Note: Although I try to keep GRS a politics-free zone, today's topic is inherently political. I've stayed as neutral as possible in the article, but I know that there'll be some political discussion in the comments. Please keep conversation civil, as always.
Because I was frustrated with my own ignorance about the U.S. federal budget and our tax system, I recently spent twelve hours researching a variety of tax topics. From my research came two articles: last week's short guide to the federal budget and today's post, which answers some of my personal questions about taxes.
Last week, we tried to take a few small steps toward understanding the federal budget. We looked at where the U.S. government spends its money. But where does it actually find the cash to spend?
Of the $2.333 Trillion dollars in U.S. government receipts:
- $1050 Billion (45.0%) comes from Individual Income Taxes
- $939 Billion (40.2%) comes from Social Insurance/Retirement Receipts
- $221 Billion (9.5%) comes from Corporate Income Taxes
- $76 Billion (3.3%) comes from Excise Taxes
- $20 Billion (0.9%) comes from Estate and Gift Taxes
- $28 Billion (1.2%) comes from Federal Reserve Deposits
- $16 Billion (0.7%) comes from other miscellaneous sources
As you can see, nearly half of government receipts come from individual
income taxes. Naturally, taxes are a hot-button issue. They have been since this nation was founded. (To be fair, though, the driving force then was “taxation without representation”. Modern complaints are against taxes in principle, I think.)
During my research, several questions about taxes occurred to me. In today's article, I'll do my best to share the answers I found.
Is it true that X% of Americans pay no federal income tax?
In a recent discussion about taxes at The Simple Dollar, Kevin wrote:
Roughly half of all Americans don't pay any income tax at all. I'm sure those folks feel the current tax levels are just fine and dandy, no complaints. Those of us who DO pay taxes, however, are buckling under the weight.
Kevin's comment left me wondering: Are there really that many Americans who don't pay income tax? And are those of us who do pay income tax really “buckling under the weight”?
I was unable to locate government data on people who don't pay taxes. Instead, I found a March 2006 article from the Tax Foundation, a nonpartisan tax research group based in Washington, D.C., which calculated that 43.4 million tax returns resulted in zero (or negative) tax liability. Another 15 million households file no tax return at all. Based on these numbers, the article concludes:
Roughly 121 million Americans — or 41 percent of the U.S. population — will be completely outside the federal income tax system in 2006. This total includes those who pay no tax, and those who pay some tax upfront and are later refunded the full amount of the tax paid or more.
So, according to this study, 41% of the U.S. population lives outside the federal income tax system, and 32% of U.S. tax returns resulted in zero or negative liability in 2006.
This 32% number is relatively high. Previous peaks were at 28% in 1950 and 26% in 1978. Lows were 16% in 1968 and 18% in 1984. In general, the percentage of tax returns with no tax liability is between 20% and 25%.
The Tax Foundation sees these numbers as a call to “broaden the tax base”, but admit that nonpayers tend to be younger and earn lower incomes. (Here's a past GRS article about people who live on low incomes in order to avoid paying taxes.)
If there are a large number of non-payers, does that mean the rest of us are “buckling under the burden”? Let's look at more numbers.
How do current income tax rates compare with those from the past?
In the United States, the federal individual income tax went into effect in 1913. The top marginal rate was 7% — and that's if you earned over half a million dollars. (According to the Bureau of Labor Statistics inflation calculator, that's equivalent to an income of nearly $11,000,000 today!)
The Tax Foundation has published a handy viewer that allows users to explore U.S. federal individual income tax rates from 1913 to 2009. (They offer PDF and Excel versions of the data, too.)
Using their data, I created a graph that shows the history of U.S. marginal tax rates. This graph shows the lowest marginal rate in red and the highest marginal rate in blue. At any one time there are many other rates in between. (The tax tables are simple right now, believe it or not.)

Based on this information, it would be easy to conclude that tax rates are low in the United States right now relative to past history. While I believe this is probably true, it's impossible to know this for sure without copious data regarding average incomes and effective tax rates. Still, the answer to the next question provides a bit of a response.
What tax rate does the average person pay?
Because the United States has a system of progressive taxation, it's difficult to know exactly how much each person pays for income tax. We all know our marginal tax rates — the rate at which the last dollar of our income is taxed — but our effective tax rates (or average tax rates) fluctuate from year to year.
I don't know a source for comprehensive data on this question. The IRS does provide some statistics (and may, in fact, provide all the data one needs), and other parties have taken the time to collate some of it. For example, the Tax Foundation has produced several pages of summary tables. From this info, I built the following chart:

This chart shows the average federal income tax rates over time for a variety of income levels. The red line shows the average tax rate from 1980 to 2007 for the top 1% of the population based on Adjusted Gross Income (AGI). The black lines shows the top 10% of earners based on AGI. The blue line shows the overall average federal income tax rate for all U.S. citizens.
In 1980, Americans paid 15.31% of their AGI in income taxes. In 1990, that number was 12.95%. In 2000, it was 15.26%. In 2007 — the last year for which there is data — that number was 12.68%. Based on this, I'd say that the average American has an effective federal income tax rate of 13-15%. (And top earners pay about 22%.)
Note that these numbers don't exactly match the statistics for effective tax rates that are available from the Congressional Budget Office. (Which show, for example, an effective individual income tax rate of 11.7% in 1980, 10.1% in 1990, 11.8% in 2000, and 9.1% in 2006.) I'm almost certain it's a matter of methodology, but I don't have the time to dig in and discover the details. That last link, by the way, contains loads of great data, some of which is analyzed in this piece at The New York Times.
So are Americans “buckling under the burden” of taxes? I'm not convinced. Taxes seem to be moderately low right now based on our past history. But maybe we pay more than the rest of the world? Let's find out.
How does the U.S. tax burden compare with that of other countries?
Though I was unable to locate comprehensive statistics for every country in the wold, the Organization for Economic Co-operation and Development (OECD) does collect data on its 30 member nations.
In fact, you can view 18 years of OECD tax data all on one page. These numbers represent each country's tax revenue as a percentage of GDP (gross domestic product). These figures include all taxes: federal, state, and local. (Note that you can export the data from this page in a variety of formats! Fun for stats geeks and tax geeks alike.) Here's a graph of the data from 2006, the most recent year for which complete stats are available:

In 2006, tax revenue in the United States was 28.0% of the gross domestic product. Put another way, the average American paid 28% of her income to taxes (state, federal, and local). Of the 30 OECD member countries, only four had lower taxes (Japan, Korea, Turkey, and Mexico). The highest tax burdens were in Denmark and Sweden, where tax revenue was 49.1% of the GDP. The lowest tax burden (by far!) was in Mexico, where tax revenue was only 20.6% of GDP.
These numbers indicate that relative to other countries, the United States has a low tax burden.
How much is this all costing me?
Social Security, Medicare, Medicaid. Food Stamps, Unemployment Compensation. The Army, the Navy, the Air Force, the Marines. And the interstate highway to grandmother's house. How much does this all cost you?
Well, Jess Bachman (the Death and Taxes poster guy) has done the calculations for you:
The average U.S. taxpayer has an income of $43,650. For every billion dollars of government spending, this taxpayer is on the hook for five bucks. These numbers scale up or down depending on your income. If you earn $100,000 a year, for example, you pay $15 of taxes for every billion dollars the government spends. Ouch.
Conclusion
Based on my research, U.S. taxes actually seem relatively low, both historically and in relation to other countries. I am not arguing that we should have higher taxes. Nor am I arguing we should have lower taxes. I'm just relaying the facts.
In fact, I don't really have a purpose behind my research other than education. With all of the recent national discussion about taxes, I felt woefully under-informed on the subject. When listening to people argue about taxes, it's difficult to know whom to believe. I wanted to do my own research and then share the results with you.
For more exciting information about taxes, check out the following:
- Internal Revenue Service: Tax statistics
- U.S. Treasury: A history of the U.S. tax system
- Data.Gov provides easy access to tons of statistics collated by the U.S. government.
- Tax Foundation: State and local tax burdens (by year) and State and local tax burdens (by state)
- Congressional Budget Office: Data on the distribution of federal taxes and household income (with thanks to Dan, a commenter at The Simple Dollar, who shared this info with me)
After all that, how would I balance the budget if I were dictator of the United States? Easy. I'd cut all programs across the board by 10% while increasing taxes on everyone by 10%. Yeah, that sucks, and every citizen of the U.S. would be unhappy. But you know what? If I were dictator, I wouldn't care. I'd be sitting in a cozy room reading comic books while eating chocolate chip cookies with milk.
Update #1: As with last week's post, I'll post updates here at the end of the article as readers offer clarifications or important points. For example, although I focused exclusively on federal income tax for individuals in this article, several readers noted that this is not our only federal tax in the United States. Linear Girl provides a succinct summary: “The second largest source of funds for the federal government is payroll tax, aka Social Security and Medicare. All employed people who aren't paying any income tax do pay payroll tax of 7.65% on all earned income (their employers also pay and additional 7.65%; if you are your own employer you pay both sides). “ So, if you want to include the complete federal tax burden in the above conversation, you need to add 7.65% to all figures — 15.30% if you're self-employed.
Update #2: For those requesting a second part to this article about how this money is spent…that was actually the first part, last Monday's short guide to understanding the federal budget.
Graphs courtesy of me. Images courtesy of Jess Bachman, creator of the Death and Taxes poster.
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.
I think that an important lesson of the international comparative taxation graph is the role of Mexico’s dysfunctional taxation system as a push factor in emigration from Mexico. Mexico has some of the richest individuals in the world and is home to a number of very wealthy multinational corporations, yet tax revenues are abysmally low (20%). The U.S. effectively subsidizes rich Mexicans and Mexican corporations by providing a social “safety net” in the form of emigration and remittances. Unfortunately, most studies have shown that this places a significant tax burden on American taxpayers, largely at the state and local level, as they must provide social services to immigrants and their children. In the end, the average American taxpayer ends up subsidizing very wealthy Mexicans who aren’t paying their share.
Thanks J.D. Nice job with the research.
My biggest frustration with the tax system is the complexity. I would love to see a simpler system with more transparency, but alas, transparency is not the desired outcome of the political class. Our legislators love to use the tax system to reward an industry (donors) or a class of citizens (voters) and I don’t see them ever giving up this ability.
Maybe we should all forward GRS columns on living within our means to our representatives.
As you included this figure in your receipts categories, you should also include it in your rates calculations.
Also, Bush pushed through a 0% tax rate on certain dividends and long-term capital gains, two assets typically held in trust funds.
I’m a tax accountant and a CPA. I had two families come in last year with the same amount of income, roughly $120K, with the same mortgage and the same number of children. One of the families paid $30K in income and payroll taxes on that $120K. The other paid $0, as all their income was from a trust fund.
Well done! I think the takeaway here is pretty simple: people need to stop complaining about their taxes already.
It’s not just federal taxes. Here in NYS the state income tax is high, my town real estate taxes are among the highest (mine were as high as my federal taxes before deductions)…even the sales tax is 8.25% That doesn’t include all the new fees/taxes impossed on many services and registrations here in the state. And as others have said, SSI, SSDI, and others, as well as investment taxes, etc. My tax burden overall is very high.
Well done indeed! I’d love to see some further research on how that money is spent… but that might be a bit more frustrating for the readers.
Well done. I enjoyed reading this article.
Taxes are a great thing to complain about. Every working person pays taxes, so it has the potential to resonate with all voters. Of course, the devil is in the details.
I for one like the idea of raising taxes and decreasing spending at the same time. Right now, we have one party that frames itself as providing the programs that people want, and the other party frames itself as the one that will reduce your tax burden.
They are both liars, because neither one of them wants to do what is necessary to be responsible for future generations. We have a huge debt and still maintain a huge deficit. There is no way to deal with that other than by cutting spending AND raising taxes.
Realism, unfortunately, does not win elections.
Good post, very informative.
I was glad to see you point out that those who don’t pay federal income taxes usually have lower incomes. My family has low federal income tax payments, because we don’t make very much money…I’ll gladly trade my lower income for a higher one and happily pay the taxes associated with that income.
I think the idea of the Fair Tax is a good one.
“The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment.
The FairTax Act (HR 25, S 296) is nonpartisan legislation. It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities.
The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system. ”
Explanation is from the Fair tax website.
For many Americans, the issue is still “taxation without representation,” not against taxes in principle. I live in Washington D.C. and we do not have any say at all in the federal tax system. Indeed, our license plates say “Taxation without Representation.” We D.C. residents do not have full voting rights in the House, nor any voice at all in the Senate.
If Wyoming, Alaska, or Rhode Island were in the same situation and denied federal legislative representation, I simply can not imagine the uproar.
This is very informative. Numbers don’t lie, and I appreciate looking at data rather than listening or hearing various opinions on what taxes should or should not be about.
Gwendally:
I suspect there will be two kinds of responses to your anecdote: people who think, “Wow, I should figure out how to pay no taxes too!” and people who think, “Wow, that’s wrong and should change.”
I think when people complain about taxes in general, it is the total taxes they are trying to figure out. How a person would go about doing that, I have no idea.
If a person has property tax, sales tax in their state/city, state income tax, federal income tax, etc., various gov’t fees, it might be why so many are complaining.
Denmark has very high taxes according to your chart. I believe it. We were just there. Everything there is quite expensive! People seem to live okay, though, and one lady told my husband how everything is “free”…though she pays 40% in taxes and her hubby 60%. Schooling, health, insurance, etc. (I’m going to assume schooling through college.)
“Roughly half of all Americans don’t pay any income tax at all. I’m sure those folks feel the current tax levels are just fine and dandy, no complaints. Those of us who DO pay taxes, however, are buckling under the weight.”
This is a hot topic of discussion at our house and included in that sort of statistic (whether it be “roughly half” or 41%) are the percentage of taxpayers whose income is derived from government jobs funded by TAXES!
And because people tend to vote in their own self interest, our fear is that when the tipping point reaches 51% (if it hasn’t already) then the nonpayers and people who derive their income from OPM (other people’s money aka tax dollars) will ALWAYS vote themselve a “pay raise” by raising taxes on the people who actually provide the tax dollars to begin with.
I used to be a government employee (education) and it took me a long time to wrap my head around the fact that even though I was a “good little tax paying citizen” paying taxes on money I “earned”, I had not CREATED the money I was earning. I was not a florist, a drug store owner, a photographer, an independent accountant, a mechanic, etc. I was paying taxes, alright, but I was using OPM to do so.
So our concern, JD, is not so much the rate of taxes that we pay (although we are concerned–because our federal rate is around 38% PLUS all the OTHER state and local taxes–car tags, telephone tax, gasoline tax, sales tax, etc) but what will happen when those that rely on taxpayer funded dollars realize that they can continue to vote themselves more and more and more money.
That leaves the people who are actually CREATING the dollars to have to work harder and harder for less and less.
I think it would also be interesting for people who post comments to state whether their incomes are derived from tax dollars or not, or even trust funds, given Gwendally’s post.
So I’ll start. We are a split houseold. DH is not paid with government dollars, I was,and am still, partially through my state’s retirement fund.
In 2006, tax revenue in the United States was 28.0% of the gross domestic product. Put another way, the average American paid 28% of her income to taxes (state, federal, and local). Of the 30 OECD member countries, only four had lower taxes (Japan, Korea, Turkey, and Mexico). The highest tax burdens were in Denmark and Sweden, where tax revenue was 49.1% of the GDP. The lowest tax burden (by far!) was in Mexico, where tax revenue was only 20.6% of GDP.
I don’t think the first two statements are equivalent. I think that GDP is not a measure of the “average” countryman’s income, but rather a measure of how much that country makes and sells. Three of the four contries with lower taxes vs. GDP are large exporters of products and I suspect they have a high GDP compared to their required tax income. Denmark and Sweden are on the other end of the Laffer curve (see http://en.wikipedia.org/wiki/Laffer_curve).
BTW, you have form instead of from on the 2nd line of the breakdown of the $2.333 trillion the government receives in taxes.
1. Taxes need to be simplified because we spend way too much on tax preparation, filing, and enforcement. Very few people disagree with that, unless they somehow derive their income from the preparation, filing, and/or enforcement. Simplify things and make it fairer!
2. Taxes need to be fair. Almost everyone has an opinion on what “fair” means. I’d say that “fair” means everyone pays some federal income tax – if they have income – regardless of source. Trying to get people to behave a certain way by giving tax breaks is social engineering and shouldn’t be part of the tax system. It leads to perceptions of unfairness because taxes (to pay for constitutionally-mandated federal functions) should not be used for social experimentation or engineering. So, ensure everyone pays some federal taxes, and ensure federal taxes only go toward constitutionally-mandated functions. Now, fairness is closer to realization.
This is great. Thank you very much for crafting an exceptional educational piece. I’ll share it both with my Fox News relatives and Daily Show friends.
The second largest source of funds for the federal government is payroll tax, aka Social Security and Medicare. All employed people who aren’t paying any income tax do pay payroll tax of 7.65% on all earned income (their employers also pay and additional 7.65%; if you are your own employer you pay both sides). I think it’s important to keep this in mind during discussions because the rhetoric often gets quite heated about people who don’t pay “anything.” Since our government does not keep these funds in trust for retirement benefits but instead spends them in our regular budget, these people are definitely contributing to federal operations.
I think it’s interesting and illuminating to see how little comes in from corporate (9.5%) and estate (0.9%) taxes. Based on stories in places like the Wall Street Journal highlighting these taxes, it sometimes seems as though these must comprise a much larger part of the budget since they get so much coverage. Nice article J.D.
I’m still scratching my head over how some people avoid paying taxes altogether. HOW!? I’m very close to the $12,000/yr mark, and every year, I pay at least $1000 in federal taxes, sometimes more. Is it because I’m partially self-employed? Even my part-time retail job, which brings in around $9000/yr (well under the $12,000 mark) takes taxes out of every paycheck. I never get a refund at tax time, I always owe (I filed my w-4 as single/0). What in the world am I doing wrong? 0_o
oldernwiser :
Regardless of where the money came from, you still earned it, didn’t you? You provided a service worthy of payment, or else you wouldn’t have been paid. The florist and mechanic are paying taxes with OPM too. Someone else had to earn that money to pay for those roses. Either way the money is going to be spent, and the money you take home at the end of the day used to belong to someone else.
And yes, OUR taxes are paying my salary.
What I’d be interested in would be a comparison between taxes and other stuff.
For instance, for these 30 countries, how does the tax rate compare to quality of life?
Or, how does the tax rate compare to the rich/poor gap? (difference between highest wage and lowest wage, percentage of very rich/very poor people, etc).
If I had to go with instinct, I’d say high taxes would result in a higher average quality of life, with less poverty and less very rich people. In other words, that it redistributes wealth more.
Which is the point to some extent.
oldernwiser, I don’t exactly understand your post. As an educator who is paid through taxes, you can’t exactly vote yourself higher pay over and over again. You might be able to vote for people who promise to raise taxes, but (1) I haven’t heard a politician promise to raise taxes in years; and (2) just because taxes are raised does not mean your particular interest group will get a pay raise and almost every educator I know is acutely aware of that. I just don’t see this conspiracy of “let’s vote for higher taxes so I’ll get a raise” out there. I’m sure there’s a contingent of government employees who think this, but this statement just doesn’t seem to reflect our country’s current attitude toward taxes or government.
Maybe I am missing what you were getting at?
It’s impossible to simply taxes, because the biggest problem is in deciding what constitutes income. The secondary issue is in deciding what rate applies. Let’s assume people in my examples are in the marginal 15% bracket, by far the most common:
Example 1: is it income if you sell standing timber on your woodlot? What about if you CUT the standing timber and sell it? (Cutting it is subject to self-employment income, selling a capital asset is subject to capital gains taxes, so the rate is either 15%+15.3% if you do the work, or 0% if you owned it to begin with and just sold it.)
Example 2: Same thing if you manage an apartment complex: that’s subject to an extra 15.3 tax if you are getting a wage for it, so 30.3% (before state income taxes) OR you can have it be rental income if you own the property, so 15% without that payroll tax.
Example 3: You receive a chunk of money from your parent when they die: if it’s from their savings account, 0% tax. If it’s from their IRA, 15% tax.
Example 4: You sell widgets and gross $100K. But you have payroll costs of $30K and cost of good sold of $20K and you had to use vehicles and equipment and made leasehold improvements – those all get depreciated. You also had office supplies and pay dues to Widget Associations and that all totaled another $10K. Your taxable income is $40K.
Most of the work I do as a tax preparer involves tabulating what is actually taxable income, and very little involves deciding what tax rate applies.
I’ll say this again, though: you simply CANNOT talk about marginal tax rates without discussing the nearly invisible 15.3% tax people pay on the very first dollar of their labor earnings. This is a flat tax on the first $100K people make (after that it drops down to 2.9% for people earning six figures.) The fact that you left it out of your post nearly entirely is part of the heinous blindness that people have about their true tax rates and I think you should go back and revise this to talk about it.
Do NOT fall into the lazy thinking that it’s the employer’s problem to pay the 7.65% they pay in to the employee’s account in return for the employee’s labor. It absolutely IS money the employer is paying for the employee’s labor, the employee just doesn’t ever see or recognize it. This is a hidden tax at the most hidden.
@Brenda: if you earn $12,000 you have exemptions and deductions worth approx. $9K, leaving you with $3K in taxable income in the 10% bracket, that’s $300. But you also pay 15.3% in social security and medicare taxes, and that’s $1700, leaving you with a tax burden of $2000, some of which you may have had withheld or paid via quarterlies. Because withholding (the law of the land) is so smooth, self-employed people are the only ones who ever really notice their tax burdens, because they’re the ones writing big checks. Employees are paying exactly the same taxes, they just don’t see them.
@Gwendally (#25)
You’re right — I should have explicitly included payroll taxes in the post. (It’s implicit in the country-by-country comparison, which includes all taxes.) I’ve added an update to note this. And I want to highlight an excerpt from your comment. This is a good point:
You simply CANNOT talk about marginal tax rates without discussing the nearly invisible 15.3% tax people pay on the very first dollar of their labor earnings. This is a flat tax on the first $100K people make (after that it drops down to 2.9% for people earning six figures.)
@WritersCoin #3:
“…people need to stop complaining about their taxes already.”
I respectfully disagree. I believe taxes are too complex, and, the spending of taxes on items that aren’t constitutionally-mandated is not fair because they amount to social engineering (which is NOT supposed to be the function of the federal income tax). I believe complaining will continue until at least these two items are mitigated.
Some additional statistics from the IRS in 2005:
Bottom 50% paid 3% of federal income taxes.
Top 5% paid 60% of federal income taxes.
Top 1% paid 39% of federal income taxes.
Some additional statistics from the Treasury Department in 2006:
Bottom 50% paid 3% of federal income taxes.
Top 5% paid 53% of federal income taxes.
Top 1% paid 33% of federal income taxes.
Note that the top 1% is part of the Top 5%, not in addition to the Top 5%.
My personal opinion is that the Top 5% already pay a high enough percentage, so the trend from 2005 to 2006 is a trend in the right direction. I think the bottom 50% needs to pay more federal taxes to increase the system’s fairness.
If the bottom 50% is going to derive ever-increasing benefits from the federal government, they need to be paying more than 3% of the cost of running our country. Otherwise, they vote to continuously increase their benefits without any fear of having to pay federal taxes (which creates the problems mentioned by other posters in this comment string).
# 5 – Writer’s Coin
Are you kidding me?
Also, I want to confirm something that Gwendally says in #26: When you are self-employed, you become acutely aware of payroll taxes. Again, I’m not arguing that taxes are too low or too high. But when I make my quarterly payments, it’s a very painful thing. I experience a visceral ache when I write these huge checks to the IRS. The first year I did it I complained to Kris that it really felt like the last month or two of work had been for naught — I had no money in my account because it all went to taxes. Now I’ve learned how to budget for this, but it still is painful.
@Brenda – Keep in mind that if you have self-employment income, you pay that tax on your 1040 tax return, but it is NOT considered income tax. Also, they way people (families, really) don’t pay tax is through exemptions and child tax credits. If you’re single with no dependents, you get one personal exemption and the standard deduction. If you had a child, you’d get a second personal exemption and if you owed any taxes after that they’d likely be covered by the Child Tax Credit, and further, if your income was low enough, you’d be eligible for the Earned Income Credit. That’s how some families can earn far more than you but still pay no income taxes (but they’d still be paying those payroll taxes to the feds).
Finally, you can pay more in each paycheck to reduce or eliminate having to pay when you file by changing your w-4. You keep it at single with 0 exemptions and also have them withhold more on the line where it asks if you’d like additional funds withheld. This is where you can pay your self-employment tax (your social security and medicare tax on your self-employment income) through your employer’s payroll deductions.
J.D., thanks for the great research and neutral presentation of information. These posts have really demonstrated the power of the internet, in my opinion.
As other commenters have indicated, I do think you should revise this post so that it is clearer when you are referring to “federal income tax” as opposed to “taxes” as a broad category. The reason I–and apparently many others–don’t like this “roughly half of all Americans don’t pay any taxes” is because that is simply not true. They don’t pay federal income taxes. And, I’d still be interested in how many people *do* pay the income tax, in terms of “loaning” it to the government through withholding, and then have it returned through refunds. That’s not exactly the same as paying “no tax.” Not to mention all of the other federal, state, and local taxes this “roughly half” pay. (And just to be clear, my household is definitely not in that “roughly half” constituency.)
Also, while you claim that the reason this group doesn’t pay federal income tax is because of low(er) income, I think it’s probably worth adding some information about income disparity, which has increased over the past decade. I find it odd when people bash that “roughly half” as if it is a group of people who have chosen to make low incomes so as not to pay taxes. As Ms. Clear’s post indicates, many of these people would like to make higher incomes and pay the corresponding taxes. I’m surprised that more people don’t look at this figure and realize that it spells potential trouble for our economy; more and more people falling below the poverty line is not a good harbinger, regardless of one’s political leanings.
I feel like the percentages of the US population not paying taxes are being skewed. Not purposefully mind you, but of the 32 percent of zero balance tax returns how many of those were under 22 and reflected students working part time? Of the 41 percent of the population living outside the tax structure is this allowing for dependents that are included in population counts? Or is it counting them as being outside the system? Individuals under the age of 18 make up 23% of the population. A large amount of those kids aren’t old enough to legally work at all. If they’re being counted among those outside the tax system then that 41 percent number is REALLY off. They may be allowing for this, but it doesn’t seem like it.
Second, from the comments, don’t we want individuals to be able to pull money from trusts without paying income tax? Otherwise the money would be taxed once when it was earned and then again when it was removed from the trust.
I think we focus perhaps too much on how much we’re paying in taxes instead of on what we get in exchange for those taxes. I would happily pay 49% in taxes for the standard of living in Denmark or Sweden. Great medical care, college students paid to be students rather than paying to do so (in Denmark at least), terrific social security, low crime, well-maintained roads – where do I sign up?
@JD and Gwendally #27:
“You simply CANNOT talk about marginal tax rates without discussing the nearly invisible 15.3% tax people pay on the very first dollar of their labor earnings. This is a flat tax…”
JD, please remember that the “payroll taxes” result in federal benefits (medicare and social security payments) that pay a MUCH higher percentage of return to the bottom 50% of taxpayers (see my post #28 above).
What this means is that the top 1% of taxpayers may pay 3, 4, or 5 times the payroll taxes due to income up to $106,900 this year, but they will later receive less than twice the social security payment benefit. So, payroll taxes are not a “flat tax” except on the tax side. On the benefit side they’re skewed toward the bottom 50% of taxpayers. Not linearly fair, not flat.
Paul in cAshburn: how have you come to decide that the top 5% already pay enough? They pay slightly less than they used to, and they pay less than in most other developed countries. So, is this just a gut feeling of yours, or are you looking at data that indicates tehy pay “enough”? I’m not being snarky; I’m serious.
I’d also like to see your statistics that the bottom 50% are getting “more and more” from the federal government. What are you referring to?
http://online.wsj.com/article/SB121677287690575589.html
This article describes how the richest 1% share of the tax burden has grown, but not as fast as their incomes have.
@Michael West (#33)
Although I didn’t indicate this in the post, I agree with you. I’m highly skeptical of these numbers because they don’t come from any official source; there’s only one entity producing them, and they don’t share their methodology. (The simply say that they “use IRS data”.) As a result, I distrust this data. I would love to see a more detailed breakdown.
for Avistew,
I know from first-hand experience (married to a Dane) that although taxes in Denmark may seem high compared to taxes in the U.S., you have to look at what the Danes get for their money: free education at all levels (including med schools, PhDs, along with monthly stipends), free medical care (including long-term nursing home care if needed), and guaranteed retirement benefits. All one has to budget for in Denmark are clothes, food, gas, mortgage, and vacations. If you are laid-off from a job, you are guaranteed 90% of your former income while unemployed. Not to mention maternity leave benefits (six months full pay). Seems like they come out ahead in the long-run compared to the U.S. The society feels much more stable economically.
While this is probably way to much work to ask of you JD, I’d be curious what percentage of the 41% who pay no Federal income tax are teenagers. I never payed federal taxes as a teenager, but I spent every cent I earned. Having no need to pay for necessities and being too foolish to think about saving, I, like I’m sure most teenagers, gave about 8% of my income in sales taxes to state and local governments. Even for an adult making a salary low enough to be exempt, they would have a lower savings rate proportional to their cost of living, and would pay a decent amount of sales taxes that way. Those things keep state and local governments running, which I would argue is the reason for the tax exemption.
I read an interesting treatise once that showed that democracy only survives and thrives in places where people have to pay income taxes. In asset-rich nations (oil, for example) the people are content to just let the government do everything for them, and despotism inevitably arrives.
It’s only when people get outraged at their pockets being picked that they get involved at the grass root level. I think this is why so many self-employed people are represented so widely at the town and state level of politics. They’re just AWARE of what’s happening.
@MM: I have no idea what the right way is to tax labor versus sale of stored assets. The income to create the stored assets was taxed once, and we don’t want to penalize people for storing assets. It’s not an easy question to answer in a knee-jerk way.
My main beef is that people aren’t TALKING about it. With labor being taxed so excessively much larger than sale of capital assets, we really ought to talk about what is in the best interests of the nation to incentivize.
I just wanted to pitch in about people who don’t pay income tax.
1 – seriously, I’ve been there and I prefer paying taxes to earning that little. Let’s not forget that if you earn more and pay income taxes, you’re still left with more money in the end than the ones who earn less and don’t pay taxes, due to how the tax system works)
2 – if they “voted themselves a higher wage”, they’d earn more and need to start paying taxes anyways
3 – they still pay stuff like sales tax like everybody else, so it’s not like they’re all freeloaders.
I find it normal to let people keep a minimum to survive and feed themselves, etc. That 40% of the US people don’t pay income tax just means to me that 40% of the US people are too poor to pay taxes, and that’s not a very nice figure.
I wonder if countries with high taxes have more or less people who don’t pay income taxes. (Not that it would necessarily always be relevant. France for instance has a 20% sales tax that is on absolutely everything, including groceries and such. Even people who don’t pay income tax pay at least these 20% on absolutely everything they buy)
I’ve heard a few people mention unemployment: that tax is ALSO a hidden tax on labor and is approximately 2% of payroll (it varies a lot with a complex calculation, though, so it’s hard to guess.)
A lot of people think that it’s just a cost of doing business, and it is, but it’s the cost the employer is willing to pay to obtain an employee’s labor. They factor that in when they determine how much they’ll pay in wages: the total cost to the employer of obtaining the employee’s labor IS what the employee is earning for their labor, they just don’t get to keep it. Besides the 7.65% that the employer pays into the employee’s social security account on the employee’s behalf for the employee’s labor, the employer also pays in for often very expensive health insurance packages. But that’s a story for another day.
I just wish employees were more aware that the costs employers have to employ them is money the employers are willing to pay them for their labor. That little mindset switch could make all the difference in a lot of places.
As always with statistics they can be spinned any way you like. The idea that “40% of Americans” or 121 million people don’t pay any tax sounds pretty bad but how many of those are little kids or teenagers with low incomes?
According to the census – 24.3% of all Americans are under 18 which is about 73 million people. This leaves only 48 million people (or 16%) of the population outside the tax system (and presumably could be inside the system) which doesn’t sound quite so bad.
Of those 48 million people who are 18 or over, some are in school, low income seniors, unemployed, sick, in jail etc. So this number could probably be reduced a bit more.
http://quickfacts.census.gov/qfd/states/00000.html
Good article & I really respect your attempt to present facts rather than just slant things so that they seem to agree with what you believe (though I think both sides do this).
One small quibble – you say, “the average U.S. taxpayer has an income of $43,650”, but I think you mean the average U.S. household (apparently it was a little over $50k in 2006-2007, but has probably come down quite a bit from there). However, major kudos for pointing out the difference between marginal taxation versus how most people think about it.
The richest Americans do pay a higher percentage on the AGI, but what about the tax strategies that relieve their AGI, thus reducing their taxes.
Specifically, corporate income taxes, and taxes on L.L.C.’s are lower. Every rich person in this country “owns” their own corporation, even if all it does is invest for them. Then, when they need a corporate jet, the “company” buys one for their “CEO”.
The book “Rich Dad Poor Dad” shows you exactly how to do that, by putting your original taxed assets (income) into a tax sheltered growth environment (a real estate or investment company) where it can grow, and spend it’s profits on you, keeping no cash on hand to get taxed.
Guys like Bill Gates are worth $50 billion or whatever, but that’s because he has $49.9 billion in microsoft shares, which won’t get taxed until he sells the shares.
Kevin’s comment is breathtakingly dishonest. It implies that “roughly half” of Americans really ought to be paying income taxes, but aren’t, and are smugly dumping their burden on the rest of us. It apparently doesn’t occur to him that some Americans do not have income. (Darn those selfish kindergartners, dumping their responsibilities on us hard-working taxpayers! Make the little rugrats pay!) It also doesn’t occur to him that, as has been pointed out repeatedly above, people who don’t pay income tax pay other taxes – like sales tax.
J.D., unless I’m missing something, which is entirely possible, there is a major flaw in the section before your conclusion:
Social Security and Medicare are not discretionary spending and therefore (probably) not counted in the poster calculation, since the poster only talks about discretionary spending. SS and Medicare are gigantic entitlements, which means that the average taxpayer pays a lot more than just $5/$billion for all that federal spending. $5/$billion sounds about right for discretionary spending, but most federal spending (and growth in federal spending) is in entitlements.
#ethel #36:
My personal opinion is that taxes should be more linear, which would result in a minimum percentage of federal tax imposed on all who have income. (What’s income? Sorry, that’s a separate debate, this post will be long enough already…). Yes, I believe a higher percentage of federal tax should be imposed on higher incomes, but I think when the bottom 50% are paying 3%, and the top 5% are paying 53%, it’s not linear enough. (i.e., It’s skewed too much in favor of the bottom 50% of federal taxpayers.) I believe this gross non-linearity causes guilt and anger and results in class warfare – but we can reduce these corrosive effects if everyone felt they paid their fair share of taxes.
Right now, the top 5% are mad as heck and do whatever they can to avoid taxes. This is divisive because ideally everyone should feel their taxes are going toward the common good and they should be proud to pay them. (Yes, this is a little idealistic of me, but that’s my personal opinion.)
Instead, the bottom 50% might be falling for the insidious idea that they can collect more in federal benefits than they’ll ever pay in taxes – which is divisive because they’re put in the position of taking more than they give – which is not a source of community pride and shared sacrifice.
As to increasing benefits… I don’t have statistics, just my personal observations. Whenever a new congressional boondoggle is announced, it seems the beneficiaries are the bottom 50% of federal taxpayers. Two possible examples:
Cash for Clunkers. How many people in the bottom 50% traded a clunker, and how many in the top 5%? I’m guessing it’s skewed toward the bottom 50% of federal taxpayers because the top 5% probably already traded in their clunker because they could afford to do so and it was the right thing to do for the environment – not because Congress offered a new federal benefit.
Medicare and prescription drug benefit. Most people in the top 5% don’t see doctors who take Medicare because Medicare reimbursement rates are so low that the better doctors don’t accept it. This skews benefits toward the bottom 50% of federal taxpayers (and reduces the quality of their medical care, an unintended side effect).
Our country should be filled with people proud of paying their fair share to maintain our finest ideals. Congress today is not maintaining our finest ideals, and in fact is fomenting dissension and class warfare by continuing to tinker with a system that’s too complex and not demonstrably fair to all. I cannot solve this, but I can strive to understand the problem so I can try to move things toward simplicity and fairness.
We need to think of ourselves as Americans again, not as members of small “pride” groups. We are stronger because of our diversity when blended, not when divided against each other as special interest groups (top 5% vs. bottom 50%, as an example close at hand).
This is a very interesting analysis.
Before you get too comfortable with the idea that our taxes are low in relation to our history, I think a more thorough examination of ALL taxes would have to be included:
1. You failed to include payroll taxes. As a self-employed person, these hammer me.
2. State income taxes and state property taxes in most states are at an all-time high.
3. Likewise, sales tax is at an all-time high in most localities.
My total effective federal income tax rate is right around 20%. But when you add in payroll tax (more than 7 percent of my husband’s income and more than 15 percent of mine), property tax (about 8 percent of my HH income), sales tax and user taxes (like car registration, toll roads, etc.), my household pays out more than 40 percent of our income in tax.
That’s right. Forty percent of our income goes to taxes. You call that a reasonable tax burden? Especially when people of our age will never get a dime out of Social Security for the thousands we pay in each year?
And yes, I am annoyed that 40 percent of TAX FILERS (not “people,” which includes children and the retired, but tax filers) don’t pay any income tax at all. Many of those also receive transfer payments in the form of the earned income tax credit, which can be many thousands of dollars each year. Therefore, they end up with NO tax burden, since they are essentially being refunded what they paid for SSI, and then some.
I believe every earner in our country should contribute taxes in direct relation to their income. Low-income people actually consume more government services on average, so for them to pay nothing (or get money back from actual taxpayers like me) is ridiculous.
We must stop penalizing success.
These days, the problem isn’t “taxation without representation.” It has become “representation without taxation.” Those who pay should have the say. Everyone should have skin in the game.
@Paul in #35: Yes, you are correct, the social security safety net helps the people in the bottom tiers of income disproportionately. You are correct.
But it still perverts the concept of graduated income tax rates if we say the people in the lowest income brackets have to pay the highest percentage of their disposable income to cover the safety net.
This is getting even more important to discuss as we add a brand new social safety net into the mix. Are we going to add another hidden tax to the laboring class? My guess is, yes, because social security’s hidden tax is so well-hidden that nearly no one notices it. What politician can resist that?
One problem I have is that I think it’s poorly conceived social engineering, or at least politicking at its worst, that the mechanisms used to lower tax burdens encourage people to adopt certain lifestyles.
This happens across the board but what I’m specifically speaking to are the large number of lower income people I know, who typically make less than 25k a year, who purposefully have 3 or 4 kids just to get the tax relief. I know that sounds asinine but that’s how these people think.
It gets even worse when you realize those kids get government healthcare, schooling, food stamps etc. all provided on the taxpayers’ dime.
That’s the real tragedy of our tax system, the ill effects of the social engineering it creates which compound existing problems.
My god, it’s absolutely horrifying to me that we could have been so foolish as to have top marginal tax rates in the 90% range in the 40s, 50s and 60s, and STILL have a top bracket in the 70% range in the 70s.
When you have rates that high, there’s no question that you create substantial disincentives to work and to invest. Worse, you scare investment capital away from our economy. Let’s hope we don’t forget the lessons of history and go back to those rates, ever.
Dan
Casual Kitchen
@ethel..
You’re correct. Perhaps substituting the words “increasing benefits” for “raising taxes” will make my point more clear. Politicians don’t generally tend to talk about “raising taxes” (nor do people tend to vote for those who do) but they DO talk about the benefits they can provide or seek to provide if they are elected.
Ergo, if I’m a state funded teacher/retiree (or any other type of taxpayer funded employee) I would most likely be highly interested in voting for someone who is dedicated to seeing that my benefits increase or are not reduced. (I’m betting dollars to donuts that these politicians are NOT talking about reducing spending to allow me to keep my benefits.) I’m not saying ALL taxpayer funded employees have this attitude, btw.
I’m sorry, but I tend to believe that there IS the “what’s in it for me” attitude out there. I also can’t claim that I never thought this way when Politician X ran on a platform of increasing state benefits or Teacher Union President Y encouraged folks to vote for Politician X because he would do so.
@Adam
This is the argument that I had for years with my husband and I’m sorry that I didn’t make myself more clear with my reference to OPM…
Yes, I worked and got paid a fair wage BUT I got paid that wage with money that I did not CREATE. I got paid with OPM…taxpayer dollars…that comes from people who create and provide products, jobs, and services that people want to buy.
Finally he posited his argument this way, “Since the government can’t create money out of thin air (not SUPPOSED to, anyway) and if nobody created anything that created a profit on which taxes were paid, how would YOU be paid?” It was sort of a lightbulb moment for me.
“…the money you take home at the end of the day used to belong to someone else.” True. The difference is whether someone VOLUNTARILY parted with their money or whether it was taken under threat of going to jail.
Another aspect to taxation is income mobility. People’s incomes change over time, and they move in and out of the federal income tax system. I’m disabled with a low enough income to not be currently paying federal income taxes, but in the past have been in higher federal income tax brackets, even getting hit by the AMT. (And, as others have already pointed out, there’s also Social Security tax, Medicare tax, sales taxes, property taxes, and so on, some of which are paid even by those at the lowest income levels.)
This is a very interesting article to me. Thanks JD! And thanks about the link to state and local tax burden too, VA and MD is so close but the tax burden is so different.
About the idea of people who don’t pay income tax pay other taxes – like sales tax: I for the idea that having more money means spending more, thus paying more tax.
I would like to mention that people who “don’t pay income tax” generally are people who don’t generate or have a lot of money – at least enough to reach the tax bracket. As a result of “don’t generate or have a lot of money”, I can’t say that they (who don’t pay income tax) will contribute a lot in the total tax budget – even though they pay sales tax.
Yes, everyone can scream out loud that “Hey, I have to pay tax too, it’s 6% of my income (*)” – but how does that amount of tax compare to what people do really pay income tax and the sales tax at the same time, and they even pay more as they have more money to spend?
(*)In Maryland, our sales tax is 6% at the grocery store. I supposed that we talk about someone who doesn’t pay income tax but the grocery tax only.
I think Kevin was generous when he didn’t count the sales tax in.
JD, I’m honored that you used my quote in your article, but I was discouraged that you seemed to stray from the main point embedded in my comment. Specifically, I said:
“Those of us who DO pay taxes, however, are buckling under the weight.”
Then you concluded:
“The average American has an effective federal income tax rate of 13-15%. […] So are Americans ‘buckling under the burden’ of taxes? I’m not convinced. Taxes seem to be moderately low right now based on our past history.”
I think you just pulled a statistical “fast one” on us. My point was that fewer and fewer Americans are shouldering the income tax burden – an assertion that your own research confirmed:
“This 32% number is relatively high. Previous peaks were at 28% in 1950 and 26% in 1978”
Even though the AVERAGE income tax liability is low, it’s heavily weighed down by “zeros” more than ever before. That is, if almost half the population is paying nothing, but the “average” is still reasonable, what does that mean for the half that DO pay income taxes? It means that their burden is actually quite high, historically speaking.
I would’ve really appreciated an analysis that considered the math from that perspective.
“Naturally, taxes are a hot-button issue. They have been since this nation was founded. (To be fair, though, the driving force then was “taxation without representation”. Modern complaints are against taxes in principle, I think.)”
It’s a common mistake to think that conservatives (or libertarians, like myself) are against taxes in general. While most of us do believe that the Fed. Gov’t could very well survive with MUCH less in tax revenue, it’s not taxes themselves that we don’t like. It’s the fact that the tax system is effectively applied as a punitive measure against those who oftentimes work harder, longer, smarter, etc., for a living, thereby making more money.
And if you really want to dive deep into our objections to the graduated income tax, you need look no further than the US Constitution, Article 1, Section 9 where it’s clear that a disproportional direct tax is NOT allowed.
Furthermore, if you want to get technical, since the income tax is a tax on the earnings of labor, a direct tax on labor is effectively in violation of the 13th Amendment, since it amounts to “involuntary servitude” for how every many days/hours it takes to pay off one’s tax burden each year.
And yes, I’m fully aware that most of these arguments have been deemed “frivolous” by the Supreme Court. But they seem rational to me.
Welcome to the “tax wars”, by the time we’re finished with you, you too will be a raving loon!
Tactically, you can’t figure out how much “tax” you pay. We need to recognize that ONLY real people pay tax. So, the taxes that companies pay is really a hidden tax on the people who buy their products. BUT you can’t see it. Further, if there are capital goods used by a company, the taxes on that capital good are buried in the product’s price. Also, recognize that “costs”, “user fees”, or any unavoidable expense imposed by or as a result of the gooferment’s actions, laws, regulations, or diktats is a TAX! Try and figure out all of those. Good luck. One quick example, drugs. The FDA has rules, pharmacies have regulations, doctors have laws. Argh! It’s IMPOSSIBLE to figure out exactly what you pay in tax. And, then we can talk about monetary inflation as a gooferment tax. When you sum it all up, it might be greater than your annual income!
Strategically, taxes are NOT “the cost of living in civilized society”; they are THEFT. How does what dead old white guys did 233 years ago obligate me? It’s a principle of contract law that there has to be offer and acceptance to have a contract. Where is the offer? Where is my acceptance? What obligates me to pay? The definition of citizen states there is an exchange for the state’s “protection”, yet the courts have repeatedly held that there is no specific enforceable duty of the government to protect me. So why again do I have to pay for “services” that I don’t want, can’t use, and are horribly overpriced? In the case of Federal Abortion funding, it’s also morally offensive to me; yet, I still must pay.
Welcome to the tax wars. This is theft by deception. IMHO!
“I think it’s interesting and illuminating to see how little comes in from corporate (9.5%) and estate (0.9%) taxes. Based on stories in places like the Wall Street Journal highlighting these taxes, it sometimes seems as though these must comprise a much larger part of the budget since they get so much coverage.”
Regarding the estate tax, the reason it gets disproportionate coverage is because it’s an egregious example of governmental double-dipping. Case in point: My father died at 50, prior to W’s raising of the estate tax limit. He worked his butt off building his business from the ground up from the age of 22 to provide for our family.
He hired several local employees and provided a valuable service to the community. Being self-employed and having to pay payroll taxes for his employees, he paid a much larger percentage of taxes than your average working Joe who punches in at 9, out at 5.
He had scrimped, saved, and planned wisely so that our family would be taken care of after he died – and had paid every cent Uncle Sam demanded of him while he was alive. Despite all this, the government came around with it’s hand out again to take another pound of flesh due to estate taxes. We’re not talking a vast multi-million dollar fortune here. Enough to put the kids through college and allow my mom to live in relative comfort for the remainder of her life (she was only 50 at the time, and both her parents died over the age of 90 – she still has a long time to go), but at a modest standard of living.
And therein lies the rub – why does the government have the right to demand estate taxes on this money? Was the payroll taxes he paid for his employees, the income and SS/Medicare taxes he paid for himself, the sales tax he paid on his stock, the property taxes he paid for his business, etc. etc. not enough? Now the gov’t has the gall to tax his hard-won earnings one last time simply because he died? How is that in any way “fair”?
Edit: to head off the inevitable “well, your mom won’t have to pay taxes again” comment – she still pays taxes on the income generated by the investments (which is not insignificant), property taxes, sales taxes, etc.
@mythago (#47):
“It apparently doesn’t occur to him that some Americans do not have income. (Darn those selfish kindergartners, dumping their responsibilities on us hard-working taxpayers! Make the little rugrats pay!)”
Did you even read the article?
“43.4 million tax returns resulted in zero (or negative) tax liability. Another 15 million households file no tax return at all.”
So enlighten me. Do your kindergartners fall under the category of individuals filing tax returns (smart kids!) that result in no tax liability, or are they congregating in households comprised entirely of kindergartners and not filing at all?
@Nathan Rice: You are correct, income taxes WERE illegal. Then amended the constitution to make them legal. I refer you to the 16th amendment.
http://caselaw.lp.findlaw.com/data/constitution/amendment16/
@Lesley (#50) and @Kevin (#57)
Given more time and a better knowledge of the resources available, I would absolutely try to find more comprehensive numbers. But as I wrote to Kevin via e-mail, it’s very difficult to find clear, comprehensive information. I was frustrated during this process that sometimes the best data for a subject came from purportedly “non-partisan” organizations that appeared to have axes to grind (on both sides of the political fence). I have trouble trusting their research. The IRS does have a lot of info, and I tried to parse what I could, but one huge problem I have is not knowing where or how to search for what I need.
Anyhow, if I had spent a week writing this instead of 12 hours (which includes last week’s budget post), I may have been able to find more comprehensive data. And maybe that’s a project for the future! :)
Kevin @61, I’m referring to this inflammatory quote of yours: “Roughly half of all Americans don’t pay any income tax at all. I’m sure those folks feel the current tax levels are just fine and dandy, no complaints.”
Now, that is not a comment about income distribution, tax brackets or marginal rates. It’s a rhetorical flourish that suggests half of all Americans — not merely income-earning Americans, or tax-return-filing Americans, but all Americans, period — are laughing at us dumb-donkey, working taxpayers who are carrying their end of the tax load. (Perhaps you meant something different by the ‘fine and dandy’ complaint, but I can’t fathom what. Happy to be enlightened.)
Snowballer @52, I don’t know how many these ‘lots’ of people you personally know are, but how much of the general population can they really be? You’re talking about a group of people who are low-income, but who pay taxes such that their tax gain from intentionally having a third or fourth child is so great that it offsets any other costs resulting from having said children. I can’t imagine that being a statistically significant part of the tax base.
@ oldernwiser
I still can’t really agree that you (and I) aren’t creating something valuable that people would pay for. Parents want their children to be educated, if not, and it was strictly involuntary there wouldn’t be any private schools. If the government didn’t want to control education, some private source would, and you’d still be getting paid for the same reason.
I work for the DoD. That encompasses many things that people may or may not want to pay for even if the government didn’t force them to. Maybe people don’t want to pay for a standing military, but they sure do seem to enjoy the benefits of the technologies people like myself develop for military purposes.
So in both cases we are creating. Creating knowledge (you), and creating technological advances (me).
Great, very informative article. I think the majority of opposition to US taxation really boils down to the waste involved. I wouldn’t mind paying into a system if I felt like the people responsible for the money were spending it wisely. However, as a contractor dealing with various government entities, I can assure you the majority of that outlay is pure waste. It’s spent on temporary projects that never see light and exist just to justify various political agendas. Given what I’ve seen, I simply don’t trust the federal government to handle money well.
J.D., I still think you need to edit the line about payroll tax. It really IS the employee paying the entire 15.3%, in the sense that the employer is paying for the employee’s labor into the employee’s account for work the employee did for the employer. It’s a tax, pure and simple, on the employee’s labor.
Respectfully, I think you are doing everyone a disservice to help keep that other 7.65% hidden.
The complains about people who don’t pay income tax reminds me of an anecdote from working in a museum. A woman drew a tantrum because she couldn’t get the handicapped rate for the museum, since she didn’t have a handicap and was too young for the senior rate.
She finally said in a complaining voice “well, full price for me, since I’m not old or handicapped” and looked shocked when I told her “Well, you’re lucky”.
I mean, seriously, who complains that they’re young and healthy? And for a two buck difference?
I feel the same here. “Oh no! I’m not poor enough to be exempt from income tax!”
Well I’m glad I’m not anymore and I don’t envy the people who are.
@Daniel
Funny you should say that. I see (defense) contractors blatantly ripping off the Government every day. Talk about waste, it is theft. (nothing personal). The military-industrial complex is a disaster.
Let’s be rational. I’m not an unreasonable person. I certainly didn’t mean to suggest that kindergarteners are freeloading leeches and should be made to pay their fair share.
The bottom line for me is that there seems to be a long-term, very gradual shift in society, toward widespread “victim” and “entitlement” mentalities. It seems to me that more and more people expect “someone else” (doesn’t really matter who) to take care of them.
It bothers me in two ways. First, the waste. It drives me crazy to see how much pork is flung around like confetti, on projects and programs with dubious or no merit at all. I’m talking about things like funding for all the mortgage modifications, Cash for Clunkers, bridges to nowhere, senseless wars, overpriced science fair projects with NASA, wildly overpriced fighter jets (when the trend is obviously toward unmanned drones and “smart” missiles). When I think of how many MRI machines or rounds of chemo those TRILLIONS of dollars could’ve bought, it just really infuriates me.
The other way it bothers me is that it seems very unfair to me that the ones paying for all these social programs are the least likely to need them. The people who pay the most in income taxes are the ones least likely to ever need to call the police, or occupy an expensive cell in a prison, or take up a judge and juries time, or apply for food stamps month after month, or take advantage of subsidized housing. Now, I’m certainly not arguing that these programs should be cut, and I fully recognize that society is much better off having these things available. I don’t even mind helping out people who sincerely appreciate the help, and are doing the best they can to improve their situation and become independent again. But it frustrates me to see people going through life with a mentality of entitlement, where they feel that they DESERVE an indefinite stream of welfare checks, food stamps, and cheap housing. I would very much like to see those types of people made to contribute something back to the society that has given them so much. Something like a “work for welfare” program, or a requirement to prove a threshold of volunteer hours or something.
Of course, there are plenty of reasonable exemptions (“What if they’re old/disabled/a single parent/etc.”), and again, I’m not a cold, heartless bureaucrat. I just feel that if people are going to have an attitude that they DESERVE all these handouts, then maybe they, you know …. should.
This is on an adjusted gross income of $162,944, which is certainly more than a lot of people made last year, but also nowhere near enough that we don’t notice that missing $47,374, which turns out to be about 29% of my adjusted gross income. That still doesn’t even include things like sales tax, gasoline tax, car registration fees, and all the other little things we pay taxes on.
The average amount of taxes paid doesn’t mean much to me. The fact that we could have bought a brand new BMW 5-series with my taxes last year, or put down a 20% payment on a $235,000 home does sting a bit though, especially when I don’t own a home or a BMW now, as neither seems affordable.
Are we “buckling under the weight”? No, we’re doing OK. At the same time, I really don’t think we got our $47,000 worth out of the government last year, even including roads and police and firefighters and all the other public services that we helped fund. Our road system and civil protection are certainly worth something, I just doubt that they’re worth $125/day.
@Kevin: I think there’s another way to look at the frustrating view that the people paying the most taxes are getting the fewest services. You can also look at it and see that the people who are enjoying the most fruits of liberty should pay the most for the maintenance of such. If you aren’t someone being served meals in jail, you are at least someone who lives in a less dangerous society because of the jails. (Arguably, but let’s not at the moment.) The infrastructure in place allows you to enjoy the fruits of commerce. The security endowed by the army secures your assets.
And don’t forget that the safety net supports us all: any one of us could be hit by a bus and become disabled, or blinded, or die and leave orphaned children. We are all incapacitated by infancy and old age. The truth is that nearly every child ever born on the face of the earth through time immemorial was an unplanned pregnancy to people who weren’t secure in their professions. Supporting those people makes it possible for those families – those children – to grow to become productive educated workers that make the society you live in more pleasant.
Those who most enjoy the blessings of our country should pay more than those who are enjoying fewer blessings.
At least, it’s a reasonable way to look at this.
Part of the problem with any conversation about taxes is that are simultaneously quite different ways of looking at things that are ALL TRUE. It takes a very wise person indeed to hold all the differing points of view in mind at the same time and come up with the best course of action.
@Gwendally: the 16th amendment was never properly ratified, so one could argue that it doesn’t count as “legal”.
@Brenda: Dave from sniggle.net/experiment has a nice “how-to” page. The examples he gives are for individuals with incomes of $20k.
You know statistics are like bikinis, what they reveal is important, but what they conceal is crucial.
Although the tax system in place seems relatively low to other countries, I would love to see a statistic on the benefit that is received. For example, although I am sick of paying taxes, I would not mind paying more for free healthcare (because I would not have to buy medical insurance). In Sweden for example, even car insurance is not necessary because it comes out of the gov budget. I think that for our return on investment we do not receive nearly enough benefits.
Also, progressive tax idea is not my best option as well. I would love to trade in income tax on a higher sales tax or simply a flat tax. I just don’t see why I need to pay more taxes than someone simply because of my salary. We both drive on the same roads, breathe the same air and use the same government services.
I can provide you a real life example of a family that not only pays no taxes, but also ends up paying no payroll taxes. The family consists of a married couple with 4 children.
Their gross income is 40k. Part of that income is nontaxable combat pay (National Guard), which is 18k. They have about 3k withheld for Social Security/Medicare taxes (this is held on the gross). When they file their tax return, they get $4100 earned income credit, plus $4000 additional child tax credits. So they get refunded $8100 – meaning that not only do they not pay any income or payroll taxes, they get another $5100 on top of that!
This type of situation has not been at all uncommon for the past few years, given the number of people serving in combat zones. And even for those who don’t, I have many clients who get back much more than they have paid in for both income and payroll taxes due to low income/number of children. I do not begrudge them for the most part, with one notable exception that happened a few years ago. I had a client who got angry with me because she had earned enough money to not get the maximum EIC, and flatly stated that she would just not work as much that year since it “cost me money!”. I could not convince her that she was better off with more earnings in her hand than waiting for the end of the year to get a lesser amount in a tax refund. I was actually grateful that she was mad enough at me to not come back the next year for tax prep.
I really liked comments #70-72. You three did a fine job of encapsulating different views on taxes and their benefits (real or imagined). This has been an interesting, thoughtful conversation. Thank you.
@Tyler: did you include the 7.65% of medicare and social security your employer paid into your account on your behalf in return for your labor? I suspect you missed that $8K.
I can tell you that I had a rough time getting up to go to work during my busy season last year. I was applying for financial aid for my oldest child (who was accepted at extremely expensive private colleges) and I knew that every dollar I made was going to be taxed at (28% Fed marginal rate +15.3% SE tax +5.3% MA tax =) 48.6%, but, worse than that, every thousand dollars I earned phased out my child tax credit by $50 (that makes my marginal rate 53.6%) and I also realized that it increased my Expected Family Contribution pretty much dollar for dollar at our over $100K AGI level. That means that I actually LOST money by going to work. Oh, that was a hard and bitter tax season to work.
You know what I did? I work less. I simply choose free time more, since working pays so little. Just as my tax clients are choosing to stay poor to keep subsidized health insurance here in MA, overall I just see us producing less. Work just doesn’t pay enough to be worth the bother, after you’ve reached a certain level where you have enough.
Am I bowing and breaking under the 53.6% marginal tax rate? Oh, absolutely not. But I’m producing less, and I’m hiring fewer staff hours in my business, because, well, I don’t need the money that bad to work at that marginal rate.
Consider the implications in a country where our Gross Domestic Product is our only way out of our deficits.
Kevin @70, I know you weren’t talking about kindergartners. You were, as the rest of your post makes clear, talking about low-income people. I do agree with you that ‘victim’ and ‘entitlement’ mentality are bad; where I disagree is that it’s characteristic of low-income people – indeed, I believe it is far more characteristic of people with high incomes.
Look at all the entitlements they want: subsidized housing (also known as ‘mortgage-interest deductions’), an abolition on taxes they got through inheritance rather than hard work, the government subsidizing their voluntary charitable contributions, and write-offs for buying high-end “green” cars. It’s particularly vile when they believe they “deserve” these handouts because they are Nice People Who Pay Taxes.
I also strongly disagree that the people paying the least get the most. Do you think that the police respond as promptly to 911 calls in wealthy neighborhoods as in poor ones? That school districts with high property taxes have schools that are worse than those in districts with low property taxes?
You’re attempting to inject Calvinist morality into a discussion of relative tax burdens.
Last week, Ross Williams argued that the wealthy get disproportionate benefit from the tax system. This week, Kevin has argued that those with lower incomes get the most benefit. I’d like to propose that the truth is in the middle — literally.
I believe that the middle-class get the most benefit from our tax system. They draw the most from its structure and from the services our taxes provide, yet their payments into the system are modest when compared to high-income earners.
Thanks for your research and time.
Learned some facts.
-Bhargav
Great article. One thing to keep in mind is that a LOT of people are employed as a result of the US having a convoluted tax code. Think of how many jobs would be lost if the tax-code were simplified (lobbyists, attorneys, accountants, HR-Block part-timers, etc)
I have always liked the idea of not putting a cap on SS taxes that are withdrawn from one’s paycheck. When I worked in corp america, it always amazed me that I stopped having a SS deduction taken out once my income exceeded a certain level.
@Adam
I really do understand where you’re coming from…again, the exact same argument I had with my DH. (“What I do has value!”) For years we had this discussion.
I’m not trying to demean the work you do, as he was not trying to demean mine. I loved my job and I was good at it, as I’m sure you are. I had to learn to separate my emotional attachment to my job from understanding, really understanding, how I was getting paid.
The fact of the matter remains…there are no government wages unless they are extracted from non government sources by the government, under penalty of law.
And, for the record, I don’t believe in NO taxation because I do want be kept safe and I would like a fair trial, should I need one, among other things.
As for this statement…
“If the government didn’t want to control education, some private source would, and you’d still be getting paid for the same reason.”
If I worked at a private school (or you, a private business developing what you do now) our wages would be provided either by people wanting to invest in your business or from the profits your technological advances in the open marketplace or, for me, because parents felt like my school was the place for their children and voluntarily wanted to spend their money to send them there.
We would both be getting paid “for the same reason” (and here I’m assuming you mean that we do something creative and of value that people want and/or enjoy as a result of our work) but in both cases our pay has not been extracted by the government from a non governmental source, under the penalty of law.
Now let’s see if I can get back to the intent of JD’s original post…understanding the [hot button] issue of taxes (emphasis mine)…and my original post and reaction to Kevin’s comment about “roughly half” of Americans don’t pay federal income tax.
Our federal tax system is hugely complicated and causes many people fear, concern, and anxiety, and by JD’s own statistic, approximately 59% of us are affected this way.
If I work hard and earn 100.00 and 38.00 (actually, more)is taken away and given to somebody else it becomes a problem for me.
It is a problem for me because I fear that 38.00 wont’ be enough and soon there will be enough voters (more than “roughly half”) who are benefitting from my 38.00 who will want more and will be able to vote to take 12.00 or 25.00 more. Or let me re-phrase that…will vote for candidates who promise benefits that will cause the 38.00 to go to 50.00 or 63.00 from my 100.00 So I’m left with 50.00 or 39.00 for my work while the rest has been redistributed.
I really want to redistribute my own money in a way I see fit, thank you very much.
Very respectfully,
onw
P.S. Adam, I love catching shows on tv where they elaborate on things we take for granted in our daily lives that were the result of the type of work you do and do appreciate it very much.
@WritersCoin
I, too, respectfully disagree. Where would this country be if somebody hadn’t whined about a measly 3% tax on tea?????
An update to your update #1 : You said that payroll taxes apply to all income, when in fact that isn’t the case. From wikipedia:
“For 2009, the employee’s share is 6.2% of gross compensation up to a limit of $106,800 of compensation (resulting in a maximum tax of $6,621.60)…The employee’s share of the Medicare portion is 1.45% of wages with no limit.”
-Ken
@Gwendally,
Re your post #77…you said what I forgot to say in my last post.
Why in the heck do I want to get up and work at my after retirement career if I’m only going to be left with 39.00 of the 100.00 I earned?
@Gwendally, you make some very interesting points.
First you say: “You can also look at it and see that the people who are enjoying the most fruits of liberty should pay the most for the maintenance of such.” This statement seems to assume, however, that the fruits of our labor are randomly granted. That some folks just get more, and some are unlucky and left out.
I simply don’t believe that. I work a lot of hours. Why should I subsidize people who are unwilling to work any hours, or only want to do the bare minimum to scrape by?
Also, I’m disturbed by your example of working less because of marginal tax rates. See, that is the main reason our progressive system is flawed and immoral. The government should NEVER discourage people from working hard and getting ahead. How disgusting that we are penalized for our labor – rather than truly enjoying its fruits.
This comment is mostly directed at Kevin:
Not everyone who has a low federal income tax liability is receiving government services. Our income is around $45K. The AGI is quite a bit lower, because we pay a lot for health insurance and to contribute to a retirement account.
My family doesn’t receive food stamps. My family doesn’t receive subsidized health insurance. My family doesn’t receive welfare or housing assistance.
I’m a big fan of my local library and I use roads to drive on, so the government does help me that way. But not every family paying little in federal income tax is getting taxpayer handouts. That’s a fallacy, IMO.
My AGI will probably be lower next year, because we are going to a different health insurance arrangement and it will be much more out of pocket. Do I consider myself lucky to be avoiding more tax? No, I consider it a challenge to live on this income.
@ Lesley, a lot of the fruits of your labor are POSSIBLE because of the infrastructure in which you live. The interstate commerce system, the functioning port system, the rule of law, even the markets (loosely) regulated by the SEC. Molly Ivins said of George Bush, that he was born on third base and thinks he hit a triple. Believe me, you benefit from having a neighborhood filled with educated people, having streets emptied of criminals (who need not steal because they can access the safety net.)
It’s not perfect – no system is – but you DO benefit.
Not all of the people filing zero returns necessarily are teens and college students. With the coming of the Baby Boomers to retirement age there is a growing number of people who are now living on their pensions, IRA’s, Social Security, etc. that could also be living in such a way that they don’t have to pay or pay minimal income taxes.
J.D., I am bummed out that I can’t view all your cool charts when I log in from work. Something about the hosting is getting blocked.
Mr. Sam and I pay a lot in taxes but we also benefit from a lot of tax breaks (related to our real estate investments) and while I don’t mind paying taxes I get annoyed at how the money is used. I just see so much waste in my local taxing districts (i.e. City, County, Schools, Health Care) and it drives me up the wall.
Regarding tax rates in Denmark, whoo-hoo, that is where my family is from, the rates are high but the benefits in my mind are even higher. In Denmark, health care is paid for by the “State” so is higher education, day-care for kiddos, generous maternity and paternity leave and end of life care is also covered.
@Oldernwiser: I think the only reason you’d be willing to work at a marginal rate that horrid is if you loved your work and would do it for a hobby.
I like my job well enough, but once my needs are met, I find it difficult to choose to keep earning money when I could be spending time with my children or in my garden or with a good book. I think this is true for just about everybody, which is why it’s a problem when we set the safety nets too high. I’m seeing this in MA right now: people are content to earn $15K if they can get subsidized housing and health care. They’ve fulfilled Maslow’s hierarchy of needs, why work harder?
It’s hard to argue with. Sometimes it’s even hard to see a problem with, like in my case or yours: we have enough, why not leave a job for someone who doesn’t have one? I think it comes down to wondering whether we are actually destroying wealth if we don’t work. If you retiring gives a person without a job a chance to make money, then I can’t say as it’s a bad thing.
But I’m a self-employed business person who creates a good. If I don’t work, well, goods are not created. (And, not to put too fine a point on it, I also employ fewer people.)
@Gwendally – I’m so confused.
You said: “You benefit from having a neighborhood filled with educated people, having streets emptied of criminals (who need not steal because they can access the safety net.)”
But EVERYONE in society enjoys these benefits. Why should high earners pay a large percentage of their incomes for these benefits, while those of lower incomes pay little, nothing, or even get a rebate?!
That makes no sense, especially since low-income folks also tend to over-consume government services. Meanwhile, I use only roads, cops, firemen, national defense – the bare minimum.
@Lesley: you have more to lose, so protecting it is of more benefit to you.
I feel bad for people who make over $250,000. To pay 50% of your income to the government is disheartening. Hence, the new administration will be a boon for Nevada, Washington, Florida and 4 other states with no state income taxes.
Higher taxes simply encourage tax evasion and people not to work as hard.
Don’t know what’s wrong with a FLAT tax. 20% of $1million is $200,000 in taxes. 20% of $50,000 is $10,000 in taxes. Is that not equality?
Socialism is fine in a troubled economy like we have today, but Socialism will be a big handicap during the recovery phase.
For the record, I feel teachers should be paid 5X what they make now. They are the foundation of our children’s future!
Mainly, it was rote data entry, people would come in with their W-2 and SS ID card and I would punch this data in, ask a few questions then get them to sign a form.
Basically, I was paid $7.50 to run a version of turbo tax and charge people upwards of $60 for 10 minutes of work. My quickest time was one minute 20 seconds to complete a 1040.
The firm made most of its money in short term “refund anticipation loans” to those who would spend up to $300 to receive their EIC check the same day.
The EIC is a negative income tax, a refundable credit, where the recipient would get back more, much much more, than they put in.
Mainly the credit is for poor people with kids, and averages around $2,500 for a family earning less than $20,000 with 3 dependant children.
Thus, 10% of the income for these extremely needy people would come from this one government program.
Which broke my heart because they were paying an interest rate of more than 500% to get now what they could not wait 4 weeks for.
And who knows what they spent this money on, I just issued the checks.
You can tell the clientele based on when in the tax season they walk through the door.
The earliest people to arrive start lining up a day or so before the tax season start date, so eager to get their check. These are people anticipating a big refund.
The middle of tax season is pretty slow, since the people who need the money have already long gotten it. Mostly it would be the retired, or students, those who are required to file and who do not want to do it themselves.
The end of tax season was my favorite part. These were the people who owed money and put it off for as long as possible. These are the people who have more than just a w-2 and a SS id card and some kids.
These are people who pay alimony, who have capital gains, who have their own businesses, who have investment properties with depreciation, farm income, all the interesting things came out on paper.
Two people I will never forget,
One guy recently got a divorce, cashed out his retirement savings, sold his house, his boat, liquidated his entire life to prevent his wife from doing the same thing. The divorce cost him his job and his kids. He had a huge income (on paper) since his retirement savings counted as income, same thing with his boat sale and house sale (which were not owned jointly with the wife).
His tax bill was upwards of 140K, since he had no house, wife or kids to reduce his AGI. He was all alone with his money (and his tax bill), a ruined husk of a man who made all the wrong choices in a very short period of time.
(Never, ever cash out your retirement savings in this way, it will screw you).
The second guy had recently won 200K in Keno (I worked in Las Vegas). Combined with his income, he owed over $30,000 in taxes.
I was a little shy in breaking the news, usually there is a little rush telling people how much I am “making them” by doing their taxes (even though it is their own money, most people don’t think of it that way).
He said something that I will never forget.
“I am at the stage of my life where it is better to pay money, and have money, than to have nothing and get back something.”
He wrote a check for the full amount.
Now I have a job that pays me pretty well for what I do. I have been on both sides of the coin.
I used to work minimum wages jobs and always receive back $100 – $200 bucks, which at the time was all the money in the world since I was only making around $12K a year, so this would be around one months rent.
Last year, I had to write a check to the IRS for $54 dollars. This was in addition to the $5,000 or so they “took” from me.
And you know what, I am much happier now, because I don’t depend on that $100 – $200 to make rent.
Your whole life, year by year, is there on your 1040. And working at that tax chop shop let me see how 100’s of peoples lives were spent and what mattered most to them, their children, their spouse, their house, their job.
While these macro tax events, how the government spends YOUR money, are not very personal, the micro tax events matter a great deal.
Thank you for writing this article. I found it very informative and useful. I can tell you put a pile of work into it.
I will concur with those who wish for a simpler tax structure. From many years of engineering work, I’ve learned that the more complex you make something, the more prone it is to break down or behave in ways you didn’t expect. With the tax code being so long and cumbersome, it creates an incentive to “game” the system through exploitation of loopholes and “creative accounting”. This can lead to the type of fun we’ve seen with Enron, KPMG, GlobalCrossing/Worldcom, AIG and any other of other businesses who were being creative with their accounting to lessen tax rates. Where this ultimately leads, of course, is the inability to value things properly — and then people get skittish.
Instead of concentrating on taxes, we should concentrate on the size and scope of government. If government has become too big and wastes money, it should be cut down and made more efficient. If the budget was only $100 billion, there would be no reason for high taxes.
High taxes are the RESULT of lots of government spending. If we can cut down the amount our government spends, we should be able to drastically lower our taxes.
While I do advocate a fairtax, or a flat consumption tax, it would be easier to cut government first. That is why I advocate and will continue to advocate cutting the size of government in half (or more) as soon as possible.
I think we could easily persuade the half of Americans who do pay taxes to stage a tax revolt in one simple step.
Eliminate federal withholding. Instead, require each person to physically write a check for their taxes each quarter – like self-employed people do.
By the end of Q3, there would be mutiny.
@ Lesley – methinks you have not spent time in the ghetto. Sorry, that sounds snarky, but as one who used to be a poor grad student living in one, the poverty begets the problems begets the poverty. You could see it every day. Schools funded at a lower rate because of lower property values lead to lack of educational resources, which leads to lower incomes, which leads to crime, which leads to lower property values. I have a hard time with any mindset that thinks poor people have it coming. No kid wants to get free lunch at school. No parent wants food stamps to be the only way to feed their family. No one is resting on their laurels on a minimal government hand out, dreaming about how they have the life. And no one who doesn’t grow up in this environment ever expects to need these services, like disability or food stamps, until tragedy strikes. I would argue if you currently don’t use services like that, you really have to think of them as insurance policies: While my chances of having my apartment wrecked are slim, I still pay renter’s insurance, on the off chance that it is. While I’m sure you never dream that you will become disabled, or lose your income and become impoverished, were such a fate to befall you there is a government program there to help you and your family through the tough time. Besides, libraries, police, fire and roads are some of the most expensive parts of our budget, even more so if you throw national defense in there, as evidenced by JD’s budget post.
But for me, why should I pay higher taxes even though I use equal resources? Because I remember poverty and ramen. Because we live in a society, and part of being a good member is recognizing you are in a better position and able to help those less fortunate than you. If someone’s wallet was stolen, and they needed bus fare to get home, and they asked me for said fair, certainly it would be an embarrassing thing for them to do, and certainly if I had the means I would help them. I think of taxes like that. Yes, people pay less than me or not at all due to their low income, but their low income stems from problems that arise with low income, like poor education and crime in their area. Thus, it is my duty as a member of society to be helpful if I can, because if a quality of life is improved, all our lives are improved a little. The stolen wallet is the impoverished upbringing and my taxes are the bus fare.
I have to chuckle at some of the comments of the more wealthy readers, like the claims that they pay more in taxes but get less from government. So you make more than $100K and you do it all yourself huh? The government plays no role? Well how many people in Cuba can make that claim? Not many – their government does not permit them to make a lot of money, while ours does. That’s right, if you are making a lot of money, it is because you have the government you have, and by definition, you are getting more from your government than fellow citizens making less than you do. If I’m living in poverty, hell, I can do that anywhere – here, Cuba, the government doesn’t matter. Please feel free to broaden your notion of the benefits you derive from your government, and embrace those extra taxes. Oh yeah, to the fella who thought the court system was for the poor – I’m an attorney, and know from first hand experience – we have a big ole civil court system soaking up lots of resources – and while our tort system does see some poor plaintiff’s, you’d be hard pressed to find a poor person anywhere else. Much of the court activity involves business folks suing each other over contracts etc.
@Jessica,
You’re absolutely right that charity is a key factor in a civilized society. But you’re wrong in equating taxes and charity. They’re not the same. Forced charity is no charity at all.
You neglect to mention that taxes are TAKEN by FORCE, with the threat of financial ruin and prison. That’s not charity, and it’s not noble. It’s not hard to be charitable with other people’s money.
Did you know that the IRS won’t reject you money if you decide to send more than you need to send? If you enjoy the satisifaction of paying your taxes so much, you’re more than welcome to send extra $ to them.
Me? I’d rather trust my VOLUNTARY charity to places like the Red Cross and my local homeless shelters and food pantries. They do a much better job of getting food, supplies, and shelter to those who need it, while weeding out those who don’t. Government? Not so much.
So by all means, remember the time you lived in poverty. Just remember to be charitable with your own money, not someone else’s.
@Jessica – Why do you assume I’ve had a good life handed to me? That is unfair.
I do not come from a family with money. I did not grow up “rich.” I have worked hard for everything I have.
Another unfair assumption is that “no parent wants food stamps … ” Also untrue. Many people are willing to do the bare minimum and milk the system for everything they can get.
And again, I do not use equal resources. I use fewer resources, on average, than those who do NOT pay taxes.
Finally, I am a huge believer in charity. In many cases, charitable organizations are more effective at helping people who truly deserve it. My family gives 10 percent of our income to charity each year – which is a big sacrifice, especially considering our overwhelming tax burden.
I do NOT believe government should act like a charitable organization. Sure, we should keep people from starving. But those not willing to work should not have free housing, free schooling, free everything.
One of my favorite passages from the Bible states, “He who does not work shall not eat.”
@Gwendally
“…the provisions of the 16th Amendment conferred no new power of taxation…”
http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=240&invol=103
@Tip, so if you want to credit the government with my success … then surely my fellow countrymen should all be able to succeed for themselves, since we all live under the same system. With your reasoning, transfer payments such as EITC and welfare can all go away. Hooray!
From a number of these posts it seems taxpayers who express the most entitlement, including people like #70 who complain that the people who pay the most in taxes for example “are the ones least likely to ever need to call the police, or occupy an expensive cell in a prison, or take up a judge and juries time, or apply for food stamps month after month, or take advantage of subsidized housing.” Poor you!
Fair tax (taxes only on consumption) are not fair, because it is a regressive tax where the poorest who have to spend all their money on consumables would be effectively paying taxes on 100% of their income while the wealthier one is the less % of income would be taxed, because they have the luxury of not having to spend all their income to survive.
As a child of an immigrant who gave up everything to move here for a better opportunity, I don’t understand how people who pay higher amounts of taxes due to income don’t appreciate the many benefits they have living and working in the US. Judging from the trend downwards on the highest marginal tax rates and the increasing division between rich and poor (rich still getting richer, middle class falling behind), that taxes still favor the wealthy (creation of corporations, estate tax, use of lobbyists in Washington) so that they acrue more advantage than they pay out. I am not including in this group self-employed people not in the highest tax brackets, who do have taxes that are normally invisible to the rest of us.
I do agree that if possible, the tax code should be simplified, and there should be more transparency about how money is spent. I don’t necessarily feel we are spending “too much” on taxes. I wonder though if we get the best value received for the amount we pay, especially considering it doesn’t even include health care (let alone college education, maternity leave, long term home health and other benefits other countries manage to include for the taxes).
In the words of Kevin, “Let’s be rational.” We need to look carefully at the conclusions we draw from the facts. In some cases we are using a set of facts lead to one conclusion to justify the anti-conclsion. (I know that’s not the right term but hopefully the intent is clear.) Just because, for example, 41% of Americans don’t pay taxes, doesn’t mean that all of them are freeloaders or that all of them are poor. I think that 41% comes from people that file a tax return so it probably doesn’t include non-working children. But it does include working children and college students that don’t make enough to live on their own and are being supported through other means (student loans, parent, etc.) That does skew the conclusions we draw from the fact.
That is one example from the comments on this post. It’s very easy to make a leap from a given set of data to our own preconceived conclusions. I am greatful that JD has tried to be as open as possible and that he has drawn conclusions that the data supports. When we are discussing a set of facts we need to think carefully about what our opinions are based on. Are they based on a conclusion that the data explicitly supports or a conclusion that is based on the assumption of what the data means based on our already conceived ideas.
Paul in cAshburn, I really do appreciate you elucidating your opinions clearly; it’s rare in these debates. But I do think your argument is weakened by not having numbers in front of you. It seems that you suspect that the lower 50% of the entire population (i.e., those who “don’t pay taxes”) are the primary beneficiaries of something like Cash for Clunkers or Medicare. But as people have discussed in the comments, many of these 50% are in fact children, so they clearly aren’t benefiting from such programs and probably should not be counted in such figures.
Also, you seem fixated on two groups: those who don’t pay taxes and those in the top 5%. But those are very small portions of the US population (though the former is growing and latter is shrinking). My impression is that you are ignoring the largest subset of the tax base, and I think many of them benefit from such programs. It seems to me that our conversations in the US always focus on the populations on the extreme ends of the spectrum and that we neglect/willfully overlook the ways that those in the middle pay and benefit. (This is what drives me batty about the Fair Tax people. They completely obfuscate how the sales tax will cause most pain to the middle class.)
People like you keep focusing on the top 5% as paying the most in taxes, which I am suspicious of because of the number of tax loopholes and the way that labor is taxed much more deeply than, say, investments. The very wealthy take advantage of investment vehicles, etc., that are simply not available to those with median net worths. This is why I’m so perplexed when Americans defend the top 5% and attack the bottom “50%”–most Americans share more in terms of taxation with the bottom “50%” than with the top 5%.
I suspect that more of your friends and neighbors benefit from these programs than you realize.
@ lesley and nathan
I am not assuming that you had any sort of upbringing, nor am I assuming that taxes = charity. As I pointed out roads, police, national defense, etc. make up a lot of our budget, so a large percentage of our taxes, not matter how many you pay, goes to this cause.
I also didn’t say taxes = charity, because I do not believe giving others the ability to get help = charity. Charity is one thing, and it’s awesome to give to the red cross, but can you honestly say that if you had more money because there were no social programs, you would give all of that extra money to charity? Furthermore, if you really care that much you could figure out what percentage of your tax bill goes to social programs, donate that amount to a charity you’d rather see have that money, and then write it off. You’re still paying for roads, and cops, and everything else, as well you should, because you live here.
Let me give you an example. In my city, the current budget crisis is threatening to close the libraries. I, and thousands of others, are supporting a sales tax and city wage tax increase to keep the libraries open. I am doing this not only because I like to check out books, but because I know that 50% of the city’s residents cannot afford internet service, which the library provides free to 1 million users a day. I also know that finding a job or learning new skills without the internet is extremely difficult, and if those too poor to afford the service could find a better job or learn a new skill, my community would be a better place, and more taxes would be paid for roads and such. I am also insuring that this service is there in the future (which you obviously missed in my last comment) in case, were I ever to lose my job and not be able to afford internet service, there would be funding in place for a free internet service I could use to help myself find a job. That is being a part of a society. I also donate to organizations I like that help the community directly. That is charity. They are different.
And if, in this consumer driven, more-is-better place we live in, you can honestly find me a significant percentage of people who relish in doing nothing and living on measly government hand outs in crappy neighborhoods, I will personally pay your taxes for five years.
There is a problem with looking at annual “tax returns” to determine who is paying taxes and how much they pay. Income tax returns use adjusted income for a particular year. Those annual returns do not reflect a long-term look at the sources for government revenue.
I seem to recall a controversy when Ronald Reagan paid little or no income tax one year when he was president with six digit salary. he had losses against that income. So one year he was in the “rich” category paying taxes and the next year he was a tax “deadbeat”.
And, of course, one of the biggest groups of “deadbeats” is the elderly. Social security is largely untaxed for the lowest recipients. And savings are taxed only to extent they earn additional income. But most of those “deadbeats” worked all their lives and paid a lot of income taxes on the money they saved as well as Social Security taxes.
And lets not forget children. Any kid who has a summer job is likely to file a return just in order to get his withholding back, but his parents may well pay very high taxes. In fact, even infants who have income from investments set aside for them have to file an income tax return.
It ought to be clear that looking at annual tax returns for a single year does not give a very clear picture of where federal revenue is coming from. The simple statement “roughly half of all Americans don’t pay any income tax at all” simplifies to the point of misrepresentation. It is the epitome of figures lie and liars figure. But then the Tax Foundation is a dedicated anti-tax organization and non-partisan only to the extent it doesn’t distinguish republicans from democrats in its anti-tax bias.
The goal of these “studies” is to mislead people into thinking that they are being unfairly taxed. In some cases, you even have the “deadbeats” complaining because they don’t recognize themselves. There are a lot of people who lost money on their investments last year that may end up with no taxable income or are living off their savings this year. Those folks are “deadbeats” this year, but they were also taxpayers and will be again.
Just an aside, I was thinking about the 15 million who don’t pay taxes, and it’s a shame the IRS doesn’t release more numbers. I know there are some programs, though I’m not sure if they are state or federal, where if you are a retired person and can show that your savings are post tax (like a Roth IRA only or something) you can fill out a form to only have to file every five years? I know some counties in NY have this for county taxes because my grandfather had post tax savings, but that was a long time age, and I’m not sure how wide spread they are.
Group me with Nathan Rice (#58). Unfortunately, the tax cannot be deemed unconstitutional, simply by definition that it is a ratified amendment of the Constitution. I do believe that the Federal Government has, to say it nicely, adopted several responsibilities that are far beyond what it was originally meant to be. And they definitely meddle in the affairs of the States by way of threatening to withhold federal money if the States do not comply, which I feel is grievously stepping beyond their bounds.
Also, I see statements about double-taxation and so forth. But double taxation is actually quite pervasive, the easiest example being paying tax on receiving your income, followed by tax on spending that same income. This is not a burdened tax, such as property tax or capital gains tax or car registrations, but a direct tax on the spending of income which was already taxed.
Thank you, Gwendally (#26), Linear Girl (#31), and Alex (#73), for the information and advice!
I guess there is no escaping payroll taxes, so in essence, NO ONE gets away with a zero tax burden (well, almost no one. Seems there are still loopholes, as evidenced in comment #75). A person’s employer will help shoulder the tax burden, while someone who is self-employed has to go at it alone.
Also, at #35 (Paul), there is no guarantee that those Payroll taxes will result in any benefits for those of retiring 30-40 years from now. The government keeps predicting that Social Security will eventually fail, and who knows where Medicaid will be. There’s a good chance I’ll NEVER see the money that the government has taken from me for those programs, and there’s no guarantee that I’ll get a full return from any new future programs.
At #50, Lesley:
I disagree with your statement that lower income people should pay more, because they consume more. What about me? What about my friends? We’re all low income, close to poverty, but because we have NO children, we consume NOTHING from the government. There isn’t a single government handout that I’ve received because I’m poor (relatively speaking. Yes, I know people in the slums of Calcutta are truly poor, but I’m speaking in relative terms, since i do not live in Calcutta). Not one. The only government ‘benefits’ I get are the same ones that EVERYONE gets: roads to drive on, national security, libraries, etc.
While I agree that we should stop penalizing success (I sum it up as ‘don’t bite the hand that feeds you’), I don’t think we should add more burdens to people like myself who are barely surviving, yet not taking a single extra government resource than the ones offered to all income levels. If you want to add taxes in somewhere, I’d personally propose a limit to how many child credits a family gets. It seems unfair to me that a family or person (Octo-mom, anyone?) can just keep popping out children (even if they cannot afford them), and essentially get ‘paid’ by the government to do so.
This is such a complicated topic, as is clear from the wide variety of responses. I think it’s just basic common sense that we have to have some taxes to live in our society. Some of us would pay 50% of our income to have benefits like those offered in Denmark, some of us I guess would like to pay nothing at all. I don’t think either is realistic for the United States.
We’re going to pay something, because we need our roads, libraries, schools.
Some things just annoy me — like the police fund asking for my money for the family that lost their primary earner on the job. I feel terrible for them, I truly do. But I already pay their salary through taxes, and I think they’d be seriously, seriously stupid to be a police officer and not have life insurance. I work at a desk and I have life insurance.
The problem is… we can’t legislate common sense. I would love to, believe me. I wouldn’t even let that Octo-mom keep her kids. I think she’s got to be close to the height of irresponsibility in that department.
BUT — our kids need education for our society to continue to function. Our children need food. I think technology has helped a lot with food stamps actually — now it’s an electronic benefits transfer, and can only be used for food. Before, people used the change to buy cigarettes or lottery tickets (yes, I worked minimum wage in a convenience store). So to me, that EBT is totally worth it — people don’t starve and they don’t use tax dollars to buy cigarettes.
I understand the complaint about top earners being taxed more, but is there no level at which it becomes ridiculous what people spend? I have a spendy sister, she spends tons of money. I can’t even really comprehend the amounts. And yes, her taxes are higher than mine. I expect she pays more in taxes than I earn in a year (and my household is in that 100k range, I’m not saying we’re poor — our taxes pain us too) but then she SHIPS a $5,000 rug to me so she doesn’t have to pay NYC taxes. I think people with more income have a lot better ways to figure out how to get around what’s reasonable to pay.
@Brenda: to be clear, your employer helps “shoulder the burden” of the 7.65% in payroll taxes they pay for you by paying you 7.65% less than they would otherwise have paid you. In other words, to the employer, if they’re willing to pay $10,000 for your labor and they’ve got $765K in payroll tax they have to cover, they’re willing to pay you $9235 now, instead.
The employer pays not one dime more than they value your labor at.
Same goes for health insurance: if they pay your health insurance, they are paying you less in salary as a result. Your total compensation package is what they look at as it leaves their wallet, not how the benefits break down to you.
The luxury of having someone else make these payments for you without you having to pay attention or notice comes at a cost, by the way. This has all sorts of implications about whether you’re getting a good deal on your health insurance through your employer, by the way. But, again, a story for another day.
@ethel #106:
I agree that focusing on the extremes doesn’t tell the whole story. However, wouldn’t it seem logical that the greatest injustices usually occur at the margins?
In the past, I have “benefited more from these programs”. I think I’ve mentioned it in previous posts, but the average of the first 27 work years on my social security statement is $13,977. I decided this wasn’t good enough (I know, what took me so long?), and took action (attending undergraduate and graduate college classes after work for 6 years).
Anyway, by reducing the injustices at the margins, might we not move toward bringing everyone into the fold of “I am proud of my country, and am proud to pay my share to support the ideals my country represents”.
The injustices at the extremes tear us asunder and reduce our strength, I think. We need to have pride as a country, not “pride” as a member of small special-interest groups. In fact, if someone wanted to hurt our country, could anything more divisive be found than sequestering us into special interest groups that then have “pride” in fighting over how to draw more benefits from the federal government? Government would grow and grow and the country would get weaker and weaker.
Making the tax system fairer might reduce divisiveness and help us move toward unity.
@Paul (114) and others:
While it would be nice to get everyone grouped under this ideal pride in paying for taxes, the sad fact is that there are simply too many differing viewpoints to every accomplish this. I, with a Randian viewpoint, would pretty much only be happy when I get to keep all of what I legally and rightfully earn with my mind and body. Others won’t be happy until the government provides for all their “needs”, both real and imagined. There is no middle ground, where both of these groups can be happy. Working towards such a futile goal leads to nothing but discontent for everyone and constantly shifting rules.
@JD:
There’s something wonky about the system. Everytime I post, it gets mixed up and takes me back to a different post, instead of to the comment I just posted.
@Jessica
Roads can be paid for 100% by gasoline and property taxes, ensuring that only those who USE the roads have to pay for them.
Police departments can be paid for by LOCAL taxes like sales and property taxes.
National Defense could be paid for with a combination of corporate taxes, assuming we increased them, even if we eliminated the income tax completely.
Now, if you’re not making the case that the rich should pay a significantly larger portion of their total income to taxes, then perhaps this point is moot … but none of your examples (police, roads, military) are good excuses for hosing the rich to support the poor.
“can you honestly say that if you had more money because there were no social programs, you would give all of that extra money to charity?”
Nope, but that’s the great thing about charities … they’re efficient. I’d be willing to wager that for every 3 dollars fed into gov’t support systems, only $1 actually gets to the people who need it. Whereas in a REAL charity, that ratio gets a LOT closer to 1:1.
So yeah, eliminate social programs at the federal level. I’d be more than happy to take 1/3 of what I get back and send it to charities. Some people might take the whole thing and donate it. Really rich people might invest that money, which helps the economy, creates wealth and new jobs. Some people might blow all that money on new cars and clothes … but even that is GOOD for poor people. It creates new jobs at car and clothing factories.
The point is, we ALL benefit from being able to decide where we want to spend our money, even the poor. When the rich spend money, poor people cash those checks.
This cycle reduces the need for charity. So again, your point is moot. I don’t need to give all the money I’d save to charity.
As to your library point … if you want to save the library so badly, why not just write a check yourself? And start lobbying your friends to do the same? Why do you feel it’s necessary to force the entire town to pay more money in sales taxes to pay for a project that they may not care about?
Why is it that when you saw a problem, you (and others like you) immediately thought that petitioning the local government to force others to pay for it? Why not just pay for it yourselves?
FWIW, there are many public libraries that operate on a nearly 100% donation budget.
@Nathan Rice (116):
I can almost agree 100% with your post. But let’s be honest… Any tax on a corporation is simply a tax on its customers, at best. At worst, it becomes the last burden that puts a struggling company out of business.
@JD:
I got the URL with this post that it tries sending me to. It includes this interesting extra part right before the anchor:
http://www.getrichslowly.org/blog/2009/08/31/the-truth-about-taxes/&cp=1/#comment-195386
@ nathan
JD has asked that this be civil, so I’m done. If you can’t read my whole argument, or don’t think a library of all things is a worthwhile public service, you and I are just to far apart in values to make this work. And for the record, I do donate to keep the library open as well as pay taxes. Furthermore, we did not petition for higher taxes, we voted for them, which is different, and when most of a city wants higher taxes to pay for libraries, well, I think we should get them. As you probably don’t live in my city and it is a local tax, I don’t see what concern that is to you if yes, we want higher taxes.
Also, few public libraries that are open to all members of a municipality, the kind that can actually afford books, are entirely funded by non-profits. If you have information to prove otherwise, please post it, I would love to see how those libraries do it and forward it to my own library.
To #28 and others:
Bottom 50% paid 3% of federal income taxes.
Top 5% paid 53% of federal income taxes.
Top 1% paid 33% of federal income taxes.
Trying to use these statistics as the basis for the argument that “the top earners pay more than their share in taxes” is wrong and misleading.
The only comparison that can be fairly made is total income of each group versus total taxes paid by each group.
I couldn’t find numbers to match exactly the above percentiles, but the following are the income stats from wikipedia for 2007:
Top 3% earned 17.5% of the income
Top 8% earned 25% of the income
Top 20% earned 50% of the income
Bottom 10% earned 1% of the income
Anyone who wants a sobering realisation of where income and wealth really reside see David Chandler’s site: http://www.lcurve.org/. The first time I saw this site, I thought I was looking at the axes, not the graph itself!
The truth is that all these statistics are horribly skewed by the very top earners. Some salient points from the site (you’ll want to see the graph before reading on):
1) Some professional people, with incomes over a hundred thousand dollars may feel “rich”. They may have nicer homes and cars, and they may have attitudes that separate them from the masses. But they still must work for a living and are primarily consumers of their earnings. Whether they recognize it or not, they actually have more in common with the people at the bottom than they do with the people in the top 1/2%.
2) The horizontal spike has the votes. The vertical spike has the money. Who wins, when it comes to electoral politics? Who has influence? Whose interests are being represented in Washington? Can democracy meaningfully exist where the distribution of wealth, and thus the distribution of power, is this concentrated?
3) Those in the vertical spike would like to have you resent the poor who are portrayed as welfare leeches. Which group actually has a bigger negative impact on your lifestyle: the people in the bottom half of the graph, or the people in the vertical spike?
4) The mainstream media has been bought up by people in the “vertical spike.” The primary channels for information and expressed opinion are controlled and filtered by a small, powerful group on the vertical spike whose interests are not representative of the majority of Americans. Even when there is no direct political message the programming is tailored to the perspectives and sensitivities of large corporations.
The last 2 points here seem particularly on the mark to me.
@Justin,
If the increase in corporate taxes wasn’t met with a significant reduction in income and capital gains taxes, then I’d agree with you 100%. But put a TON of money (~ $1 Trillion) back into the hands of the American people, and companies would probably WELCOME the increased corporate tax, since people would be spending like crazy. Don’t you think?
@Jessica
I’m not trying to be uncivil, and I don’t know what part of your argument I missed. I understand that you think that helping the poor benefits entire communities. I AGREE with you. We only disagree on the METHOD of delivering that help.
I think it’s the citizen’s personal responsibility to help his community by voluntarily giving of his time and money.
You think it’s the citizen’s collective responsibility to accept the involuntary transfer of money from us to those who need it.
The problem with your idea is that the money goes from our pockets to the IRS, then to the Congress, then to a bureaucracy, then to a social worker, then finally to those who need it (and potentially to those who don’t, but want it anyway). That is an inefficient system that ends up WASTING most of the money it takes in, which seems to be one of the only things government is good at doing. Not to mention the millions of dollars that we all end up paying (wasting) in April to have our taxes prepared.
As for a library, you’re right, I don’t see much need/value in it. But you’re 100% correct in pointing out that I don’t live in your city and don’t pay your city taxes. If the people of your city voted to increase sales taxes to help the library, then more power to them. It doesn’t affect me, and if it did, I’d probably move out of the city limits so it wouldn’t. That’s the great thing about local governments … you don’t have to put up with them if you don’t want to. :-)
I still think that if a person wants to have a library and are OK with paying higher taxes to pay for it, then they should just eliminate the middleman and give it straight to the library instead. That would seem like the more efficient thing to do.
“Contrary to some arguments, high income earners do pay more in taxes than low-income earners. ”
No, it doesn’t because no one has every made the argument based on the adjusted annual incomes found on tax returns. This is a bit of a circular argument. People who have large deductions may well not have high adjusted incomes. It doesn’t mean they are not wealthy. Simple math says that those who have to pay 35% pay more than those who pay 30%. The question is how much of their real sources of wealth are they paying those taxes on.
The first thing to look at is those social security taxes which are only paid by wage earners and only on wages under $100,000. In essence, those making less than 100,000 pay a higher percentage of their income than those who make more than that. People who have earnings come from investments don’t pay any social security taxes on that income at all, regardless of amount (they also don’t get benefits based on it).
The other problem, is that you are ignoring state and local taxes that are far more regressive than even the current income tax. This includes property taxes (whether paid directly or in rent) and sales tax as well as both federal and state gas tax.
“Roads can be paid for 100% by gasoline and property taxes, ensuring that only those who USE the roads have to pay for them.”
No, they can’t. In fact there is very little relationship between the amount of gas a person burns and the cost of the roads they happen to use while burning it. In fact, that disconnect is why roads in many states are going very slowly back to gravel from lack of maintenance.
“I, with a Randian viewpoint, would pretty much only be happy when I get to keep all of what I legally and rightfully earn with my mind and body.”
Who determines what is legal? Or what is rightfully yours? Or even what you have “earned”? The simple truth is that we are all living on the backs of several thousand years of human civilization. What portion of that history you are entitled to make use of, and what parts you aren’t, is not very obvious.
Taken to an extreme, only the direct descendants of Einstein should have the right to make use of his ideas to create nuclear weapons. And we should all be paying Newton’s descendants a licensing fee for any use of gravity.
@Ross
Yes, then can.
All local roads *could* be paid for by adjusting gasoline and property taxes, and federal gasoline taxes could cover major highways that cross states.
Perhaps not at their current levels, sure. But get rid of $1 Trillion in federal income taxes, and adjustments in gasoline taxes won’t be a problem.
And yes, determining how much gas a person burns is a good (but not perfect) way to measure their use of the road. MOST people drive vehicles that get between 19-35 mpg.
However, it is true that some roads would be much more efficiently funded by tolls. That is the MOST accurate way to pay for a road based on usage. But toll roads generally only make sense on high traffic roads like interstate highways or roads with bridges.
Lesley, I’m sorry, but I’m in that taxpaying half (and I look at the deductions every paycheck, not simply every quarter) and I have no interest in a revolt. Get worked up about people who “milk the system” with food stamps? No, I get a lot more worked up about people who take home equity loans to pay for vacations to Aruba, then deduct the loan interest. I am extremely resentful of those who want to eliminate taxes on income they got because Granddaddy left them a trust fund, while those of us who earn our money the hard way are expected to pay taxes.
I’m more concerned about the other kinds of waste Kevin brought up. Somebody who lives in the projects trying to get an extra can of tuna out of WIC doesn’t disturb me a hundredth as much as a wealthy businessman getting a no-bid contract because his buddies are still holding public office.
By the way, all, the 16th Amendment argument is nonsense.
If we are discussing property tax to pay for roads and public infrastructure products…. what about proposing a “renters tax” so that all citizens pay for the public works instead of just property owners?
I’m for taxing the heck out of people if everybody shares in the pain.
“So, if you want to include the complete federal tax burden in the above conversation, you need to add 7.65% to all figures – 15.30% if you’re self-employed.”
That is inaccurate in two ways. The first, I mentioned earlier, is that SSI only applies to the first 100,000 of wages. After that there is no tax.
The second, more subtle, is that the marginal tax brackets are paid on adjusted income, not gross income. Social security taxes are paid on gross income. That is a very substantial difference in the effective rate.
Regardless of whether it is paid directly by the employer or taken out of the employee’s paycheck, the person generating those taxes is the employee. I guarantee that any employer considers SSI part of an employee’s costs when setting salaries.
And, just to be clear, the self-employed only need to pay social security on money they are paid in wages, not on any profits their business makes even if they pay income taxes on the profit. So your small business owner who takes 100,000 in profit is saving himself 15,000 in taxes. (assuming the IRA lets him)
RE:comment #40 from Jessica:
From the stats on the IRS site, they have data from 1998 (most recent) that breaks down income levels based on age group. About 5-6% of the people to file income tax returns in 1998 were under age 20. About 60% of those people earned less than $5,000.
So roughly 2-3% of the people who pay no federal income taxes are teenagers who make very little.
@ Ross:
Ross, you’re referring here to S Corps and LLCs with salaries or guaranteed payments to partners. By far, most small businesses are Schedule C Sole-proprietorships. The ones that DO have a profit over and above their salaries had better show it comes from some investment decision, not their own labor, or they’ll be slapped with a lot of fines and penalties. So, in other words, the IRS doesn’t let them.
Why not divide the Federal budget by the number of citizens age 18 or older and send everyone a bill each year? That looks like about $5,000 per person according to last year’s receipts, excluding the entitlement programs (which could be construed as user fees). Now *that* is what I all a “flat tax”.
I bet we would see taxes fall immediately by the preferred method: people voting for budget cuts and demanding that much of Federal funding be replaced by user fees rather than blanket fees. Why? Because nobody wants to pay for everyone else’s crap! We just got suckered into it, and still are, by our own shortsightedness and lack of principle.
“The American Republic will endure, until politicians realize they can bribe the people with their own money.” — Alexis de Tocqueville
@Nathan: do you know why your questions about the legality of the 16th amendment are moot? Because it was reviewed by the Supreme Court, and there have been a gazillion tax laws passed by congress since then, nearly all of which have been vetted by the Supreme Court at one point or another.
That is what it means to be legal: it was voted by the Legislative branch, reviewed and okayed by the judicial branch, and executed by the Executive Branch. You really can’t get much more affirmation that something is “legal” than that.
Now, SHOULD it be legal? That’s another question, and perhaps the one we’re discussing. But please don’t be confused, income taxes ARE legal.
Great article!!!!! Any republicans out there old enough and wealthy enough to have payed taxes under Eisenhower?
Ethan – Your really think it’s fair for an 18 y old high school student making under 10k a year to pay the same amount as the CEO of Bank of America who makes 28 million a year. I bet you do if your the CEO of BofA.
@Gwendally
Yeah, you’re definitely right about that. All 3 branches of gov’t consider the income tax a legal practice. Not really surprising.
Don’t get me wrong, I file my income taxes, and don’t ever plan on not filing. I just believe that according to the constitution (despite the 16th amendment) they haven’t yet made it legal. But as the old saying goes, “he who has the guns makes the rules” :-)
“All local roads *could* be paid for by adjusting gasoline and property taxes, and federal gasoline taxes could cover major highways that cross states.”
Not unless you required everyone to drive a vehicle that burns the same amount of gas per mile and drive at the same time over the same roads. The fact is that most of the cost of new construction serves only people who are driving on roads when they are congested, everyone else gets zero benefit. Right-of-way (ROW) in urban areas is much more expensive than the same ROW in rural areas. People who need a bridge, or cross wetlands or steep hillsides all have greater costs for road construction than people who drive in flat dry areas.
The simple reality is that the disparity between what people pay in gas tax and the costs associated with driving are at least as large as the disparities in income taxes paid and government benefits from the income tax.
“The ones that DO have a profit over and above their salaries had better show it comes from some investment decision, not their own labor, or they’ll be slapped with a lot of fines and penalties.”
That is not really true. Many small businesses have employees that they can make money from and they can take profits as a reasonable return on their investment as well. Some small business people don’t do any work for their business, they just take the profits.
Gwendally,
Employees do not pay the 7.65% that the employer pays. That is a tax paid by the employer.
Taxes paid by employers are not taxes paid by employees. I also do not pay the pension that my employer gives me, I also do not pay the health insurance premiums that my employer contributes, I also do not pay the corporate taxes that my employer pays and I do not pay the gasoline taxes that my employer pays for the vehicles they use.
Taxes paid by the employer are not paid by the employee.
And there is no way in the world that you can convince me that if that 7.65% tax paid by my employer were repealed that I’d get it back in my pay check.
@Chris: “Ethan – Your really think it’s fair for an 18 y old high school student making under 10k a year to pay the same amount as the CEO of Bank of America who makes 28 million a year. I bet you do if your the CEO of BofA.”
The default position ought to be that two people receiving the same services should get the same bill. That is what we call “fair” most of the time. In fact, we tend to call the alternative “discrimination”. So I think that if we want to depart from that, we must have a reason. And not a fuzzy one, either. What services does the Federal government provide to the CEO of BofA that it doesn’t provide to the 18-year-old high school student? (Start the taxes at 21 or 25 if you want, btw)
If there are any services in that category, great. Don’t bill the 18-year-old for them. If some are provided proportionally, then bill proportionally. Our current system doesn’t avoid this because it’s difficult, but because it is based on the principle that *it doens’t matter*. Our current system says that there is nothing we can’t tax for; there is nothing outside the scope of government; if 51% of the people can be enticed to vote for a thing, then it is just that we should tax to provide it. There is no other principle in play in our current government that I can see.
Full disclosure – I am not the CEO of BofA. Nor am I an 18-year-old high school student. In fact, I was never an 18-year-old high school student, because when I was 18 I was working for a living. But yes, I had the same opinion about taxes then.
@116-Nathan, not addressing everything you wrote, but here’s a few thoughts:
>>Roads can be paid for 100% by gasoline and property taxes, ensuring that only those who USE the roads have to pay for them.
Everyone uses the roads. The goods we buy (food, etc) arrive on roads. Unless you live on your own land not tapped into any utility grids where you make all your own food and tools then in some way you can not get away from having directly or indirectly utilized the roads that help push down the costs of the goods you receive since their transportation costs are less than if they’d been carted down by mule. If the prices of basic goods go up then the poor will be left with even less money–assuming they can still make ends meet at all.
>>Police departments can be paid for by LOCAL taxes like sales and property taxes.
You didn’t mention how to pay for schools. The same way? Rich neighborhoods will have good police departments and schools and poor neighborhoods will have ill-equipped, under-paid officers and poor schools (understaffed, can’t attract and keep good teachers, no extracurriculars).
>>Nope, but that’s the great thing about charities … they’re efficient. I’d be willing to wager that for every 3 dollars fed into gov’t support systems, only $1 actually gets to the people who need it. Whereas in a REAL charity, that ratio gets a LOT closer to 1:1.
They’re erratic. During times of greatest economic stress when their services are most needed donations go down. Even during good times their income stream can’t be assured. If you look on charity navigator, there are a lot of charities that don’t get anywhere near to 1:1. The ones that have a ratio near 1:1 are labors of love. My dad does work for a charity where the board chairman paid for his travel on his own dime (*past tense because he died during one of those trips). None of them takes any salaries and 99% of the money goes to the kids.
Without systematic programs there will be more people (unable to navigate the patchwork of charities) who will fall through the cracks. To expand charities beyond the current scope of the people who do it as a passion to large enough to serve those would have been helped under the government program, then you will need to start offering reasonable salaries. The efficiency will not be 1:1.
In addition the government funds research that no one else is willing to (largely unprofitable). Government research grants allows those with the interest and ability to make discoveries that help all people or just to expand our body of knowledge. In the past science was the realm of only the well to do who could fund their interest in their hobby. Science is a lot more expensive nowadays than it used to be too.
>>So yeah, eliminate social programs at the federal level. I’d be more than happy to take 1/3 of what I get back and send it to charities. Some people might take the whole thing and donate it. Really rich people might invest that money, which helps the economy, creates wealth and new jobs. Some people might blow all that money on new cars and clothes … but even that is GOOD for poor people. It creates new jobs at car and clothing factories.
>>The point is, we ALL benefit from being able to decide where we want to spend our money, even the poor. When the rich spend money, poor people cash those checks.
And poor people will stay poor as poor people grow up with their parents never around working multiple poor jobs, don’t get sufficient nutrition, go to their poor schools, drop out early to help their families make ends meet… There’s only so much bootstrap to pull on. If you start out low enough in the hole you’ll never get out. Right now society offers a (sufficient) patina of equal opportunity. Your vision will be patchwork of some more equal than others. Its already luck of the draw to be born in this country, but then it’ll become luck of the draw to be born in the right neighborhood in this country.
Aside from all my major quibbles, its a lovely utopia you’ve painted.
@Chris
By your logic should the 18 year old pay less per unit of electricity than the CEO? How about less for a burger at McDonalds? Should he pay less for the same make/model/year of vehicle simply because he has a lower earning power? I have to agree that two people should pay the same amount if they receive the same services.
@Chris,
Ethan makes a good point. This is a common logical fallacy that has evidently permeated our culture … that if you MAKE more, you should OWE more.
Problem is, that sounds remarkably similar to a quote by a guy named Karl:
“From each according to his ability, to each according to his need”
And by perpetuating that idea, we’re handicapping ourselves from unknown potential in prosperity. I know it grates against our emotions, but letting rich people keep the money they earned (or won, or inherited, etc.) is a GOOD thing. Whether they start new businesses, invest the money, spend the money, those of us lower than them on the income scale get to benefit from their money … WITHOUT having to steal it from them.
@Jim, #135: You are correct in one element: if that 7.65% were repealed you would not see any of it, because you wouldn’t understand that it was yours to ask for. You would have to be aware of it to bargain for it.
If your employer is willing to pay you $30K in wages and $5K towards your pension and $5K towards your health insurance and $10K towards taxes they’re compelled to pay on your wage base, then they value your labor at $50K. They’re willing to pay $50K to get that job done. The fact that you only NOTICE $30K as your wage doesn’t matter one whit, except in how hoodwinked you are about how taxed your labor is.
I do not think it is fair for one person to pay 50% of their salary in taxes while someone else pays less than 1%. The more you make, the more you can afford to pay in taxes so the more you should pay.
I also love that your quoting the left leaning socialist Tocqueville. Tocqueville also observed, “Americans are so enamored of equality that they would rather be equal in slavery than unequal in freedom.”
– Alexis de Tocqueville – Democracy in America, 1840
I wish this were still true? Is it?
Des – Were not talking about burgers or electricity. Please stay on topic.
Nathan – Conservatives LOVE quoting Karl Marx don’t they? Too bad they never actually read anything by him. Jesus said it first….
And all that believed were together, and had all things common; And sold their possessions and goods, and parted them to all men, as every man had need.
Acts 2:8
“And by perpetuating that idea, we’re handicapping ourselves from unknown potential in prosperity”
No. Were handicapping the CEO of BofA’s future prosperity. And I don’t feel the least bit sorry for it.
@Ross (121):
What is legally mine is determined by the right of property and the law of contract. If I contract with someone to provide labor in exchange for a good or service, then upon completion of the requirements of the contract I have legally and rightfully earned that good or service.
The rest of your comment is a quibble on patent and intellectual property law, and is unrelated. But here’s the Randian take on it anyway, completely addressing your concerns:
http://aynrandlexicon.com/lexicon/patents_and_copyrights.html
@barnetto #137
In the same sense as all my clients “use my computer” since I’m a web developer. But I don’t charge my clients a “computer usage fee” … I build it into the cost of the service I provide. The same way a gas tax would be absorbed by food suppliers and built into the cost of food. And all the while, we don’t have to forcefully take money from anyone’s paycheck and watch it navigate the federal bureaucracy.
Let the people decide how they want to pay for schools. That’s what freedom is. I’m not opposed to state-funded public education. My beef is with the “one size fits all” crap that comes from DC.
Charitable giving was $306 Billion in 2007. That’s $1000 for nearly every US citizen. Honestly, if just 1/3 of that actually reached people who needed it, I don’t see how $100 Billion couldn’t help every person in need. You act like American is a third world country where everyone is in a soup line and lives in cardboard boxes. The fact is, our definition of “need” is just a little bit off.
I live in South Carolina, one of the poorer states in the US. And where I live, if you need something, there is a charity of some sort within 30 minutes that can get you what you need.
I do not believe that. You fully underestimate the compassion of your fellow man. You’ve got far too little faith in people. I’ve never met a person who, if given the opportunity, would not help a person in need. Unfortunately, we’re currently able to just dismiss people in need, suggesting they go find a local welfare office. Why help a person in need when the Government has made it quite clear that doing so is not our personal responsibility … it’s theirs.
For every 1 discovery or advancement government funds provide, I can give you 10 that the private sector, driven by profit and greed, has given us. You write as if, without the billions in Federal funds over the last 50 years, we’d be 30 years behind everyone else. It’s simply not true.
That vision of the, mostly fringe, cases of American culture, was the norm 150 years ago. Regardless, it’s entirely inaccurate. For a good example, look at Katrina ravaged New Orleans. When Government B.S. didn’t work, charities from around the nation drove thousands of miles, donated millions of dollars, and gave countless hours of their own personal time to help the people get back on their feet. When someone in this country is short on bootstrap, we pull them up enough to get them going. It’s what we do. And we’d do a lot more of it if gov’t didn’t constantly communicate to us that we don’t have to … they’ll take care of it. If there were no federal safety net, states would step up. And where states don’t step up, cities would. And where cities don’t step up, the people will.
There is no such thing as a utopia. People die. Some of old age, some of starvation, some get hit by a bus. No matter how much money you throw at society, some people will fall through the cracks. I’d just rather be FREE to help people in need, rather than be forced to do so.
Wow…this article is a failure to provide the real facts. The author states that historically, the tax rate is relatively low. Um…yea, if your chart only begins on 1913. HOW ABOUT BEFORE 1913 WHEN THERE WASN’T FEDERAL INCOME TAX?
YOU ARE PICKING SAMPLES OF DATES TO BACK UP YOUR IDEOLOGICAL BRAINWASHING.
Wouldn’t it be nice if we could keep what we earn? Who has the right to take it from us if we worked for it and give it to some screw up sitting on his stoop?
I love the library debate above. It truly encompasses the two sides of the tax-and-spend debate. To overly simplify, it shows the two primary values in the debate:
1. freedom
2. entitlement
Envision the push and pull on taxation and spending as a continuum. At one end is pure economic freedom, and at the other 100 percent taxation to fulfill entitlement programs. (At the 100 percent, entitlements would be absolutely everything, from food and clothing to movies and vacations.)
So in the library example, one side wants freedom to choose whether to fund the library (through voluntary contributions – whether in money, hours or goods) rather than being taxed for a government service that will only benefit a small percentage of the population.
The other side wants forced funding through taxation, because it feels entitled to the privilege of a library, even though most people in the community choose not to use it.
Most people in the population fall somewhere in the middle of the continuum. For example, many would tolerate a small tax for the library, but would prefer that it be funded primarily through donations. Others don’t mind a large tax for the library, and think extra donations would be dandy, too.
So each of us should ask a question of ourselves. Do we fall on the side of liberty or on the side of entitlements?
1. If you prefer liberty, are you willing to take full personal responsibility for the situation of yourself and your family – in good times and bad? This means a great deal of sacrifice, with emergency funds in place, moderate spending habits, insurance for every possible disaster, etc. No safety net included.
2. If you prefer entitlements, are you willing to eventually become one of the people who pays half or more of their income to the government? Are you willing to sacrifice personal choice in all services you receive, from education and housing to food and medical care? Are you willing to tolerate low-quality services and, sometimes, rationing? And when a political group you don’t like comes into power, are you willing to accept their choices as to how YOUR money is spent?
The answer seems obvious to me. I wish more people would choose liberty and personal responsibility. We would all be better off for it.
@Chris (#142)
Not to be nitpicky (but ok, I’ll go there), if you are going to quote scripture, at least cite it correctly please. Acts 2:8 *actually* reads “Then how is it that each of us hears them in his own native language?” (unless you’ve already edited it by the time I post this)
Your scripture is actually Acts 2:44-45, and refers the Christian Church ONLY. The members of the Christian church *willingly* had all their things in common, and shared them among the members as needed. It was NOT a forced tax, nor did it extend outside the church (although they did tithe and offer alms, as Christians do today). We’re talking under 10,000 or so people, not millions in a huge nation, so the comparison is hardly equal.
@Chris
There’s a difference between stealing from the rich to help the poor, and the rich giving to the poor. Jesus wasn’t advocating the former, and my guess is that you knew that.
Again, this is a common fallacy in reasoning.
First of all, if the ultra-rich didn’t exist, then neither would all the programs that their taxes fund. And forget about all the money they give to charity.
Second of all, the CEO of BofA won’t be around forever. that money won’t go to the grave with him. He’ll spend a lot of it on frivolous toys, invest a lot of it in the stock market, build some houses, probably start some businesses, and leave it for his heirs.
In doing so he will: send a lot of money to the businesses that make the toys, help stock prices go up which will help fund that 401k and IRA of yours, create jobs and wealth for hundreds and maybe thousands of construction workers and businesses, create jobs for people in his new businesses, and give the same opportunities to his children and other beneficiaries when he dies.
Yeah, screw him. He’s just a rich jerk, right?
@Lesley (146):
GREAT SUMMARY! Thank you for laying it out there plainly! JD, I nominate that post for the dark grey background!
I also wholly and without remorse choose the premise of liberty.
@Chris (142) et al:
Rand also addresses something she calls the “tribal premise”. In this case, premise is meant in the logical, rational sense: A statement taken as fact, upon which further statements are built. I’ll let her words do the rest:
http://aynrandlexicon.com/lexicon/tribal_premise_%28in_economics%29.html
Brenda – Your right. Point conceded.
Nathan – You not going to convince me that everyone regardless of income should pay the same dollar value in taxes. Sorry. I’m not trying to screw the rich. They should pay their fair share like everyone else. You want to talk percentages than I’m with you. If everyone pays 10% of their income in taxes that sounds fair to me. Everyone paying 5k in taxes regardless of income????? I call that socialism FOR the rich.
@Dan K
I’ve removed some of your comments and references to them. We’ve had a thoughtful civil discussion here, and I’d like to continue that. If you want to make your points without resorting to sophomoric comments, you’re welcome to do so. But I’m not going to let the conversation degenerate into the sort of thing you find on YouTube or Digg.
Chris Brown…You have it too good. Maybe you should try visiting a socialist or communist country.
What kind of government have you made for us sir?
“A Republic, if you can keep it” – Benjamin Franklin
I apologize for making sophomoric comments.
I would like an answer to why your data on taxes only reflects taxes since 1913 and is regarded as “our nations historical tax rate”. It seems to me that you excluded over 150 years of our nation before 1913.
But I will receive no answer…for there is no answer that which will provide you comfort knowing that your article is true journalism.
I do believe that your evidence and research is clouded by your ideology and other outside sources. My advice would be to try to take your emotions and ideology out of the research which you do and you may find strikingly different outcomes.
Note: Though I’ve done my best to be accurate, I’ve sure there are errors in this post. As they’re caught, I’ll make corrections.
I bet you meant to say:
I’m sure there are errors
LOL
Your proofreader,
Julie
Dan K wrote: I would like an answer to why your data on taxes only reflects taxes since 1913 and is regarded as “our nations historical tax rate”. It seems to me that you excluded over 150 years of our nation before 1913.
My data on taxes only reflects taxes since 1913 because those are the numbers that are readily available. If I had more time, I’d happily look further back. I think it would be interesting. In fact, I’ve made a note to do so in the future.
However, I should point out that although I don’t refer to any pre-income tax data in the post or charts, I do include a link to a short history of the U.S. tax system where people can read about this, if they’d like.
But I will receive no answer…for there is no answer that which will provide you comfort knowing that your article is true journalism.
I’m not sure what you mean by this. Why would I not answer? Why would you assume I won’t answer?
I do believe that your evidence and research is clouded by your ideology and other outside sources. My advice would be to try to take your emotions and ideology out of the research which you do and you may find strikingly different outcomes.
Interesting. And what ideology would that be? I approached this project with an open mind. I tried to report only facts. Some of the answers surprised me. I’m not sure how I could have different outcomes with a different belief system. Are you saying that if I was, for example, a liberal that I might find the U.S. had lower tax rates compared to other countries? Higher tax rates? To me, the facts are facts. Wishing they were different will not change them.
Dan, you seem like a smart guy, but your comments reveal that you speak (or write) without thinking. You make judgments about others that you ought not make. Why would I not reply to you? Why are the other commenters idiots? This is the sort of rhetoric I expect on radio and TV talk shows, not on Get Rich Slowly. While on this blog, please keep to polite discussion and respect the fact that others have different opinions than you do. We’ve had 150+ other comments without this sort of thing. Let’s keep it that way.
@Julie
Argh! The real problem is that’s an error from last week. This was originally one long post that I split in two. When I did, I cut-and-pasted the disclaimer. Somebody corrected me last week, but I forgot to correct it here. So lame of me. :(
@Dan
When I read this article, I was so unable to decipher any opinion on taxes that I just figured JD didn’t have one. I’d say for journalistic neutrality, he hit the mark spot on.
Fair share is defined by a percentage of income? To me, “fair share” should be determined as a “fair share” of the total tax collected. And for it to be fair, it should be equal, no?
A car costs the same amount whether you make $30K or $500K … why should taxes be any different?
Wow, that’s one I’ve never heard before. Care to explain how “equal in, equal out” can construed as socialism in favor of the rich?
The “Sixteenth Amendment” argument is bunk. It’s one peddled by people selling Magic No Taxes kits. There is no secret government conspiracy to hide the truth about the income tax. It is not an “illegal” tax, period.
Nathan @148: in addition to getting tax credit for his charitable contributions, Mr. Rich Guy is also benefitting from his tax dollars immensely. There is an infrastructure that allows him to be somewhat secure that his ‘frivolous toys’ are safe to use, and that he can seek recourse if they are not. There is an orderly mechanism for protecting his property and for handing down his inheritance to his heirs. There are rules about the stock market to make sure that he can invest on some kind of level playing field. There are roads that allow him to transport materials to build those houses. And so on.
I’m not anti-Mr. Rich, but I am totally baffled at all the vitriol directed at the allegedly lazy, tax-dollar-and-service-using lower-income folk, while we assume that our wealthy betters are simply giving us money because they’re nice.
“What is legally mine is determined by the right of property and the law of contract”
By what contract do you use the street in front of your neighbors house? By what contract do you breath the air? By what contract do you disturb your neighbor’s sleep? The fact is that government is a social contract. If you don’t like ours, leave. Otherwise stop whining about having to pay for it. And stop confusing equal with fair.
mythago,
I only received the idea that those who make more should be able to keep a larger share of their incomes. I didn’t see an attack on those who earn less as “lazy, tax-dollar-and-service-using lower-income folk.”
I happen to agree with 100% of Nathan’s ideology and see it as the intention the founding fathers had for this country in regards to fiscal policy.
JD, I love this website. Please do not hurt me for the next comment.
I dismiss criteria that compares our taxes to other nations as the true comparison should be whether our tax dollars are being spent on departments that are mandated under the US Constitution. I couldn’t care less what Denmark spends on taxes and what they receive in return.
Steven @161, you didn’t? I’m looking at Kevin’s comment at @70, for example, lesley’s comments, and Dan’s at @145.
I’m extremely reluctant to remake the Framers in my own image, particularly on something as complicated at tax policy, and PARTICULARLY when it just so happens to coincide with “and I get to keep my money, woo!”
I’m not sure I understand your first sentence, which seems to suggest that the more money one has, the less one should pay in taxes.
@ #125: (re: “renter’s tax”) Renters do pay property taxes, inadvertently. They pay the owner for the right to live there, and the owner pays the property taxes. If no one had property taxes, rent would be cheaper (and/or the owner would make more of a profit)
@Nathan
>>Everyone uses the roads.
>>I build it into the cost of the service I provide. The same way a gas tax would be absorbed by food suppliers and built into the cost of food.
You skipped the point I made about how this raises the prices of goods so poor people are less able to pay. Then people would need even greater charitable aid since the road tax would be so regressive.
>>Let the people decide how they want to pay for schools. That’s what freedom is. I’m not opposed to state-funded public education. My beef is with the “one size fits all” crap that comes from DC.
You didn’t address the disparity that will occur between poor neighborhoods and rich neighborhoods and their attempts to equip their police/firemen and to offer a good education. I may not agree with “one size fits all”, but I do disagree with school systems that can’t provide good teachers, sufficient supplies (textbooks, libraries, computer labs) so their poor students come out less prepared than children of wealthy communities.
>>I do not believe that. You fully underestimate the compassion of your fellow man. You’ve got far too little faith in people. I’ve never met a person who, if given the opportunity, would not help a person in need.
I didn’t underestimate anyone’s compassion. I said that if the government quit offering services then charity would have a hard time providing for all those additional people who need help. If would be far from systematic and people *will* fall through the even greater cracks that will exist in this patch work system. Your guesses for how much more efficient the charity will be no longer holds when the expanded charity will need to hire real staffers, not just volunteers. And you didn’t address the problem that charitable donations will fall when they’re most needed.
In short, you’ve ignored all my important points and hand waved them away with talk of freedom, compassion, and more money for you.
>>For every 1 discovery or advancement government funds provide, I can give you 10 that the private sector, driven by profit and greed, has given us. You write as if, without the billions in Federal funds over the last 50 years, we’d be 30 years behind everyone else. It’s simply not true.
We need the government funding to do basic science research and to do research into problems which have no profit in them. And we would be further behind. Public research is available for everyone to innovate on. Private research is locked up in patents for years.
>>For a good example, look at Katrina ravaged New Orleans. When Government B.S. didn’t work
Under Bush and heckuva job Brownie guidance. Government rarely works well when you’re trying to kill it.
You haven’t really done a good job refuting the idea that poverty will become concentrated and opportunities reduced due to more unequal circumstances.
@ Steven (161), not only can I not even begin to imagine JD hurting anyone (this is intended as a compliment, JD), but I think what you’re missing in your comment on comparing our taxes to other nations is that the point of taxes is to give the people services. The comparison with other nations shows what SERVICES their people are willing to give income to via taxes.
We choose the services. Unfortunately we live in a huge and diverse country, and always some people want some services and some want others. This is why we have representatives and vote. I personally would prefer to never give another dollar to defense spending, but I accept (reluctantly) that I do not have that choice, but every time I VOTE, I use what power I have in making that choice known.
@ #164: on food prices, there is a gas tax. And the price of gas is already absorbed into food prices so your argument is bunk.
A federal income tax was imposed prior to 1913. In 1861, during the Civil War, a personal income tax of 3% (flat tax) was imposed on incomes above $800. This tax was later modified to include a graduated tax. This income tax remained in place until being repealed in 1872.
@Steven (#161)
Grrrrr…. :)
No worries. I can understand your perspective. And I’m never going to hurt anyone for voicing a reasonable opinion. The only time I really get cranky is when people are jerks to each other. But a good, heady debate? With opinions that might not match my own? Bring it on!
Actually, I’m not sure how I feel about the country-to-country comparison. On its own, I don’t like it, and think it doesn’t say much. Combined with the other data, though, it becomes part of a bigger picture.
Also, I’m one of those who doesn’t like how everyone invokes the Founding Fathers, as if they agreed on everything. They didn’t. They had rancorous debates, just as our politicians do today. The U.S. wasn’t built on unity — it was built on division. They fought duels with each other! And they built their disagreements into our Constitution, which is something I actually dearly love.
But these discussions we’re having today? They’re not new. They’ve been raging for 250+ years. This is something that most people on all sides of the political fence fail to realize: That there was disagreement among the Founding Fathers, and that the country has rarely been unified on anything. :)
@ Tyler (#71)
Few of us get a dollar-for-dollar return on the taxes that we pay. It’s even worse for very high income earners, many of whom may pay millions in income taxes. The money paid in taxes ultimately become “public” funds used for the “public” good. They are not user fees.
I guess the only time that I got a net gain (in dollars) versus my taxes paid was during my time on the public payroll while in the Army.
“1. freedom
2. entitlement”
Actually its not, its selfishness versus community. You can apply the same reasoning on libraries to roads. Let those who want them pay for them through donations. The same with police and fire protection. The same with food safety. The reality is that selfish people will let others pay for them and they will come out ahead.
Now you can say – if they don’t pay they can’t use them. But who enforces that?
The reality is that most of what people own is an accident of the country they were born in. Everyone benefits from that – the rich more than anyone. “Randians”, much like the Marguis de Sade, defend their own “freedom” to act for their own benefit, often at the expense of others.
JD, no worries, I 100% agree with your philosophy for personal finances!!! You are the man and a great example of individual success, you personify American excellence and individuality. I am thrilled for you that you have found a way to make a living doing something you like.
I should clarify my post: I don’t mind the comparison of our taxes with other countries. However, the criteria for whether taxation (or creation of another program or department) is justified is our own Constitution and not other countries.
@ Ross 170 –
I take extreme exception and umbrage to the idea that wanting to keep more of your own money equates to “selfishness,” and wanting to take others’ money for the collective is “community.” By your standards, communism is a positive virtue, while capitalism is evil.
I am not selfish for wanting to keep the fruits of my labors. If I were to work 80 hours a week, and my neighbor only worked 20 hours a week, why would it be selfish for me to keep the extra 60 hours of income – rather than give it to my lazy neighbor?
If I were selfish, I would not donate a full 10 percent (and more) of my taxes to charity each year. And no, my income is not that high. Making those donations is not easy – it is quite difficult for myself and my family. We sacrifice so that we may give to help others. Many other mid-range and high-end earners do the same.
Your accusation is hateful. Rich people are not greedy or evil. And most people with high incomes did not “luck” into them. They work hard and made positive choices.
On the flip side, would you call all poor people noble and pure? None are poor because of laziness or bad choices? I do not assume this is the case for all poor people … but then again, I don’t assume all flat-taxers are selfish, as you do.
By your reasoning, everyone should pay for a subsistence living standard, and then throw all the rest of their money into a big pot for bureaucrats to divvy up. Do you really want to do that?? Is that what has made America a strong and healthy economy for 250 years?
One point that seems to be missing here (granted I didn’t read EVERY post) is the impact of money printing (inflation) and subsequent price increases when they are combined with taxes. Average REAL (inflation adjusted) wages are significantly lower than the ’70s, and even the ’80s. If your average tax rate is even roughly the same on an already reduced REAL income, those paying taxes can justifiably complain about a punishing burden of taxes and a reduced standard of living.
BTW, redistribution of wealth is just government mandated THEFT. Encourage a more charitable and giving society. There will always be those less fortunate and poor. May they be a source of blessing to those with more who now have an opportunity to give.
@Ross (160):
I can only assume you’re trolling at this point. Please state a real argument, and not strawmen that prove nothing other than your own absurdity. The only one that is even close to valid is the last, and for that there’s usually a disturbing-the-peace law.
@Ross (170):
Randian thought is quite self-consistent. For instance, the answer to your query, is “mu”, because the question is wrong. The reason, is because by Randian thought, no one would “pay for someone else” to start with. It’s inconsistent with the premises.
Just to be clear – almost none of the money paid in Social Security taxes goes to the people who pay it. The benefit goes entirely to others. If they live long enough they may benefit from Social Security.
Nd it ought to be obvious that a tax paid exclusively on the first 100,000 of wage – without any deductions or exemptions – is not being paid disproportionately by the “ultra-rich”. And that accounts for almost half of federal spending.
This analysis of federal taxes ignores employee compensation that goes untaxed like health insurance, stock options, and 401K contributions. No one pays the 15% on those. And very few poor people receive any of those.
It is a fairly typical analysis of taxes. It ignores the taxes paid heavily by the poor and middle class, while exaggerating the percentage of total income being paid in taxes by the wealthy.
@barnetto
Of course it raises the price of goods. And of course, the people who are less able to pay will have a harder time affording the increased cost. I don’t dispute that.
Regardless of the good intentions (to help the poor), that doesn’t mean it’s right to steal from people (even if they can afford to be robbed) to do so. Just about every single bad domestic/fiscal policy the US has adopted in the last 75 years has been to help the poor. And it rarely succeeds in accomplishing its goal, FWIW.
That’s because if a state funds its own education, there won’t be a “neighborhood by neighborhood” disparity. The funds could be evenly distributed among districts … all without a dime of federal money (or influence).
Sorry, but that’s always going to be the case. Parents of children in wealthy districts will send their kids to private schools, or if they send them to public schools, they’ll donate to the sports programs, and band, and science labs, etc. There’s always going to be a difference between what the rich get and what the poor get, no matter how level you try to make the field. As long as the rich have more money than the rest of us, they will spend it making their lives better than ours. Fact. Of. Life.
All those people? Again, you’re painting a picture of society that just doesn’t represent real life. If (and that’s a big if) some of the <1% of Americans who *actually* live in poverty ever went without help and that fact got out into public knowledge, thousands upon thousands of people would pitch in to help.
And of course, Government efficiency is the standard to which we should all aspire, right? Fact is, no matter how big the charity gets, it’s very unlikely that it will do a worse job than Government.
Very large organizations like Walmart seem to operate very efficiently, despite their size.
If this happens when Government is in charge, you sure don’t seem to have a problem with that, do you? We just print more money, or borrow it, or worse … take more from the rich (which will likely extend the “bad times”).
You neglect to see that, with no income taxes (or substantially lower rates), hard times would be less frequent and less hard. Imagine the prosperity that would follow introducing nearly $1 Trillion into the economy every year that wasn’t there before.
That’s unfair. First of all, I don’t personally qualify as “rich” … not even close. And even if I was, I’m not talking about somehow robbing from the community pot … I’m talking about keeping what I earned in the first place. That fact tends to slip the mind of liberals … I earned every penny I made. It belongs to ME … not you. Why should anyone think they have a right to something they didn’t earn?
Secondly, what’s so bad about freedom?
Thirdly, your cynicism toward people’s compassion is disheartening. It’s as if you’re saying “give people the right to spend their own money they way they want to, and they’ll screw it up.”
I just don’t believe they will.
Please name one. And for every one you name, not only can I name 10 that the private sector was able to discover (faster and cheaper), but I can also give you 10 “discoveries” and “advancements” that were completely worthless to the common good.
Regardless, this doesn’t need to be funded by the Federal Government anyway. States already fund universities … why not fund the research grants too?
1. I was actually talking about the billions in funding that Louisiana and New Orleans have received that has yet to make a dent in the condition of the area. Both, by the way, were democrats.
2. Surely you jest. If Bush was trying to reduce the size of Government, then I’ve got a bridge I’d like to sell you. (BTW, criticizing Bush to someone who was not a fan of his doesn’t work).
Unequal circumstances — that’s life. It’s equal opportunity that I’m trying to promote. There is no limitation that charity can’t dissolve that is holding people back from prosperity.
This quote from Benjamin Franklin sums it up well:
JD: please remove Dan K and disallow him to post further vitriolic, unreasoned arguments.
I enjoy the site, and reading BOTH sides/all nuances of the arguments, but his comments are inflammatory and unhelpful.
This is a controversial subject, but most of us here are adults who are willing to trade dialogue rather than insults. Thanks.
“take extreme exception and umbrage to the idea that wanting to keep more of your own money equates to “selfishness,””
What is your definition of selfishness then?
“I am not selfish for wanting to keep the fruits of my labors”
If that is all you want to keep, great. But, in fact, you also want a share of the labors of several thousand years of civilization and 200+ years of American civilization in particular. And you consider that your entitlement.
“I don’t assume all flat-taxers are selfish, as you do.”
Actually that is too kind a description. I think there are two possibilities – they don’t understand the implications of what they are advocating or they are sociopaths.
Most fit the first category, but there is a large group that really fits the sociopath category. They are prepared to have people in a car accident die by the side of the road if they can’t pay for an ambulance.
““The American Republic will endure, until politicians realize they can bribe the people with their own money.” — Alexis de Tocqueville”
He was wrong. Politicians realized that over 200 years ago and we are still here.
Justin – You mean those things YOU need are obviously your entitlement, requiring no contract. As you point out, we have laws against disturbing the peace. We also have laws that require you to pay for public services.
Lesley @172, what if your 20-hour neighbor is a venture capitalist or a stock trader whose 20 hours of work generate ten times your income? Mr. Twenty may well be creating more wealth, and paying more taxes, than you do. Is he still stealing from you merely because you work more hours than he?
Of course it’s not the case that the rich are evil and the poor are virtuous, but the reverse is not true either, and I don’t understand the vehement arguments here that it is. The stoop-sitter who lives off food stamps is using way less of my tax dollars that the defense contractor who persuades the government to hire him, not the lowest bidder, to fund a pork-barrel project.
@Ross,
I actually have no problem calling people who want to keep their own money “selfish”. They are acting in their own self-interest, potentially above the interests of others.
That selfishness has been the driving factor in our rise to the top in economic prosperity. Bottom line, our drive to make money for ourselves ends up indirectly benefiting everyone. My employer gets good work in exchange for a decent wage (depending on how in-demand my skills are). My landlord gets my rent check, and his bank gets paid back for the loan he has on the house, plus interest. The bigger my house, the more people my “selfishness” benefits.
I could go on with every penny that I make, then spend (or invest). But you get the point, I hope. It need not be stolen from me to benefit society.
Unfortunately, they’re all dead. But then again, you’re not asking us to pay them back … you’re trying to indicate that we owe society a little kickback, since it must “take a village” to run an economy. Two problems with that …
1. I’m already kicking back nearly my entire paycheck on bills and other spending/investing/giving. By spending my money, period, I am giving back to society. That’s how it works.
2. Don’t give me the “roads, water, and police” B.S. As has been abundantly demonstrated in my posts above, none of those require a dime of federal income tax revenue to operate, and they certainly don’t need a disproportionate amount from the rich.
I’ve heard a lot of things, but that’s about the weirdest one I’ve heard. Let’s do an analogy to make this easier to understand.
A high school math teacher gives the class a test. Some will ace it. Some will pass. Some will fail. In order to make sure that no one fails, the teacher uses a graduated scale to determine how many points each student must relinquish to “the community”, so that no one will fail. After all, we don’t want anyone failing and not graduating. HS Graduation is key to a decent job.
Those students who make a perfect score are deducted 10% of their points. Those who made a B get deducted 5%. Those who made a C get deducted 3%, and those who made a D get deducted nothing (or else they might fall into the failing category).
Is that fair? A student diligently studies for an exam, only to be told that, because they did well, they are going to be deducted more than the other students … while failing students, students who might not have even studied at all, are given their points to ensure a passing grade, something many students are perfectly happy with.
Are the students sociopaths for wanting to keep the points they earned? Are they sociopaths because they don’t mind it if a student fails when he didn’t study? Is he a sociopath if, instead of having his points taken and given to the failing student, he decides to volunteer to tutor those students who are legitimately struggling?
Am I a sociopath because when I hear “we’ll pay you $20/hour to work for us”, I’d actually like to make $20/hour?
It’s real easy to be generous with other people’s money, Ross. But it doesn’t make you any more generous than a person who wants to keep all that they earn. It makes you a thief. A popular thief, but a thief nonetheless.
@ Nathan.
You seem to be arguing that progressive taxes reward the poor at the expense of the rich. Well, under the current system, the poor are poor and rich are rich. Under a flat tax, the poor would still be poor and the rich would be richer.
The groups that would suffer under a flat tax (if it were revenue neutral) would be middle and upper middle income earners. If you cut taxes at the top, the burden has to shift downward.
I do agree that a higher corporate tax to replace income taxes would be preferable, but that’s not going to happen. Corporations have huge influences over the politicians that write tax laws. Plus, the rich would probably oppose increases in corporate taxes as well since they derive a great deal of income from investments in corporations. And, rich folks have a lot of influence over politicians, too.
I very much disagree with your suggestion that we rely more on consumption taxes and user fees. These forms of taxes are highly regressive…they tend to shift the tax burden downward.
The rich got a huge windfall with the tax cuts of the 1980s. The highest marginal rate was reduced from 70% to 28%. At the same time, deductions used by middle income earners were eliminated. The result…the rich got a lot richer, the middle class got squeezed and Robin Leach (Lifestyles of the Rich and Famous) got a job…”Champagne wishes”…
@Nathan – 180 – “The bigger my house, the more people my “selfishness” benefits.”
I find this comment curious. No one but you ‘benefits’ from having your house larger. The people who worked on your house, had they not worked on your house, would of produced other goods, sold to other people. The transaction contents are neutral.
However, your house produces no goods. It offers nothing to the economy beyond you spending money. That money is spent if it taxed, spent on dinner or on your house… it isn’t capital… it’s almost an extension of the broken window. Increased activity does not translate to an improvement in the economy. Yet, if the government ‘shrunk’ your house by taxing you and puts it to capital products, or infrastructure, not only do you end up with a higher multiplier in the economy, it’s actually going to produce long term benefits compared to your house. That’s without even going into goods that the market doesn’t produce efficiently, like education and public goods in general… items that you would have no influence on simply due to the nature of public goods.
If you are really worried about heating up the economy, via the “bigger house”, support inflation. Even if the arguments for against are reduced to push/pull effects of inflation, it’s certainly going to be better than building a bigger house. That’s where the aggregate increase in demand is going to happen.
In the end, the top percent earners don’t pay that much more tax relative to what they actually earn. They control the vast amount of wealth in your country – IIRC, over half is owned by the top 1%, and the income of the country is also wildly disportionate (top 10% for 50%, again IIRC). As a result, top percentiles in income and wealth are already getting a disportionate gain from taxes. The businesses they run are competitive with the world by having educated workers, roads for networking, military for security and so forth. It’s not hard to see the correlation between taxes and income inequality and it is not hard to see the general nature of such a high income inequality on social order, order that ties into all of the areas tax money is applied.
@Finn (182) re: Nathan’s comment (180)
“I find this comment curious. No one but you ‘benefits’ from having your house larger. The people who worked on your house, had they not worked on your house, would of produced other goods, sold to other people. The transaction contents are neutral.
However, your house produces no goods. It offers nothing to the economy beyond you spending money. That money is spent if it taxed, spent on dinner or on your house… it isn’t capital… it’s almost an extension of the broken window. Increased activity does not translate to an improvement in the economy.”
Finn, I find your comments curious. Why does “increased activity not translate to an improvement in the economy? Please help me understand if I’m missing the point of this.
Your statement makes it seem like Nathan spent his money on the house and the money went into a vault into the ground. Here’s my take on it:
The house doesn’t just stand there…it is filled with goods made by people. The larger the house, the more goods and services are needed (refrigerators, mattresses, drapes, rugs, etc) or, simply desired (say if one was a collector of art, not Picassos, but local artists, for example) if that is how one chooses to spend their money. If his large house has three garages, he probably has three vehicles or equipment that he plans to put in there.
The more goods that are needed, then more companies (large, small, mom/pop, individual) are there to meet that need.
The more companies there are, to appeal to the diverse group of buyers, the more people are employed to make those items.
The more people that are employed, the more they are putting their wages back into their community grocery stores, hardware stores, buying cars, buying STUFF, donating to charities, not on the public dole, etc.
How is this not an improvement in the economy?
On a personal level, and from the bottom up view of this discussion and ALSO as a producer of things people buy, not as a necessity but because they wish to, I’m running 23K less than last year at this time.
Which means that’s 23K I’m not turning back around into the economy. And that’s just ME.
Again, Finn, please feel free to correct me if I’ve misinterpreted your comment.
Ann Rand philosophies sound awfully similar to “trickle down” theory of fiscal policy. And we saw how well that worked. I guess the main thing I cannot agree with both Ann Rand and fair tax proponents, is that there is no agreed sense of community or societal obligation. Even the most basic societies provide for the weak, the young, and the old. Our society is a bit more complicated; we don’t have the homeless person move in with us but hopefully there are other safety nets.
Whether you believe it or not you do live in a society, and do benefit from living and working in a stable society. Even the most basic hunter gatherer knows you have to contribute to the society you live in to accrue the benefits. And that process is over a lifetime, where at some times one is a receiver of benefits and other times a contributer. If you default on that contract, try to “game” the system then there is severe repercussions up to being thrown out.
I don’t mind discussion what about effective tax rates, discussions how those tax dollars should be spent, or how to make the government be more efficient, and the process more transparent. But to have the belief that one should live in the US and not have to pay taxes, well isn’t that kind of like having your cake and eating it too? That attitude is far more corrosive to the shared sense of responsibility and well being that we as Americans should have than the “entitlement” that a recipient of food stamps feels.
@Oldernwiser #183: Finn is referring to the Broken Window Fallacy. Economic activity for the sake of economic activity isn’t necessarily good unless you consider what the money would have been spent on if it weren’t spent on consumption. Most of us can see the benefit of spending the money on investing in an asset that could generate income or a better way of life down the road, or perhaps paying down debt. Finn is suggesting the government would do a better job of investing his money than the home-owner would, and I don’t agree with THAT proposition, but he is correct that consumption just to generate velocity of the currency is poor economic policy.
(If you’re reading a criticism into Keynesian stimulus plans like “Cash For Clunkers”, well, good for you.)
Read more about the Broken Window Fallacy here:
http://en.wikipedia.org/wiki/Parable_of_the_broken_window
@Gwendally185.
Thanks for the link..I’ve only had time to give it a quick read through but will delve into it more.
I will say I join you in disagreeing with Finn that the government would do a better job of investing his/your/my money.
Please help me with this, though:
“Most of us can see the benefit of spending the money on investing in an asset that could generate income or a better way of life down the road, or perhaps paying down debt.”
This is where I get confused re the “consumption to generate velocity of currency” being bad economic policy. If one is investing in an asset that could generate income or a better way of life down the road, what kind of asset is that?
Is it not investing in Microsoft or Apple or Cisco or Intel, which all generate income and have produced a better way of life, but couldn’t have done that if people didn’t want to consume their products, either for fun, business needs, or because they want to carry on conversations such as this?
Is it not investing in Berkshire Hathaway because of a proven track record of Warren Buffet picking succssful companies that produce good/services that people buy?
I understand about using the money that might have been spent on buying things to pay down debt as being a good choice. But if one has no debt, has invested money to provide future income, etc, and has money to spend then they will consume things, will they not?
I’ve really enjoyed your posts, btw.
onw
I just thought of an interesting idea for the roads. People are acting like roads simply wouldn’t be built not maintained unless by a government. But here’s the thing… Roads BENEFIT someone. In fact, they benefit multiple people, for various reasons. So, here’s a question I propose to all of you: Do you really think that new Walmart being built in that new suburb would NOT build a road to itself if the government could not or would not? And do you think that Walmart would get it done more expensively and slower than the government probably would have, or vice versa?
To spell out my generalized point: If it provides a BENEFIT, then SOMEONE is willing to pay for it. Businesses will build roads to themselves, because otherwise it would be extremely difficult for customers to get to them. Communities and neighborhoods would pay for police and fire protection, because it benefits them. (And this need not be done through taxes. Deed restriction contracts on the community, same way HOA fees are done now, is the first alternative that comes to mind. That way, it becomes a CHOICE and a contract WILLINGLY entered, and competition between communities and police forces would arise.)
Also, I see a little quibble about selfishness has happened, as it invariably does. Let me ask this: If I willingly enter a contract to provide a good, in exchange for $500, why is it selfish to want the $500 my contract says I am legally and rightfully entitled to? (And we already covered the adverbs just used, so please see comment #143.) The other party of my contract obviously thought they were receiving proper value, or they would not have entered the contract. Likewise for myself. We are the only two parties in the contract. There is no conflict of interest; we both wish for the contract to be fulfilled for the terms set out.
Furthermore, why is it any more selfish for me to want all of the money, than for my contractor to want all of the good I am providing? If a 20% tax on my monetary profits makes sense, why does a 20% tax on his received goods also not make sense? If he bought a 5 bedroom house from me, why does it not make sense that one bedroom of his house be given up for the “public good”, opened for anyone to stay there free of charge? One in every five boxes of cereal they buy being taken immediately after purchase and distributed to everyone?
This should demonstrate that you are actually revoking the right of property, and thus justifying outright thievery.
@Oldernwiser: when you “invest” in Microsoft, you are usually speculating, not investing. Except in the case of initial stock or bond offerings, you are not giving the company more money to buy a bigger warehouse so they can enter a new line of business, you are not providing capital to retool to build a better widget.
Instead, you are buying stocks from someone who was counting on a greater fool coming along to lift them off their hands when they wanted their money back. The reason they thought a greater fool would come along was that they thought the company would continue to make money. Your collusion to keep a company making money so their stock price rises isn’t actually sound economic policy, it’s merely propping up the poor economic model we’ve got. It wastes capital to keep failing businesses running: those resources and manpower could have been reallocated to make something that people actually DO want and need. Every expensive GM car we subsidize to make it so we’ll pay more than we’re actually willing to pay for it is a smart car’s development that ISN’T being subsidized (or worse, is being penalized for not being unrealistically cheap) that COULD have been rising up to win market share.
If you, instead, said you wanted to spend the money you’ve saved on chipping in to buy your daughter a semi-tractor-trailer that she can use to haul her goods to a wider market, well, THAT’S investing. One can also say that educating a kid would be investing, too, except the ungrateful brats don’t ever give you a return on that investment (!). :-)
I see what you mean about considering your dividend-paying stocks to be an investment, in that they’re assets that will make it so your money pays you “rent”. It’s good personal financial planning. But it’s not good economic policy. Unlimited growth is not possible in a finite world.
Morning JD!
Again great post on this subject. Very informative and I learnt a lot. As several of my readers have asked me to respond longer to your post, I decided to answer their question:
“Do Higher Taxes Lead To Socialism in America?!”
Hope you enjoy the read! I’ve provided a link to your article as well :)
RB
@Gwendally (188):
That third paragraph is cracking me up!
Justin @187, Walmart doesn’t just need a road to its store. It needs its customers to be able to get to the store, too. Walmart isn’t building a road to your house; it isn’t building a road from its store to its suppliers; it isn’t building a road from its suppliers’ warehouses to the port where the goods come in.
As for everybody paying for what benefits them, you’re not counting on free riders.
HOAs are not exactly what I would hold up as a model of utopia, either.
@Nathan Rice (#176)
And of course, Government efficiency is the standard to which we should all aspire, right? Fact is, no matter how big the charity gets, it’s very unlikely that it will do a worse job than Government.
Very large organizations like Walmart seem to operate very efficiently, despite their size.
I love your last statement! It just goes to show what motive can do…
Government’s motive is to stay in office, so they take more and more from the few that can “afford” to lose money and give it to the MANY… (sorry ranting – deep breath…)
Walmart on the other hand has a profit motive to keep its costs down and make money for their shareholders.
Maybe government should sell shares? I guess they do with T-bills and bonds and such, but they have a guaranteed payoff. How many of us would buy stock in the current government if there wasn’t a guaranteed interest rate?
@Finn,
If you’re talking about an artificial injection of disposable income, and therefore only a temporary or time-shifted period of increased consumption, then you’re absolutely right. All that does is interrupt or displace everyday consumption.
But If I was a millionaire, and had to make the decision to either bury my millions in the back yard, or build a big house, it’s not hard to see that choosing to build a big house will benefit many, MANY people during the process. Then, after it’s done, I buy furniture to fill the house … I hire a lawn care team to keep the landscape looking nice, etc. Every dime I spend benefits the people with whom I spend it. And yes, the bigger the house, the more I spend, and the more people benefit.
Again, all that without a single penny needing to be stolen from me. Even in my selfishness, I’m benefiting people who make less than me. Then THEY spend the money they made from me, benefiting even more people, and so on.
Absolutely incorrect. If any part of this story represents the broken window, it’s government meddling. It’s completely artificial, unnecessary, and disruptive to the normal working of markets.
These theories (inject public capital and watch things get better) has failed nearly every time it has been tried. Take public schools, for instance. We keep increasing the per-head funding, and yet scores and behavior keep going down. Some of the worst school districts in the country have the highest per-head funding. Public works, funded by public dollars, are not an efficient means of revitalizing an economy. Letting people (all people) keep the money they earn, then letting them spend that money how they want to, is much more effective, in both theory (give a man a fish, teach a man to fish) and practice.
Thanks for a great post! It’s difficult to simplify something as complicated as taxes, but you’ve given a good sketch.
Now, figuring this out on the local level is even more important… my township, county, and state taxes are even more complex and have even more impact on day-to-day life.
I work for a tax-funded government organization, and if there’s one thing I wish, it was that more of my district took time to understand how we’re funded and where their tax dollars are going.
The obsession with tax rates and comparisons with other countries is something close to a waste of time.
We can look at the effective tax rates we’re paying, the marginal rates, etc, but none of it paints an accurate picture of what we’re truly paying.
For example, using the chart in the post, total federal income taxes paid are just over $1 Trillion. However, the total of government spending at all levels (fed, soc sec, state, local) is on the order of $6 Trillion. So where is the remaining $5 Trillion coming from???
Other taxes and hidden taxes, plus deficit spending. There are social security taxes that we all know about, but there’s also the 7.65% match the employer pays. There are real estate taxes,sales taxes, highway tolls, utility taxes, unemployment taxes and on and on.
Just because we don’t always see the taxes levied doesn’t mean we aren’t paying them. The real rate of taxation is in excess of 40%, and even a lot of low income earners who aren’t on the income tax roles are paying some number close to that, because even if a tax is buried in a utility bill or a purchase, we’re still paying it. It isn’t all about the federal income tax!
(See http://www.usgovernmentspending.com/us_20th_century_chart.html for references–Actual tax % for 2009 is 45%)
@#140, Gwendally: “You are correct in one element: if that 7.65% were repealed you would not see any of it, because you wouldn’t understand that it was yours to ask for. You would have to be aware of it to bargain for it. … The fact that you only NOTICE $30K as your wage doesn’t matter one whit, except in how hoodwinked you are about how taxed your labor is.”
I’m aware of how the tax works. I am not “hoodwinked”.
The simple fact is that if my employer pays a tax then it is not paid by me. You’re trying to double count a tax and shift it from one entity to another. Why not just claim that all 15.3% is paid by the employer and that I pay 0%? Same logic.
@Todd – comment #60 – you may want to check with your CPA (or attorney) who prepared your father’s estate tax return. Assuming he was married to your mother at his death, everything should have passed to her tax free under the unlimited marital deduction. (She would pay the tax at her death if the estate is still taxable.) Unless there were some convoluted estate planning set up – in that case you may need to consult another attorney re: possible malpractice. (I’m guessing this isn’t the case however due to the fact he paid any estate tax at all.)
(I’m a CPA and have done several estate tax returns in my 10+ years.)
@Jim: here’s how the employer gets out of paying that 7.65% tax: they stop using your labor. The ONLY reason they pay that 7.65% tax is because they value your labor high enough to make it worth paying.
Your employer values your labor and is willing to pay $X for it.
How can you NOT consider that money you didn’t get a tax on your labor?
I agree that it isn’t the way most people think about these things, but that is EXACTLY why this shell game has been so successful.
Stare at this a while and it will dawn on you.
If your employer is willing to – and then DOES – pay $50K to obtain your services, any amount of that not received by you is a hidden tax on your labor.
I can say this over and over again in a lot of different ways. Sleep on it, or email me at [email protected] com and perhaps we could continue this elsewhere.
@Jim again:
Another way to discuss it: if you’ve ever been in a job where they had to lay you off, but are okay about you coming back as a subcontractor, the negotiations for the subcontractor pay are ALWAYS higher than for your salary pay. One of the reasons for this, and they’ll say this out loud, is “we won’t have to cover your payroll taxes anymore.”
They’re still willing to pay the same amount on a contract basis, they just pay it to YOU and then YOU pay the payroll taxes on it – except now that extra 7.65% is out in the open, no longer hidden, and you pay both sides out of checks you write.
How about some math: employer is willing to pay you $20/hr for your services, you get $18.57, they pay $1.43 into your social security account along with the $1.43 they withheld from your paycheck (so your net check was $17.14).
If you go as a subcontractor, you’d ask for $20/hr instead of the $18.57 you were used to charging, and you’d absolutely get it. (In fact, ask for MORE, because your services are worth MORE as a subcontractor because of a lot of other piddly little employee expenses the employer was paying, which they ALSO docked your wages for.)
But if you get $20/hr, be aware that you’re going to have to pay $3/hr in social security and medicare taxes, bringing your net pay back down to $17 again.)
Employees pay the EXACT SAME TAXES on their wages as self-employed people do, but only self-employed people ever notice it. (By the way, that’s ANOTHER way you can tell what I’m saying is true, because if self-employed people DID have to pay extra taxes over and above what employees pay you would be hearing their battle cry loud and clear. They don’t. They pay the same taxes – all 15.3% of their labor’s earnings. Same as you.)
Gwendally (199)–Good illustration on hidden taxes. The problem is that there are more of them, a lot more. Ever look closely at the taxes included in your utility bills, your hotel bills?
Ultimately, we pay all of the taxes, even if we don’t see them.
how to get smaller government:
for every dollar of funding, 1.1 has to be taken out (more is better). In other words, new budget items are paid by removing old unused budget.
for every page of new (tax) law congress passes, 2 have to be taken out.
Eventually this would simplify our laws and balance the budget. Unfortunately this discussion has missed one reason tax laws are so complex. Gvt incents folks to do things they normally wouldn’t want to do with tax law, invest in homes, buy economical cars, etc.
I really like the fair tax, flat with a rebate of something over the poverty level. The only problem with this is then the government would have to tell us directly how much they are taking (tax rate this year is $.22 , or $.37) and we can’t have that can we…
Going into politics seems to be the only solution, but it’s so dirty…
@ Gwendally
You are probably correct about the true level of payroll taxes. Some economists do figure that the “employer’s” share is “baked in the cake” when determining base compensation.
There have been other examples of this notion in recent history. Several years ago, many home buyers received a retroactive tax write-off due to “seller paid points” in real estate transactions. The idea behind this deduction was that sellers paid the points, then added the cost of points back into the price of the home…passing the points back to the buyer.
Dan (201)–You’re in danger of making TOO MUCH sense here!
I had a professor in college, a truly brilliant one, who said “The purpose of government is not to solve problems but to create them. Without problems there’d be no need for government”.
@Kevin at #200: I agree that we have a ton of hidden taxes, but I was limiting myself to INCOME taxes for the purposes of this discussion, which is already pretty unwieldy!
There are actually FIVE sorts of taxes. You’ll recognize them as I say them, you’ve met them all in your life! I’m writing them in roughly historical order of how long they’ve been with us.
1.) Property tax: this includes real property, of course, but there is also a tax on personal property. Some states tax it annually on cars or trailers. Businesses get taxed by the town or city on personal property that they have in service. The idea here is that it is the PROPERTY itself that has a call on services like fire departments.
2.) Transfer tax: this is a little known one, the most common of which is estate tax. This is when you come to the end of something and the State takes a chunk of what’s left. I see transfer taxes when property is sold sometimes, but the gift and estate system – all part of the same transfer tax – is what I see most often.
3.) Sales tax is extremely ancient and very well understood, but its sibling “use tax” is hardly known about at all, although the States would dearly love you to start forking it over (and are coming after it with internet subpoenas as I write.) “Use tax” is when you have not paid sales tax on something that you bring into your state to use. You most commonly see it when you register a car that was bought out of state. There’s a common misperception that you don’t have to pay sales tax if you buy things in, say, New Hampshire. That’s actually true if you USE it in New Hampshire, but if you bring it back to your home state to use and your home state has a sales tax, now you have to ante up the sales tax yourself in the form of “Use” tax. This is also the same tax that happens if you’re someone who has an inventory, say, paper towels. You don’t pay sales tax on inventory when you buy it, but if someone drops a jar of pickles and you take a roll of paper towels off the shelf to use, you are now the final end consumer and owe the Use Tax on it. This law has been on the books just about forever, and now the States are going after it to raise money by collecting a tax already legal rather than trying to create new ones.
4.) Excise tax: this is a tax that is based on usage. Water and sewer fees are an example of this, as are taxes added to gas. A few years back a lawsuit was brought against a telephone excise tax on long distance charges that had been put in place to pay for the Spanish Civil War. It was supposed to be based on usage – that’s the definition of an excise tax – but people had bought flat rate long distance packages and it was no longer being applied legally. Everyone got $30 back on their 2005 tax return as a result of this final repeal of a tax put into service back at the turn of the last century.
5.) The fifth kind is income tax, and that is historically the newest. Until the industrial revolution most people didn’t have an income that could be taxed. It’s still problematic to tax income from people living in the “underground” economy like farmers and loggers and anyone who uses much of their own inventory and/or barters for goods. People who are wage earners think everyone earns a living like they do, but it’s really an aberration in the history of mankind that so many are in such an unusual servitude to another master.
I hope you enjoyed this history lesson. Taxes are a pretty complex topic but it gets easier if you can hold these five kinds separate in your head.
Gwendally–On your point #5, income taxes were a major reason for the required switch to paper money as a medium of exchange. You can’t tax barter, so they moved the economy to paper money.
The fed income tax was enacted in 1913, and the paper money only system was put into full affect in 1933, when Federal Reserve Notes (aka, “the dollar”) was declared sole legal tender.
Up until that time, practically anything of value could be used for money as part of the barter system. But all of that is much harder to collect taxes on.
It should also be noted that taxes provide more than government services, they are used as means to implement policy (i.e. rebates for hybrid vehicles) and as an economic development tool (EIC). The idea behind the EIC is that those who live on a very limited income will spend their money quickly, thus stimulating the economy. The mortgage tax credit is the largest housing subsidy provided by the US government, directly benefiting middle class families. Just by two cents
@Kristine #206: not to beat a dead horse, but EIC was actually meant to offset that hidden payroll tax; it phases in alongside social security and medicare taxes.
It’s a lifesaver for poor self-employed people like daycare workers because it covers the self-employment tax that lands like a bomb on their income tax return.
@Kevin #205: you are slightly incorrect. Barter is perfectly legal (assuming you report the value and pay taxes on that income as well.)
The point about Federal Reserve Notes being legal tender is that everyone is compelled to accept them (where people aren’t compelled to accept barter) and you MUST use them to pay Federal debts (that is, taxes).
Being compelled to accept Federal Reserve Notes in payment of a debt we hold is going to stick in our craw if we ever get hyperinflation.
One of the reasons that the income tax was adopted was the wealth disparity that existed in the late 1800s. At the time, most working class folks labored 50-60 hours per week just to scrape by while wealthy industrialists prospered financially. Since federal taxes at the time were collected through import duties and excises, the working poor (the majority of people at the time) carried most of the tax burden.
Populist politicians saw an income tax as a means of shifting the tax burden off of the backs of the working classes.
Adam,
The point is not that you don’t deserve a fair wage, but rather that as government continues to expand, how does that get paid?
Over the past three years, for example, my city’s teachers received a 6% pay increase each year. Over that time, my base salary (and everyone else in my company) was capped at a maximum of 3.2 to 3.5%. This year, in cost cutting measures, my bonus program was eliminated costing me $12k+ a year and the company announced that next year’s raises are deferred.
Where is the money coming from to fund the teacher’s raises? Certainly not from additional tax revenue from me and my co-workers apparently without increasing the tax rate. Oh, yes, that’s what Massachusetts just did. They raised the sales tax 25%.
The math doesn’t add up. Political hacks continue to vote increases despite the economic realities. And that additional tax burden DOES have a direct impact on spending and growth in our economy. Less consumer spending means more cuts in business, more layoffs, etc. It is a vicious downward spiral.
J.D. – great article. you certainly did your homework here! i haven’t seen a more comprehensive breakdown of taxes ANYWHERE.
just a quick 2¢ from me – are taxes breaking us? not me & i’m an average income earner. what is breaking me? insurance. if i calculate what my employer pays for my health insurance, plus what i pay, it works out to about 27% of my AGI. that actually exceeds my income tax burden.
i don’t want to threadjack – i’m not trying to turn this into a HC debate. just wanted to pass that info along. i can afford my taxes. it’s the insurance that’s breaking my back.
@Rich, 211: The average spending per person in the United States (including children) is $8000 each now (not per family, EACH.) Source: http://www.cms.hhs.gov/NationalHealthExpendData/downloads/proj2008.pdf
It costs as much as food or shelter. But if you think about it, we VALUE it as much as food or shelter. It’s the main thing we want each day when we wake up: to not be ill or die.
Right now we pay health care costs in a weird way with insurance in the middle (with their profits) and it’s a pretty flat tax on the 40% or so who pay for it. (The rest either get it through the government or are uninsured.) There would be a lot of benefits from adding it to the graduated income tax system, but consider, please, that if you’re in the middle income tiers your share of the health care costs would still be pretty much what it is now. The poor might get it subsidized, the rich might have to pay more, but you in the middle will still be bearing at least your OWN burden. $8000/person. (To be fair, most of that skews to the >65. Below 65 it’s about $4K/person in average spending. But, listen, you PLAN on being over 65, right? Shouldn’t you pay more now while you’re working because you won’t be able to cover it then when you’re old and sick?)
The principle reason health care costs so much is that we are USING so much.
My suggestion is to think of it like food or shelter. It’s what you WANT to spend your money on, as unhappy as you are to see it go.
Skoobie (210)–You’re getting to the heart of why so many of us have less than positive feelings about taxes, public spending and government in general. It’s tough to watch as the economy contracts and our incomes fall, while government spending and paychecks continue to increase.
What ever the intentions of the political leadership, the end result looks a lot like indifference.
It’s not so much that we object to government or to any particular tax or spending program, but rather the inflexibility and immunity of the system. While we–who pay for government–are forced to tighten our belts to adjust to restricted circumstances, they go on as if it’s business as usual. I think that has to disturb anyone.
Teenagers aren’t contributing much to the 41%, it’s mostly married folks. When I got married and had twins last year, my Federal Tax bill dropped from about $4000 to a couple hundred, which the stimulus payment took care of–so no Fed Inc Taxes! (Yeah, yeah, still paid SS, but still saved $4000). For 2009, I can make up to 39,333 and pay no Fed Income Taxes (4 * 3650 exemption, 11,400 std ded, and 13333 shielded by $2K child tax credit).
“People are acting like roads simply wouldn’t be built not maintained unless by a government. But here’s the thing… Roads BENEFIT someone. In fact, they benefit multiple people, for various reasons. So, here’s a question I propose to all of you: Do you really think that new Walmart being built in that new suburb would NOT build a road to itself if the government could not or would not?”
Of course Walmert wouldn’t. There is no way they could make a return on that investment. They couldn’t even afford the right-of-way to build that road if they had willing sellers. You are talking about a 20 mile long driveway.
But that is a pretty good demonstration of the transparent absurdity of libertarian Randian “logic”.
Ross (215)–I think you’re missing something on your interpretation. What did the Walmarts of the world do before goverment took over building roads? They located in the cities and towns where the people lived. There were no need for highways.
From the 1930s on, the government launched aggressive highway building programs, including the interstate highway system, and now WalMart, et al, are locating in exurban strip malls miles from population centers to take advantage of the “growth” (actually relocation of people) coming about as a result of the new highways.
And the cities? Empty and gutted. Now more money is needed to help pay for the downtrodden in these places who couldn’t afford to follow Walmart and the herd out to the exurbs. And energy efficiency? Gone.
The tax and spend system we have is far from perfect, and NEEDS to be viewed in a critcal manner.
“Unfortunately, they’re all dead. But then again, you’re not asking us to pay them back … you’re trying to indicate that we owe society a little kickback,”
No. I am indicating that you are claiming a lot of what those dead people created as your own and not paying for it. You are in fact stealing it, not producing it. Society isn’t asking for a “kick-back”, its not even asking you to pay your fair share. It is just asking you to pay a little something for what you use that you had no hand in creating.
I once cooked dinner for some friends and my father ate the left overs. I complained that “I paid for that food with my own money.” He pointed out that he paid for the stove, the pans, the refrigerator, the kitchen equipment, the dishes and the table it was eaten on. Not to mention a half dozen ingredients like salt and sugar that I took from the pantry.
The idea that what’s mine is mine, what’s yours is ours has been popular for a very long time.
“what did the Walmarts of the world do before goverment took over building roads?”
You mean before civilization? The Roman government built roads that are still used in Britain. When was this fantasy world when roads were built by Walmart? Those city streets were built by government too.
Is ALL government spending good? No, like any large organization, there is plenty of waste, fraud and abuse in government. But reducing government spending doesn’t eliminate, or often even reduce, waste, fraud and abuse. Those aren’t items in the budget. It doesn’t make government any more efficient. In fact, it often increases inefficiencies. Government overhead remains fixed, what gets cut are services.
I managed condominiums for a while with large amounts of common space, including local streets. Every one of them had a governing body. If you didn’t like their decisions, you were free to vote them out or leave.
I’m sorry, I thought we were talking about America, not ancient Rome. Most major road here developed from the natural flow of people and commerce, often over existing Native American trails. They weren’t built by government, certainly not at the federal level.
You haven’t commented on the rest of what I wrote, that is the majority of it. Any thoughts?
BTW, the Romans built those roads mostly so they could move and supply their armies for conquest at the frontiers. That commerce developed as a result was an unintended consequence.
@Ross(217)
Please share with me what I use that I had no hand in either creating, or paying for privately. And to whom should I pay this usage fee? And for how long must I pay it? At what point is my debt satisfied? And at what point can I finally claim that I am no longer a “stealing” these things.
What’s most disturbing about your philosophy is that it ends up trapping us all (whether we want it or not) in an endless cycle of:
I “steal” these goods and services –> I pay back into the system –> which creates more goods and services —> which people take advantage of (steal) –> obligating them into paying back into the system –> repeat, ad infinitum.
It’s a web of dependence that, I presume, we can never escape.
“I can make up to 39,333 and pay no Fed Income Taxes (4 * 3650 exemption, 11,400 std ded, and 13333 shielded by $2K child tax credit).”
You are talking about a household income of less than $10000 per person, You and your employer will still pay close to $6000 in social security taxes. A millionaire who had a 4% return on their taxed investments would pay nothing at all in your circumstances.
There is no doubt, that the current tax system benefits families with children whether they are rich or poor. And the benefit is obviously greater if you are rich since your marginal tax bracket is higher.
“At what point is my debt satisfied? ”
When you stop using it. Usually that is known as dying.
“Please share with me what I use that I had no hand in either creating, or paying for privately.”
The invention of the wheel and the discovery and taming of fire for starters. The list is really pretty endless.
“It’s a web of dependence that, I presume, we can never escape.”
That’s right. Your life and wealth depends on other people and the civilization we have created. You definitely have an escape and you eventually will take it whether you want to or not.
But in the mean time, if you don’t want to pay taxes here – move somewhere else. Its a free country and you are free to leave.
“Most major road here developed from the natural flow of people and commerce”
No, they didn’t. Not unless you think a grid of right angles is “natural”.
“You haven’t commented on the rest of what I wrote”
Yes, I did comment on it. Whether government spending is good or wise is irrelevant to how we pay for it. I would agree there has been and continues to be a lot of unwise government spending on roads. That has made some people very rich. They should pay taxes.
@Ross(222):
Fire was not CREATED. It was DISCOVERED. You cannot “create” a new form of energy. (You can create a new source for a form of energy, but not the form of energy itself.)
Otherwise, I acknowledge what basically amounts to the idea of societal knowledge. That is, society as a whole has a set of knowledge, which is passed from generation to generation: The accumulation of past discoveries and inventions. I reject tying this to paying taxes, though. Yes, as a member of society, I have access to a share of this knowledge. I repay this by being a productive member of society, by way of implementing said knowledge to create goods and services, or by increasing the bounds of societal knowledge itself.
I wish the U.S. would have indexed transfer taxes several years ago to inflation.
Or only taxed cash and cash-equivalents (not illiquid assets used by the business)
Our very capital-heavy business (millions in land, equipment) will have no trouble hitting the estate tax exemption even if it remains at its current level.
We will probably have to cut payroll significantly to service what is essentially a flat 45% tax (above the exemption) when the current owner dies.
J.D. – You said, “Modern complaints are against taxes in principle, I think.”
I disagree. There has possibly been no other time in our history where there has been a greater disconnect between the average American and their “representation.” And that is what people are so ticked about!”
While single-income families like mine (who choose to forgo a second income so our children can have a parent in the home) struggle to provide the basics and the things our children need to grow and thrive, the political elite continue to have: their own special pension system, their own special health-care system (which protects them from any of the onerous regs in the currently proposed health plan) – they are totally disconnected from the way most people have to live their lives. Taxation WITH representation – what a joke!
No, people like me are fed up with the elitist attitude that says, “we know what’s best for you, your kids, your grandkids, ad infinitum – so just do what we say and shut up.”
Additionally, the only reason taxes are as low as they are is because of the Bush tax cuts which sunset next year. With the rates of unemployment and all the other problems in the economoy, things are just going to get that much worse when families start to have to pony up even more of their hard-earned dollars.
My problem with the tax system isn’t the tax rate. My problem is that the IRS is a weapon and the elite get a pass,
Getting an IRS audit is up there with public speaking, death and the dentist in terms of fear produced. Is that really a good thing?
I mean, come on, doesn’t any one in the current administration pay their taxes until they went pubic, and I also notice that they didn’t get any penalties. Joe the Plumber didn’t get the same courtesy. Do you think you would get a pass?
I don’t mind paying taxes in general, it’s the fact that the social programs never get any cuts or at best a reduction in the amount of increase, which is talked up as a cut in the media. While actual critical services police, fire, military, &etc experience actual cuts. I can see thru the game they are playing and it is angering to me.
I also know that those stimulus checks are just an attempt to bribe me with my own money. How stupid do they think I am?
That’s what it is, I am sick and tired of the games. I just want them to stop it with the stupid games.
Here’s some much more recent data, it turns out my original estimate was much closer than JD’s:
“In 2009, roughly 47% of households, or 71 million, will not owe any federal income tax, according to estimates by the nonpartisan Tax Policy Center.”
http://money.cnn.com/2009/09/30/pf/taxes/who_pays_taxes/index.htm?postversion=2009093012
What this fails to take into account is capital gains income. Wage earners are not the entire picture here. If you look at only wage earners, the top does seem to have a burden, if you include capital gains income, this percentage drops dramatically.