Tuesday, November 3, 2009
Taxation
If you're going to finance government through income taxes, then it seems to me only just that all citizens earning income contribute to the governmental tax coffers.
Unfortunately... that's not how the current federal income tax code works. Google the phrase "percentage of Americans paying no federal income tax" and you'll get approximately 13,900,000 hits. Cutting to the chase... the answer... depending upon which news organization is reporting the facts and which analysis they're relying on... somewhere between 43% and 49% of the American population pays no income tax and a substantial number actually receive "negative income tax" federal payouts.
According to the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, in 2009 approximately 47% of single filers, 38% of joint filers, and a whopping 72% of heads of households will pay no federal income taxes.
This is unacceptable. This is blatantly unfair! This is policy madness which subverts our very democracy, endangers our beloved Republic by deliberately separating Rights from Responsibilities.
Yes. We must all "pay our fair share." Generations have been raised on this simple dictate. But how can paying NOTHING in federal income taxes while others pay 35% of their adjusted gross incomes in federal income taxes alone be seen as "fair?" In my view... it can't be.
If we're going to stick with the concept of a federal income tax, I say we throw out 99% of the existing IRS code and move towards a flat tax - or at least a flatter tax.
In the following paragraphs I will outline my concept of a fair income tax. When I insert numbers - tax rates - these are just for illustration; no firm numbers are set in stone. In short, I'm simply attempting to set up a model for discussion.
First... what is income? Is a $20 check to your nephew on his birthday or at Christmas "income?" No.
What happens when a wealthy father, mother, grandfather, grandmother, or anyone else gives "baby Joey" a birth gift of $13,000 and each year from then on another birthday gift representing the then maximum allowable "gift" amount? Well... it seems to me that each check should be taxable "income" to "Joey."
I could dedicate this entire post to just this facet of taxation, but I won't. You folks get the point, right? We need to draw the line in the sand somewhere when it comes to "gifts" vs. "income," but bottom line, in the real world, we can and must do a better job in separating the two distinct concepts than the present legal equivalency between a $20 bill and thirteen grand.
Next... RATES.
In theory I'm for a plain, simple, one all encompassing flat rate. In the real word... that just ain't gonna happen. So... Plan B:
The 2009 federal poverty threshold for a individual American is roughly $11,000.
Now... two points prior to continuing --
1) I purposefully focus on the INDIVIDUAL because I believe all rights - and all responsibilities - rest ultimately upon the shoulders of the individual.
2) In line with my philosophical beliefs regarding individual freedom and responsibility, my upcoming tax proposals will focus upon the individual. How individuals choose to relate to one another - group together as families, bring children into the world, live with a lover or lovers, live alone, live with roommates, choose not to bring children into the world... whatever - is each individual's own business and in my view the government should neither subsidize nor penalize personal choices via the tax code.
(So... where was I...??? Oh, yes...)
Reality being what it is, let's create twelve tax rates:
Taking the federal poverty level of approximately $11K as our baseline, I propose that those earning $1.00 thru $550.00/yr. pay a one percent (1%) federal income tax rate and additional earnings beyond $550.01 thru $16,500/yr. be accessed at two percent (2%).
From $16,500.01/yr. thru $22,000... let's make it a three and a half percent (3.5%) federal income tax bite.
$22,000.01 thru $27,500... five percent (5%).
$27,500.01 thru $33,000... seven percent (7%).
$33,000.01 thru $44,000... ten percent (10%).
Interestingly enough, $44,000 is not simply the approximate national poverty threshold times four ($11,00 X 4); it's also approximately median male income nationwide.
Hey... if a "tithe" has historically worked out for God... then it should do for the U.S. government based upon middle class wages.
(*WINK*)
$44,000.01 thru $66,000... seventeen and a half percent (17.5%).
$66,000.01 thru $88,000... twenty percent (20%).
$88,000.01 thru $132,000... twenty-seven and a half percent (27.5%).
$132,000.01 thru $440,000... thirty-two and a half percent (32.5%).
$440,000.01 thru $1,760,000... thirty five percent (35%).
For every dollar over $1,760,000.01 ... federal income taxes accessed at thirty-seven and a half percent (37.5%).
Now if you think twelve separate rate "ledges" are too many... fine; it's the concept that I'm highlighting. The proposed rate "ledges" are for illustration; they're not meant to be set in stone absolutes.
As to how I apportion these "ledges," these rates...
Again. Fine. You have quibbles? Take it up with the accountants. President Obama and the Democrats who control the House and Senate have given set the 2010 federal budget at $3.6 TRILLION.
Operating under the "concept" I've just outlined... what rates at what "ledges" will it take to bring in $3.6 TRILLION?
Listen. Understand. I'm for cutting spending. Unfortunately the politicians in Washington aren't. So... if "The People" in their supposed wisdom refuse to throw the bums out and install Representatives and Senators who will cut the spending... well... then the tab is on us, folks.
Right now we're foisting that tab on - in the form of debt requiring repayment with interest - to our children, grandchildren, and the way things are going... our great grandchildren and great great grandchildren.
But, hey... I digress...
Back to my philosophy on taxation:
No write offs. No loopholes. If we're gonna stick with an income tax then stick to the income tax - period. You pay based on your income, not on how you choose to spend it.
My nieces and nephews model. They get paid. They should pay taxes.
The parents of these nieces and nephews - my brother and sister in law - they're married. Good for them! I remember enjoying their wedding! That said... this status of "married" should neither add nor subtract from their tax responsibility; nor should their status as parents.
You wanna buy a house...? Buy a house! But no write-off for mortgage interest. That's your business. If people wanna buy houses that's their business. If people wanna rent apartments that's their business. No tax breaks, no tax penalties. That's my housing tax policy.
Give to charity? GREAT! I do too. That's your business. That's my business. Our only "reward" should be the good feeling we get by doing good.
Are you getting the picture, folks...? I'm an American. I'm for individual rights, responsibilities, and freedoms. I'm for fiscal sanity and TRUE economic justice, which isn't socialism, but rather, is a reflection of the fairness of opportunity, not outcome.
I'll make my lifestyle choices; you make yours. I'm not asking you to subsidize mine; don't ask me to subsidize yours.
Unfortunately, as already mentioned, our government "of the People, by the People, and for the People" keeps on irresponsibly over-spending money collected from those of us who pay federal income taxes and irrationally borrowing (and simply printing) money in our names and that of future federal income tax payers. I don't like it... I don't support their decisions... but these are the folks our democratic process put in power.
This being the case... we all need to have... umm... "some skin in the game."
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25 comments:
It won't work. Remember Reagan's tax reform? That was supposed to be a flat tax. You see how long that lasted.
As long as we have politics, you will never have an easy to understand tax code.
Folks,
Ed's from Georgia.
(*GRIN*) (*PLAYFULLY PUNCHING ED IN THE SHOULDER*)
What Ed MEANT to write was that you'll never get such a reasonable and principled tax plan legislated into law.
Unfortunately... Ed's correct.
Still... I was reflecting on what SHOULD be and frankly what COULD be if enough movers and shakers would get on board the band wagon.
(But, hey... if they wouldn't follow the likes of Pete DuPont, Steve Forbes, Ron Paul... ultimately Ed is describing reality as it is.)
As to Reagan's tax reforms...
(*RUEFUL SMILE*)
Ed. You're comparing apples to oranges. Sure, they're both fruits, but Reagan's tax reforms went nowhere near the breadth and depth I'm proposing.
BILL
P.S. - You know I support secession!
You know I support secession!
I knew I'd eventually talk some sense into you. ;)
Ed,
As much as we butt heads at times, if and when the bullets fly I expect we'll be on the same side.
BILL
Why, in your opinion, do tax deductions for such things as mortgage interest, dependents, medical bills, various job-related expenses, etc., exist?
Excellent question, Rob!
Bottom line, the tax code is a politician's best tool as regards reward for supporters and punishment for non-supporters.
Oh, sure, the tax code OBVIOUSLY has broad impact, but in terms of raising campaign contributions... it's the insertion of a paragraph here, a line there, in the tax code that saves or costs special interests big bucks.
The tax code is to a politician what the law is to a judge, DA, or police officer.
Why do the Sheeple not rebel?
Simple. Most folks have neither the vision nor the character to look very far beyond how THEY can "use" the tax code for their own interests.
(The problem is, they don't have the brains to understand short term vs. long term; specific "win" vs. overall loss.)
Example: Mortgage deductibility.
Of course subsidizing mortgage deductibility is inflationary and in the long run probably costs homeowners more on the front end than it saves them on the back end, but human nature is what it is and most folks are short-sighted - focused on today, not some point 30 years down the road.
And of course mortgage deductibility is also "unfair" in the sense that by "favoring" home buyers it "penalizes" renters by forcing them to subsidize home ownership over the free choice of renting.
In any case... your fine question aside... (and I mean that sincerely)... any other reaction to my proposal?
BILL
What do you think would be the overall effect on the economy of eliminating all of those kinds of deductions? Would that not result in many fewer people buying, rather than renting? Would it not result in more irresponsible people with children ending up on the dole? Would it not pretty much kill most charities, resulting in more need for tax dollars to assist the indigent? Etc.
I fully understand that if you don't care if construction workers are put out of work; if children go hungry; if families become homeless, then one can take the hard-line on taxation. But, is it just possible that these deductions were acutally put into effect for less cynical reasons than those you state? I don't remember ever voting for a guy because he promised me a new tax deduction.
"What do you think would be the overall effect on the economy of eliminating all of those kinds of deductions?"
Some short term dislocation. However, the mid and long term effects would be overwhelmingly positive - not to mention FAIRER in line with my definition of "fairness" as it applies to freedom of choice and bearing responsibility for one's choices.
"Would that not result in many fewer people buying, rather than renting?"
Not necessarily because as I've pointed out, once the numbers shake out over time and they system realigns to the new reality, housing prices would actually decline in response to the lack of partial subsidization.
And at the same time you'd see MORE savings, HIGHER down payments, more "skin in the game," all because there would no longer be a perverse incentive to borrow more than is absolutely necessary. I see all this as a win-win for society.
Finally... let's say I'm wrong and we end up with more renters and less home "owners." So...??? That's not necessarily a bad thing - especially since the present system OBVIOUSLY encourages EXCESSIVE home "ownership" in the sense that far too many people are in houses that their incomes and prospects simply don't relate to in a manner that makes economic sense.
(*SHRUG*)
"Would it not result in more irresponsible people with children ending up on the dole?"
Huh...?!?! (*SCRATCHING MY HEAD*)
"Would it not pretty much kill most charities, resulting in more need for tax dollars to assist the indigent?"
Nope. (It would effect "shell" charities such as the supposedly "public" gallery set up by a fabulously wealthy art collector that is in theory open to the public by appointment but in reality is nothing more than a private art gallery for the benefit of the collector subsidized at public expense.)
(BTW, that's a real life scenario I'm referring to!)
(Rob. My charitable contributions have nothing to do with tax write-offs; do your...???)
"I fully understand that if you don't care if construction workers are put out of work..."
(*SIGH*) (*GRIMACE*)
Rob. It's not that I don't care; it's that I don't want to subsidize others and I don't ask that others subsidize me.
Beyond that, the subsidies serve to distort the true free market by intervening in it to pick winners and losers. I don't want government to have that much power.
"I don't remember ever voting for a guy because he promised me a new tax deduction."
And that's good! (And I believe you!)
BILL
More irresponsible people with children going on the dole (e.g. foodstamps) because the deduction/child allows them just enough wiggle-room to make ends meet on their low salary.
Rob. My charitable contributions have nothing to do with tax write-offs; do your...???)
No. But for people in a position to give the big bucks, who are also looking for "tax shelters" or whatever the proper term is, it is a major incentive. So I'm told.
As for the "true free market"--it's a myth; always has been; always will be. The game is always fixed by the rich to benefit the rich. And it is much more important that these guys can purchase the "services" of intellectual ciphers like Reagan and Bush, than it is that people can be persuaded to vote for them--as opposed to another equally bought-and-paid-for cipher from the other team. It's all just "shirts and skins." Not a cunt hair of real difference between any two of them.
I don't, btw, have any objection to a more fair distribution of the pain being devised w/r/t taxation, so long as it does not result in even more pain and deprivation at the bottom of the scale. If it improves the economy so that more people can find more and better paying jobs, I'm all for it. If, on the other hand, it only results in the already rich getting to keep an even larger amount of surplus wealth to spend on their own luxuries, I'm deaf to it.
Finally, a thing that I'm not sure your visions of "long-term" benefits takes into account, is that many people--many--people--are living paycheck to paycheck. And not necessarily because they are living irresponsibly, either.
Now, for such people, short-term pain can sink their ship long before any down-the-road benefits have a chance to develop. If you, for instance, lose a house because you suddently can't make your payments, due to a change in your income, you don't just lose the house, you also lose the only large investment most people have. Plus, if you are left broke, you haven't even the means to get an apartment--first and last months' rent, plus security; plus movers and/or truck rental; plus utilities start-up fees: it adds up to quite a lot.
It's not all quite so free and breezy as you make it out to be.
"More irresponsible people with children going on the dole (e.g. food stamps) because the deduction/child allows them just enough wiggle-room to make ends meet on their low salary."
Nope. I don't buy it. If anything, subsidies INCREASE the tendency of people to behave irresponsibly.
"...for people in a position to give the big bucks, who are also looking for "tax shelters" or whatever the proper term is, it is a major incentive."
Again. I believe people give to charity because it's either in their nature or else they were raised that way and it stuck.
In any case, if someone's "donation" is subsidized by government that means that taxes must be higher on ALL to make up for the subsidy given to charitable givers; the loss in tax revenue must be made up.
Rob. Don't you see... all you're doing is buying into a system that has everyone chasing their own economic tail.
Simplicity. Flatness. Fairness. Raising just enough revenue to support government services with the onus being on government to continually justify these services as opposed to no taxing to cover them in the first place.
"I don't, btw, have any objection to a more fair distribution of the pain being devised w/r/t taxation, so long as it does not result in even more pain and deprivation at the bottom of the scale. If it improves the economy so that more people can find more and better paying jobs, I'm all for it. If, on the other hand, it only results in the already rich getting to keep an even larger amount of surplus wealth to spend on their own luxuries, I'm deaf to it."
Well then, Rob... you should favor my plan and oppose the existing tax code.
(*WINK*)
BILL
"Finally, a thing that I'm not sure your visions of "long-term" benefits takes into account, is that many people--many--people--are living paycheck to paycheck. And not necessarily because they are living irresponsibly, either."
Sure my system takes this into account, Rob. My system is about how to most fairly, rationally, and transparently raise income tax revenue.
Now as to how much revenue is raised... how the revenue is spent... these are questions beyond the scope of my commentary. These are questions that apply to the current tax code as well to ANY tax code you can think of.
(*SHRUG*)
If you want to push for rates higher than 37.5% that's your right - though I'd oppose it under the principle that even at 37.5%, when you add in other taxes and fees, you'll have a situation where many Americans will end up paying more than half their gross income in taxes and I believe that's unacceptable, wrong, and unfair.
Still... that's a different argument from HOW we should raise federal revenue. (And to return to my opening remarks, I'm operating under the assumption that we're talking an income tax.)
Same deal with how you set the "ledges," Rob; you wanna argue that low end taxes should be lower still and middle and higher end taxes should be higher still... that's up to you. But that's an aside question from the basic question of the taxation CONCEPT I propose.
(*SHRUG*)
Rob... so far you're arguing fairly rationally! Keep up the good work!
BILL
"...many people are living paycheck to paycheck. And not necessarily because they are living irresponsibly, either. Now, for such people, short-term pain can sink their ship long before any down-the-road benefits have a chance to develop. If you, for instance, lose a house because you suddenly can't make your payments..."
Rob. Has it ever occurred to you that people living paycheck to paycheck shouldn't be homeowners in the first place...???
Rob. I believe that our society would be in much better shape if we returned to "old school" standards of 20% down and a ratio of one week's family income to one month's mortgage.
Rob. I believe that people should live BELOW their "absolute highest level" of immediate and near term expected means rather than live at (nevermind below!) the extreme edge of their means.
Rob. Don't you understand that the policies favored by folks like Barney Frank and Chris Dodd led to people getting in over their heads - encouraged people to get in over their heads...???
(No... I know... you don't; chalk my question up as rhetorical.)
Rob. This isn't Right or Left. It's not liberal or conservative. It's common sense! (Or at least it once was...)
If your average American today had the kind of liquid "nest egg" savings (and the savings mentality) that his or her grandparents and great grandparents had then it wouldn't be quite so common for Americans to "lose it all" following a six month "bump in the road" or however you'd care to categorize such events.
Rob. I'm constantly looking to the future, trying not just to undo the mistakes of the past, but more important, to scream against repeating them in the future.
"...if you are left broke..."
And if we followed our reason (my reason!) instead of our (your!) emotions, perhaps people wouldn't be left broke so quickly and easily.
(*SHRUG*)
ANYWAY... again... these are all policy asides from my original proposal on tax reform.
(*WINK*)
BILL
Nope. I don't buy it. If anything, subsidies INCREASE the tendency of people to behave irresponsibly.
That's just boilerplate/talking point crap, repeated endlessly by jerks who have never been there. Ed will buy it; sell it there.
Rob. I believe that our society would be in much better shape if we returned to "old school" standards of 20% down and a ratio of one week's family income to one month's mortgage.
With that I agree. But I am speaking of people who may have done that, but lost the ability to follow through on it through no fault of their own. One spouse loses job; family income cut by 40%; unexpected car trouble/medical expenses... It happens all the time to low income families; even ones who play by the rules.
Working class peoples' grandparents 50 years ago did not have nice little "nest eggs." Professional peoples' grandparents (if the grandparents were also professionals/entrepreneurs) probably did.
Working class people have always lived frugally, of necessity, and rarely had anything more than a small "rainy fund" put aside, after expenses.
In principle, I agree with what you're saying. Practically speaking, however, if all of those millions of middle and lower-middle class people stopped spending simultaneously if would get ugly pretty fast. Our economy is geared to an ethic of conspicuous consumption, and all the media are geared to stimulating those appetites.
You can see it in this depression/recession: Blockbuster franchises and many others going broke because their customers don't have the do-re-mi any longer. If it were voluntary, the result would be the same.
"Our economy is geared to an ethic of conspicuous consumption..."
Hmm. I guess you can fool most of the people most of the time after all.
Rob. I realize you are a "feelings" kind of guy and not a "fact" kind of guy, but I had although thought you more of a cynic than a follower.
Jeez... just because the MSM repeats that crap over and over again doesn't make it so.
No, Rob, use your brain - believe the evidence of your own eyes and ears; if this "mindless consumerism" - or as you called it, "ethic of conspicuous consumption" - argument were truly valid... well...
(*CHUCKLE*)
...there never would have been a crash.
(*SERIOUS SNORT*)
Rob. You're the one who sounds like Steady Eddie - you're spreading the Gospel Walmart!
No, Rob... mindless U.S. consumerism is a boon for China and other sellers; it's a bust for Americans - particularly the Americans you claim to worry about.
Oh... sure... lower prices DO benefit the consumer - Walmart's right about that. But have you been in a Walmart lately? Those low prices aren't all that low nowadays. Oh... and speaking as "Leftist Bill"... I would think that a cynical "working man" such as yourself would be wise to the old scam of getting the buyer hooked on artificially low prices and then pulling the rug out from under him and jacking up the prices.
In simplest terms, Rob, if Americans were selling to Americans goods made in American by Americans and sold by Americans then, yeah... there'd be SOME validity to the simplistic focus on "growth," but nowadays... that's not the case.
Oh... and aside from that... when "growth" is based upon UNSUSTAINABLE DEBT then you're really in a pickle.
(*SHRUG*)
Anyway, Rob... I say we end with you having the last word!
(*WINK*)
And as far as I'm concerned, that last word should remain...
(*DRUM ROLL*)
"In principle, I agree with what you're saying."
Seriously, Rob... resist the urge to argue just for the sake of argument. I really am right. Whether you know it or not your positions put you on the side of the GE's and the Goldman's et al.
I'm calling for transparency and equal treatment for all.
Again... even if YOUR ultimate goal is "equality of outcome," the tax code isn't the way to get there because the folks with the most influence over the tax code are the rich and powerful who manipulate it to give themselves the lion's share of the rewards while the worker drones subsidize the risk.
BILL
You think it's not? What do you think all the rampant credit card debt is due to? Jeez, Bill.
Or, just listen to yourself talk. Every other post is you talking about what you just bought; what you plan to buy; where you vacationed, etc. That's all comsumption, and you, yourself, are consumed by it. You talk about almost nothing but money.
I personally spend almost nothing, other than what I spend for gasoline and food (and I never eat out.)
My family, however, is more normal than I am in their spending habits. I'm a bit of a monk.
"Every other post is you talking about what you just bought; what you plan to buy; where you vacationed..."
It is...???
(*LAUGHING*)
Rob. There's a reason the docs prescribe those meds; if you simply take your pills these hallucinations will go away.
(*SMILE*)
All in all, I'd give you a B- for this thread. You've gone in and out of reality, but since with you I grade on a curve...
(*HUGE FRIGG'N GRIN*)
On a serious note, Rob; I live as I preach. I haven't had outstanding (interest accruing) credit card debt in... oh... decades.
When I buy a car (and AMERICAN car at that) I lay out a down payment which allows me to pay off the loan in five years or less for $350/mo. or less.
My vacations... saved for.
(*SHRUG*) (*SMILE*)
Rob. I ask nothing of others that I don't ask of myself.
BILL
P.S. - How'bout those Yankees!
You talk about money, and have to share with the world what you buy, what you eat, where you vacation. I'm just reporting on what you write about. In short, you talk constantly about things you BUY.
Do I talk about these things? No. I talk about mostly what I read; what I'm thinking about. I'm not driven by my consumer habits. YOu are. Apparently, you have very little insight into your own motives, but your writings make those motives quite clear to whoever reads them. That's reality.
P.S. The fact that you can pay cash for these things does not alter in any way the fact that you are obsessed with consuming. It just means that your obsessions are not resulting in finance charges--a matter of quantity, not a matter of quality, eh?
Just to provide a plug for Rob's blog - in case anyone is interested in what Rob's reading...
tp://rrrrodak.blogspot.com/
(*WINK*)
BILL
P.S. - I just snacked on some shelled walnuts, Rob; a pound is on sale this week at Shoprite for $3.99!
(*GRIN*)
Oops!
That's http://rrrrodak.blogspot.com/
BILL
All they gotta do is click on my name, Bill, to find out what I'm reading.
George Carlin might ask, Why is it that "shelled walnuts" have no shell?
It's also the case that a "fleeced" merino, has been shorn of its fleece.
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