TAXATION:
The Federal income
tax has been around since it was made a permanent part of our lives when the 16th
Amendment was passed in 1913. This was
added to state income taxes, excise taxes, sales taxes, property taxes, poll
taxes, and a host of tariffs which were in effect long before 1913. The first
federal income taxes were flat taxes; i.e. 3 % on all incomes above $
800.00. Back then it was deemed to be
the fairest method of taxation.
Over the past
century, taxation has become so complicated, so complex, an entire industry
comprised of tax attorneys and accountants was required to sort it out. The
flat tax was replaced with a progressive tax system which has been modified
dozens of times in a seemingly endless struggle to make it fair for
everyone. As a result of all of this tax
legislation our current system isn’t fair to anyone.
Tax reform has now
been passed by Congress for yet another attempt at simplifying the tax structure and striving for fairness,
but, all that happened was that we replaced the current seven brackets; 10 %,
15 %, 25 %, 28 %, 33 %, 35 % and 39.6%, with seven new brackets; 10%, 12%,
22%,24%, 32%, 35% and 37 %. So,
basically, it is still a system where the higher your income the higher your
taxes. And that is just for individuals.
It gets even more complex when you add capital gains and business
taxes. There are several reductions which
affect large corporations and small businesses, supposedly to stimulate the
economy by encouraging more hiring and investment in plant and equipment to
increase manufacturing capacity. While
it may be that some businesses were holding off on making these moves until
after the tax reform shakeout, but the fact is that hiring and investing is
driven by supply and demand and not substantially by tax breaks. Sorry, that is just an economic fact.
Interestingly, 44.4
% of all taxpaying units in the U.S. pay no income tax at all (2018). This leaves the tax burden on the other half
of society to support federal government provided services for everyone. Liberals tend to support the mantra that says
we need a tax system that forces “the rich” to pay their “fair share”. The definition of “the rich” varies but the
percentages most often heard range from the top 5 % to the top 1 % of all
income earners. “Millionaires and billionaires” was the phrase bandied about by
liberals during the elections. If you actually
do the math, you will discover that 20% of taxpayers pay 87 % of all federal
income taxes. The top 1 % paid more
individual income taxes (37.3 %) than the bottom 90 % of tax payers combined
(30.5%). Seems to me that “the rich” are already paying more than their fair
share. Conservatives tend to believe
that it would be fair if “the rich” were allowed to keep more of what they earn
and spread the burden to more people equally.
In my opinion,
this debate between the “haves” and the “have nots” will never be reconciled
but returning to a flat tax, which
uses a fixed percentage applied to all incomes, would be the fairest
approach. The percentage should be
calculated based on a rational federal budget and with an eye toward paying off
the federal deficit within a reasonable period of time. This percentage should be applied to all
income with no caps and no deductions.
The percentage should change annually based on the need for balancing
the budget and reducing the deficit. In
a society that appears to be moving more and more toward a socialist structure
whereby government is being charged with providing more and more services it
cannot afford for the good of, supposedly, all the people, those people are
going to have to pay a heavy tax burden or the entire system is doomed to
collapse from the debt burden. Look at
Switzerland. This country not only
provides a national healthcare system and guaranteed retirement income, but a
host of other services that support their citizens. In June the Swiss voted on whether to give
every Swiss adult a "basic income" that would "ensure a dignified existence and participation
in the public life of the whole population". The amount being proposed was equal to $ 2,800.00
per month subsidy…..for life! Fortunately,
the Swiss people realized the financial chaos this would have wreaked on their
population and voted the measure down. Unfortunately, with the federal, state
(cantonal) and municipal taxes on all income, the Swiss still pay high property
taxes, sales taxes, a value-added tax (VAT), border tax, capital tax, and on
and on. The average Swiss citizen pays
about 60 % of their income in taxes.
And the USA is
headed in the same direction if we keep adding services and continue to deficit
spend. Most of the Democrats running for
their party’s nomination for President support the Green New Deal. The American Action Forum estimates
that, between 2020 and 2029, the energy and environmental components of the Green New Deal would cost $8.3 trillion to $12.3 trillion, or $52,000 to $72,000
per household. In my last post
you saw that I acknowledge we need to find a solution to Global Warming. This is not it. Many Democratic candidates
also support universal healthcare accomplished by expanding the current Medicare
system to cover every person currently residing in America. According to a Washington Post article
researching this subject, from 2019 to 2028,
the federal government would spend an average of $ 2.8 trillion more per year
on health care if Bernie Sanders’s plan were fully in place.
According
to a study, published by the Mercatus Center, a libertarian-leaning think tank,
notes that this price tag could not be covered by doubling what the government currently takes in through individual
and corporate taxes combined. In a
subsequent post you will discover that I am personally for healthcare for every
American, but this is not the answer.
Add to these two entitlement programs a free college education for all
and other programs being proposed and the crushing death blow of taxation would
be complete. We
better get ready.
States should have
the right to determine the methods of tax collection that support local
government as the residents of that state dictate. This currently takes the form of state income
tax, property tax and sales taxes. Some
states have one or more of these methods of raising income for state funded
services. If you don’t like paying state
income tax, move to a state that doesn’t have that tax. I know this is easier said than done, but is
probably more practical than lobbying state representatives to eliminate a
state income tax that is already in place.
Politicians don’t like to lower taxes and “rob” constituents of the
services they lobbied for them to receive, even if it means they pile up
debt. Property taxes and sales taxes are
progressive by nature. The more you
spend on housing, the more you spend on goods and services, the more tax you
pay. But these progressive taxes are
fair because they don’t tax income but consumption, which an individual can
control to a certain extent.
I welcome your comments, as usual, and your ideas on better methods of, read that fairer, taxation.
Good assessment Jud. To put the National Debt into perspective, I like to equate it to time. Now that we have about $21 trillion in debt, consider this-
ReplyDelete1 million seconds from now is 11 days
1 billion seconds from now is 31 years
1 trillion seconds from now is 31,000 years
So in my simple mind, the US government needs to collect $21 more dollars than they spend every second for the next 31,000 years!
I'd say we are in trouble. We need a balanced budget amendment!
Justin
I agree on the balanced budget amendment. I am not sure about the math. The federal government took in $3.3 trillion in tax revenue last year. More than 80 percent -- $2.7 trillion -- came from individuals through either income tax or payroll taxes that fund Social Security and Medicare. Corporate taxes kick in just 9 percent of the government's revenue. With a federal budget of $ 4.4 trillion and the above revenue, we will go another $ 1.1 trillion in the hole in 2019. Until our government makes a serious attempt to cut spending and raise taxes we will continue to go down the rabbit hole but we won't end up in Wonderland.
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