top 10% pay 64.89% (Down from 2000 figure: 67.33%). The top 25% pay 82.9% (Down from 2000 figure: 84.01%). The top 50% pay 96.03% (Down from 2000 figure: 96.09%). The bottom 50%? They pay a paltry 3.97% of all income taxes. The top 1% is paying more than ten times the federal income taxes than the bottom 50%! And who earns what? The top 1% earns 17.53 (2000: 20.81%) of all income. The top 5% earns 31.99 (2000: 35.30%). The top 10% earns 43.11% (2000: 46.01%); the top 25% earns 65.23% (2000: 67.15%), and the top 50% earns 86.19% (2000: 87.01%) of all the income.
The problem is that virtually no one thinks they’re rich. I’ve met people with six figure incomes who bitched and moaned about how the were just squeaking by and believe me it was hard for me to by sympathetic when I was living in a $30,000 house in a neighborhood that was rapidly going to seed. One of my favorite example was an interview with a French woman after Francois Mitterand’s socialist government came to power. She said that she voted for him because he said he was going to make the rich pay, but as soon as he came to power the government informed her that she was rich.
Despite all of this I’m encouraged by all the renewed buzz about a flat tax or a national sales tax, though I would prefer the national sales tax because it would catch much of the revenue lost to the underground economy. What could be more fair? Everybody pays a simple percentage. The person that makes $200,000 a year would pay 10 times as much as the person that makes $20,000 a year. Ten times the income pays ten times the taxes. It’s simple, logical, and fair. Best of all, it’s enforceable.
Now I’m sure the next shriek of protest from the professional hand-wringers will be that it will cause disruption in the lives of those paying little or no taxes. In the long term this wouldn’t be a problem because the wage structure would adjust under market forces. In the short term any hardship could be virtually eliminated by a gradual phase-in.
Something like this has to be done eventually. Preferably sooner than later. It’s a common economic principle that if you want less of something you tax it, and if you want more of it you subsidize it. The present tax structure penalizes success and rewards failure. We need to break that precedent and break it now.
As demonstrated in your fine post, there is no reasonable equity of distribution under the current INCOME tax system. What’s more, the income tax code has become a tinkerer’s paradise for 53% of the lobbyists who game it in Washington DC. It’s a lucrative business, and the U.S. TAXPAYER pays for ALL of it in higher prices (a hidden tax which is incomprehensible to the average working person).
Prices AFTER FairTax would look SIMILAR to prices BEFORE FairTax – NOT 30% HIGHER – as opponents contend; competition would see to it. The FairTax rate on new items would be 29.9% (on the new, reduced cost of items because business isn’t taxed under FairTax – thus lowering retail prices by 20% to 30%), or 23% of the “tax inclusive” price tag – this is the way INCOME TAX is figured (parts of the total dollar).
The effective tax rate percentages, that different income groups would pay under a FairTax consumption tax, are calculated by crediting the monthly “prebate” (rebate of tax on necessities) against all likely monthly spending of citizen families (1 member, and greater based on figures established by the Dept. of HHS – a single person receiving ~$200/mo. A family of four receiving ~$500, in addition to family earners receiving their WHOLE paycheck). Prof.’s Kotlikoff and Rapson (10/06) have concluded,
(From study: http://snipurl.com/kotcomparetaxrates ) “…the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.
“Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax.”
Further,
(From study: http://snipurl.com/kotftmacromicro ) “…once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there’s a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent.”
It’s well past time to scrap the tax code ( http://snipr.com/scrapthecode ) and pay for government the way that America’s working men and women are paid – when something is sold.
(Permission is granted to reproduce in whole or part provided snipurl.com links are maintained to measure message efficacy. – Ian)
Maybe people just don’t understand the concept of percentage–which means that the higher the number multiplied by the same percentage, the higher the arithmetic product.
Why do I saw that people might not understand? They never got taught the concept in school.
Lets look at the numbers and judge equality from there.
Say you have three people in an economy with a 10% flat tax.
Person 1 makes $10,000/year, for an after-tax take home of $9,000.00
Person 2 makes $100,000/year, for an after-tax take home of $90,000.00
Person 3 makes $1,000,000/year, for an after-tax take home of $900,000.00
The fallacy of a flat tax lies in the assumption that differences aforementioned are fair. Given that the rich have the opportunity to live modestly – in theory as poor as those who make $10,000/year if not more realistically be that of person 2 or somewhere in between person 1 & 2 – the person 3’s lifestyle could be entirely unaffected. Alternatively, taking a way $1,000/year from person 1 would effectively be a critical tax which would, and by no means unavoidably given the economics of American, largely negatively impact the individual and their family.
Since the rich could simply modify their lifestyle, or not, and the poor would be scraping to make up for lost income this type of tax would, by definition, not be fair.
This tax is usually proposed with an exemption for the poor; however, the dynamics work the same regardless. Since the cost of goods and services stays constant for each income level the effective buying power of the rich is negligibly effected by the tax in comparison to even to the upper class. When considering the difference between person 2 and person 3 it is not remarkable to note that taking away $10,000 from person 2 could be a large portion of the tuition for their child college while taking away $100,000 from person 3 would still leave them with $900,000 and only effect their child’s tuition if their values were greatly misappropriated.
Look to reason, for within the gaps of our understandings lie the foundations of oppression. Unless you are in the top 1%, perhaps even so, this is a bad option that will inevitably result in class struggles great enough to walk the edge of revolution. This is not a lasting nor within the graces of civility.
This is for “The Truth of It”. I try really hard not to be rude to people who comment on my sites. But I have to say, you really make it hard. The rambling platitudes and bromides made it pure torture to wade through your post, even as short as it was. It was only because I really, really wanted to understand what you were getting at that I toughed it out.
That being said: Are you fucking insane or just lobotomized? You went straight to the word “fair”. Most people I know use the word “fair” in much the same way that a 4-year old uses a cigarette lighter. They can operate the device but don’t understand the damage they’re going to do till the house burns down.
I hate to get stuck depending on a cliche, but life isn’t fair. You missed the entire point of the post, which was that exactly your sort of muddle-headed thinking leads to even more of the unfairness that you claim to want to prevent.
Here it is in short clear sentences. If I earn money, it’s mine. It doesn’t matter how much or how little, it’s mine. If I’m taxed at all, I should receive a dollar’s worth of good or services for every dollar I pay. Any money used in transfer payments has been stolen from me. Anyone who collects any of my money in the form of “entitlements” is a thief and should be treated as such. Transfer payments cause more of the very problems they are intended to alleviate because Lefties and other soft-hearted, soft-headed types don’t know a basic fact. A fact most 5-year olds raised in a Republican or Conservative home knows almost instinctively. That is: If you want less of something, tax it; if you want more of something, subsidize it. When you strip away the politically correct veneer, all any transfer payment is, or can be, is subsidized reproduction and subsidized failure. Given your shaky grasp of economics and total obliviousness to basic moral first principles, I strongly suspect you are a university economics or philosophy professor.