The Truth About Taxes

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.

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. I enjoyed reading this article.

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.

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.

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.”

“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.

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.

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.

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.

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?

@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.

@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).

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 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?

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?

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 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)

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

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.

J.D., unless I’m missing something, which is entirely possible, there is a major flaw in the section before your conclusion:

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:
[poster on how much discretionary spending costs us]
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.

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.

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.

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.

@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.

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.

“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.

“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.

@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/

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.

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.

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.

@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.

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.

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.

Thanks for your research and time.

Learned some facts.

-Bhargav

@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?????

@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?

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.

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.

@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.)

@Lesley: you have more to lose, so protecting it is of more benefit to you.

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.

@ 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.

@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.

@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

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).

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.

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.

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.

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.

@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.

@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

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.

@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.

@Ross

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

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.

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.

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.

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

Great article!!!!! Any republicans out there old enough and wealthy enough to have payed taxes under Eisenhower?

@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” :-)

“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.

@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.

@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.

@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.

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.

@barnetto #137

Everyone uses the roads

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.

You didn’t mention how to pay for schools.

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.

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.

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.

Without systematic programs there will be more people (unable to navigate the patchwork of charities) who will fall through the cracks.

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.

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.

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.

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

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.

Aside from all my major quibbles, its a lovely utopia you’ve painted.

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.

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

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.

No. Were handicapping the CEO of BofA’s future prosperity. And I don’t feel the least bit sorry for it

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?

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.

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

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

Sorry. I’m not trying to screw the rich. They should pay their fair share like everyone else.

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?

Everyone paying 5k in taxes regardless of income????? I call that socialism FOR the rich.

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?

“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.

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.

@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.

@ #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.

“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.

@ 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?

@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.

@barnetto

You skipped the point I made about how this raises the prices of goods so poor people are less able to pay.

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.

You didn’t address the disparity that will occur between poor neighborhoods and rich neighborhoods

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).

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.

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.

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.

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.

Your guesses for how much more efficient the charity will be no longer holds when the expanded charity will need to hire real staffers

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.

And you didn’t address the problem that charitable donations will fall when they’re most needed.

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.

In short, you’ve ignored all my important points and hand waved them away with talk of freedom, compassion, and more money for you.

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.

We need the government funding to do basic science research and to do research into problems which have no profit in them.

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?

Under Bush and heckuva job Brownie guidance. Government rarely works well when you’re trying to kill it.

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).

You haven’t really done a good job refuting the idea that poverty will become concentrated and opportunities reduced due to more unequal circumstances.

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:

I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I traveled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.

“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.

@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.

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

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 think there are two possibilities – they don’t understand the implications of what they are advocating or they are sociopaths.

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 – 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.

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.

@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

@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.

@Gwendally (188):

That third paragraph is cracking me up!

@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?

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.

@#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.

@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 dally@myself com and perhaps we could continue this elsewhere.

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.

@ 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.

@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.

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

@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.

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.

@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.

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).

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.

“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.

@Ross(217)

It is just asking you to pay a little something for what you use that you had no hand in creating.

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.

“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.

@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.

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.

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