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A backgrounder on the progressive tax system
You know, it blows me away how many people think a 15% flat tax is "fair." Or even worse, how many people think at 15% sales tax is "fair." The GOP and the horribly misguided "Fair Tax Movement" have made people lose sight of why, since Lincoln, we have had a progressive tax system in the U.S.
The fact is, there is a minimum cost of living like an "American." A chicken breast or a head of lettuce for a poor American costs the same as it does for a rich one. The reason taxes increase with income is because a person who makes $125k a year can simply afford to pay more of that income above poverty and live than someone who makes $25k a year. You are taxing what would be the luxury or disposable income higher and that makse sense. The "voluntary" consumption tax isn't that voluntary on the people that need the vast majority of their income to subsist while others, who represent the vast majority of "income", don't.
Remember Jesus's parable about the poor woman who gave her only coin in offering while the wealthy were making a show of how much they paid? That's exactly what the GOP is doing to America: Making a show of how the rich pay, while taking away the money that would be spent on food, housing, childcare and other necessities as they tax the lower and middle classes, then saying that their contribution is more valuable.
Now, I know people think their taxes are too high. Here is a little tip: Most "Liberals" would agree with you. The fact is, however, with Reagan, Bush 1 and Bush 2 (and the fact that Clinton didn't want to be accused of "raising taxes") the taxes on the Top 1% of income earners is lower now than it has been since before the Great Depression. The Republican spin is "The Top 1% pays about 40% of the taxes in this country," and that is true. What they fail to mention is that they GAIN OVER 75% of the INCOME. To paraphrase John Edwards, the GOP wants to tax work, and leave wealth alone. That is, with the repeal of the estate taxes, that only the very rich paid anyway -- and they weren't "taxed twice" since most two person estates over $7m never paid their capital gains taxes on their value anyway, and those were the only people that paid what the GOP spun as "the death tax" -- and the basic repeal of the capital gains and the dividend taxes, what we are really talking about is only taxing people that work for a living, and not those that own companies, have trust funds or play the stock market.
You might be asking yourself, "Is this reduction so bad? We had great economic expansion and a budget surplus under Clinton." That is true, however, the "Economic Leadership" shifted where the money came from. The rich ran the Enron type affair, while many people were paying capital gains on their artificially inflated stocks. What really happened in California and nationally was the collapse of bonus and capital gains earning on stocks which represented about 30% of the revenue. Once those revenues fell, that money went away. Moreover, the "earning elite" increased the rich-poor gap by holding their money in stocks, then securities and not taking their profits until Bush came around. To top this off, their total earnings went from about 80 times that of their employees in the 70's to about 1500 times that of the employee in the 90's.
The fact is, people that earn their income that way, while you might argue that they "create jobs" -- a misgnomer since their goals are to employ as few people as possible -- simply don't spend their money like those in the middle and lower classes do. It is those people who spend their money and create demand that drive the economy. Remember all those talks about how "consumer confidence" in the face of a downturn kept the economy from eating shit for a year even while the "Wall Street" people were pulling their money? That's those people buying cars, refridgerators and other big ticket items. However, all those corporate profits were not reinvested in jobs and paychecks because the big money decided the economy was on the way down so they moved it into bonds, gold and money markets where it was "protected." That's what people mean when they talk about "money on the sidelines." And, as I noted above, the Bush tax cuts have allowed the people who could afford to keep that "money on the sidelines" to liquidate it effectively tax free.
The reason we haven't seen economic stimulus from tax cuts is the $325 the median American gets back -- notice I didn't say average, because average is deceptive in terms of the Bush tax cuts -- doesn't translate into the percentages that the Dick Cheneys who get $90k back do. If you give Dick $90k he won't run out and spend it. If you give 7 people who make less that $60k in their families of 3 $5k each, they will run out and spend a vast majority of it on goods an services, giving you more economic stimulus for half the lost revenue to the government.
You need to look at the numbers. When the people who control 25% of the "income" in the U.S. -- not to mention NEEDING more of the income they earn to live -- are paying 60% of the taxes, you are getting swindled.
The final point I want to make, is that your "income tax" is a relatively small percentage of what comes out of your check. The majority goes to "payroll tax" (Social Security and Medicare). Now, these taxes cut off after the first $82,700 of taxable income. That means a person with a paycheck of $300k a year pays less in real percentage of their check than a person who makes $40k a year in spite of the fact that the income tax percentage is lower for the person who makes $40k a year.. If we did away with this exemption, then yes, that person who makes $300k a year would be subsidising healthcare and retirement for those who make less. In real terms, though, does anyone want to argue that the solvency of our social safety net services aren't worth it? Those basic services to the society as a whole benefit everyone. While we need a better focus on preventive medicine and child care in these areas, as well as a retirement age scalar to live expectancy, not having a habitually impoverished underclass is what we were trying to avoid since FDR.
In short, the reason we have a progressive tax is so we are taxing the people more who can actually afford to pay more. In light of the last 20 years, we have lost sight of this in a major way. By encouraging those people who have the "big money" to horde more of it in the lower taxed incomes, shelter and holding companies rather than the same "payroll" that most people have to pay, we have been left with a system where the higher incomes aren't even paying their "fair share." I know the idea of some simplistic flat tax is easy to understand, but that doesn't make it right. Until Americans stop listening to the catchphrases and start understanding the complexities of the real world -- be it tax policy or international affairs -- we are never going to get anywhere as a nation.
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Re: A backgrounder on the progressive tax system
I have to disagree with you, I am in huge favor of the FairTax system.
I think a "fair" tax that everyone pays equally would be a MUCH better system, and to boot I think that people in general and the government would have MUCH MORE MONEY (lets see, no IRS!) and that then more and more programs both public and private would be available to help out those less fortunate.
I just dont agree with the take from the rich and give to the poor, but by the same token I dont think poor people should pay less, if taxes are a PERCENTAGE of what we spend then its fair, IMHO.
I mean a rich person buying a big screen tv or a poor person buying food, both are taxed the same with a flat sales tax and guess what, at the end of the day THEY BOTH HAVE MORE MONEY!
Why do they have more money, well because with the fairtax system ALL TAXATION UP TO THE POVERTY LEVEL IS REFUNDED! Thats right we all pay the same fair tax and then folks under the defined poverty line DO GET HELP they get their tax money back.
I mean I dont consider myself rich by a long shot, I struggle every month trying to support a family with one income. I also dont consider myself poor, I am somewhere in the middle. I pay more taxes right now than makes any goddamn sense. I pay federal income, state income, sales, property, fuel, ad velorum, license fees, and all sorts of other bullshit and I dont get anywhere near the level of service that that money should provide. If people were to ADD IT UP those of us in the middle of the pack are paying 50-60% TAX!!!! Thats Insane, thats more than the tea party, we need something that actually is fair, and fair goes both ways, rich or poor it should be the same and then the state should help out those in poverty, if the funds are available.
Re: A backgrounder on the progressive tax system
See, let me point out where you are wrong here...
[quote]if taxes are a PERCENTAGE of what we [b]spend[/b] then its fair, IMHO.[/quote]
em added.
The point is, people with less money will inherenently spend "more" of their income than people with more money, thereby meaning they pay a higher tax burden than those with more money.
Re: A backgrounder on the progressive tax system
Sorry to ammend, but how do you determine how you are refunding to the poverty line. First off, lets be clear. The poverty line is still $16000 for a family of four -- I think most of us would agree not enough to live well on if you kept all of it. That family gets an EITC of about $6000 a year supplemental. Still not enough to live well on, but more than they had. This system, they get no supplemental credits.
Secondly, the line above poverty is not scalar. A family of 3 the Top 5% making $330k a year has WAY THE **** MORE extra income than a family of three making $60k a year. Even if you exempt that first $13k of income, the tax burden on the lower income family is still siginifigantly high in terms of both income percentage and "hurt".
Re: A backgrounder on the progressive tax system
[quote]f people were to ADD IT UP those of us in the middle of the pack are paying 50-60% TAX!!!! Thats Insane, thats more than the tea party, we need something that actually is fair, and fair goes both ways, rich or poor it should be the same and then the state should help out those in poverty, if the funds are available.[/quote]
Again to ammend.. You are right. People with kids in the middle income are paying WAY THE **** more than their fair share of taxes.
The whole point is, if the upper 1% of earners make 80% of the money, they should pay 80% of the taxes, but they don't.
Re: A backgrounder on the progressive tax system
I dont agree with you. I think the people who earn money should pay X percentage and that less fortunate folks (poverty line) should get some help when it is available. Simple. So we plain ole disagree. I dont think taxing the group that earns proportionately more is fair at all, regardless of what they spend, spending is not the point, fairness of the said tax is.
Re: A backgrounder on the progressive tax system
It's the inherant problem with a Democracy - if I get to vote on it then I want all my stuff but I don't want to pay for any of it (at a minimum I don't want to pay for stuff I won't use). You are seeing that in California now as a result of referendums - when you ask the average person the question "We are trying to balance the budget - should we raise taxes or cut services?" The answer is neither - no one wants to raise taxes and no one want services that relate to them cut. How do you reconcile that?
How do you reconcile the fact that the people who have money generally don't need govt. (social) services - while the people that don't pay that much in taxes (the poor) use the largest portion of services? With the exception of national defense that is the case, although you could argue that poor people essentially make up the militia and many are giving their lives for defense so there is a very real cost there.
There is no way you can rationalize a flat tax as fair to the lower class - unless you exempt the bottom portion - and I would agree with Cooper that the current poverty line is too low a place to start. I am in favor of flattening it out as it goes up to ensure that the people in the upper end of the curve still pay a relevant amount. It seems currently that it's more of a bell curve now (but once again - that's probably because I'm squarely in the fat part of the curve) I guess for me at the end of the day I'm happy to help shoulder the load for those less fortunate than I, provided those above me are also shouldering the load.
Re: A backgrounder on the progressive tax system
[quote]I dont agree with you. I think the people who earn money should pay X percentage and that less fortunate folks (poverty line) should get some help when it is available. Simple. So we plain ole disagree. I dont think taxing the group that earns proportionately more is fair at all, regardless of what they spend, spending is not the point, fairness of the said tax is.[/quote]
Well, if nothing else, I would think we could agree that a sales tax is not the way it would work and be "fair".
Frankly, if we had a 22% tax across the board, and made corporations that did business inside the US pay the same tax, then we might be closer to "fair" than what we have now. At least the people who organize shill corps to hold their stocks and securities wouldn't be magically immune.
Frankly, I still think the tax system we have now would be great if we had scaled the values relative to their inception values. The deduction for a kid should be like $12000 a year, not $2600 -- maintain it scalar to the actual cost of raising a middle income child. We need to not open giant tax holes for the uber-rich. Rather, they should at least pay the same percentage of "real" income tax that the middle and upper middle class pay. People forget that 25% of the Bush tax cuts are a cut of 1% on the tax rate of the top 1%. Looking at that kind of scalar value -- and the fact that the cut on the top 1% represents about the same ammount we are spending in Iraq and Afghanistan -- it becomes glaringly obvious what the agenda is.
Re: A backgrounder on the progressive tax system
[quote]How do you reconcile the fact that the people who have money generally don't need govt. (social) services - while the people that don't pay that much in taxes (the poor) use the largest portion of services?[/quote]
See, I think that is part of "The Myth". How can you argue that, say, Jim Barksdale who made his money off FedEx used fewer tax dollars for his well being than the average non-convict? Do you really think he was paying a far ammount for all the roadwork, FCC controls, FTC regulation and security concerns that paid his check?
Even Bill Gates Sr. has pointed out that while people don't think about it, those types of social services are used in excess by the rich much more than the "social" services are consumed by the poor. (I will try and find the link, but there is a great interview with him on Marketplace about this).
Re: A backgrounder on the progressive tax system
http://www.marketplace.org/play/audio.php?media=/2003/02/04_mpp&start=00...
Re: A backgrounder on the progressive tax system
I would agree that the poverty level may be too low, granted. But I still think a "flat" tax is more fair than any curve or level or whatever other means we can come up with to try to redistribute wealth. I just dont agree with COMPULSORY redistribution of wealth.
I totally agree with helping out those whom are less fortunate than I am. I do it all the time, I have a series of charities and organizations that I donate money too. I just dont think that help should be government mandated compulsory help with jail time on the line if I dont comply.
I would also add that if I HAD more money I would DONATE more. Yes this isnt true of everyone and in fact you could argue the opposite that many donations are done only for tax benefits (and that donation would not be made if the benefit was removed) but I still think that overall the "less fortunate" would have more if we all had more of our own money and society was helping on a VOLUNTARY basis.
I know you guys may call this crazy or idealistic, but I just dont see how its correct to redistribute wealth the way we do now or the ways I have seen propsosed in this thread (80% of tax burden to people that earn top 80% and so on).
Re: A backgrounder on the progressive tax system
Now these ideas I do agree more. I dont at all agree with the Bush cuts, they are totally stupid and do benefit the rich more than anyone else. They also expire as soon as they are fully in place, what kind of asinine nonsense is that (maybe congress at fault there but still stupid). By fair I mean something that is somehow applied equally to all, not more cost OR benefit to any group.
This is where I am going and why I am frustrated. Our tax code is a TOTAL MESS. I would be in favor of whatever rules basically GUT the code and make some simple swath across the board that is somehow fair. That may sound impossible but I dont think it is. Take your 22% example, OK, great. All pay it, corps, people, ALL. No loopholes, no shelters, no 17 kabillion lines of tax code, no army of irs people, no army of lobbyists, no more bullshit that we have now. Whatever gets us to less bullshit I am in favor of.
I think with less bullshit and LOWER percentages the people AND the government could have MORE MONEY.
All that said I think the sales route could also work when you think about it. I think the current numbers are messed up, but if we raised the poverty level to 25K or so (for reality, making that and raising a family is poverty, it means paycheck to paycheck and cheese sandwiches at the end of the month) and we made the sales number like 25% tax also. That would mean plenty of revenue for the government and a tax that all people pay equally based on their spending. AND REMEMBER that people would GET 100% of their paychecks and those earning less that poverty would get all their tax spending BACK.
Also remember that the sales tax is only on NEW RETAIL items. Its on a NEW house but not a used house, a NEW car not a used car and so on, the tax is PAID ONCE and once only. Also the tax is paid as a percentage of what you pay as it is now, if you buy a new 100K house with 25K down you pay the 25% on the 25K and then pay the rest of the tax as you pay for the house. Same would go for businesses also, they would PAY SAME TAX on supplies purchased and so on but have no other tax. I am no economic expert at all (as is certainly evident) but I think that simplicity can make things better.
Re: A backgrounder on the progressive tax system
If it wasn't for the damned hippies, we wouldn't be in this mess.
Re: A backgrounder on the progressive tax system
You can sign me up for a flat 22%(or whatever number works) for everyone. I also like the reasonable deduction for children. That actually would take care of the sliding poverty line - if you got 10K for a kid then even current rate of 16K goes to 26K - that seems fair to me. The sales tax thing concerns me on several levels, I think you can't make it universal - do you exempt food? surely you can't tax a new home that would kill the development market (who would pay a 20% premium to own a new house? unless it caused a 20%jump in valuation for existing homes...hmmm...I'll have to think about that)
Although I'll concede I opened the can of worms myself I cringe when I hear ' redistribute wealth' arguements. I think a functioning democracy/capitalistic society needs a strong middle class. It's the only way for the system to work - so inherent within that you must provide a way for the lower class to feel they have a path to the 'sacred' middle class. Even if that path is not for them but their children. They have to buy into the system. Without that the whole thing is vulnerable to anarchy. That's what concerns me about our trek to automation and these 50% unemployment in 30 years speculations. Even this grocery strike in California - I've always been anti-union, but what happens when the Walmart machine rolls into your neighborhood/market and destroys all those companies that were providing middle class wages to people that in the Walmart model are scraping along just above poverty. but I digress...
Re: A backgrounder on the progressive tax system
[quote]All that said I think the sales route could also work when you think about it. I think the current numbers are messed up, but if we raised the poverty level to 25K or so (for reality, making that and raising a family is poverty, it means paycheck to paycheck and cheese sandwiches at the end of the month) and we made the sales number like 25% tax also. That would mean plenty of revenue for the government and a tax that all people pay equally based on their spending. AND REMEMBER that people would GET 100% of their paychecks and those earning less that poverty would get all their tax spending BACK[/quote]
How would you make that work, though? Would you just give back X% of money up to the poverty line? What happens if consumer spending drops precipitously and the governments "refund" payments aren't adequately covered by revenues collected? Even aside from the "fairness" issues, I don't see how you could make that work logistically. Even if you kept the payments to 1 time per year, that is still a lot of processing and it doesn't really help the people who need that money week to week.
[quote]I opened the can of worms myself I cringe when I hear ' redistribute wealth' arguements.[/quote]
I think the real point, though, with a progressive system is, "Each according to his means and talents," rather than a redistribution of wealth.
Re: A backgrounder on the progressive tax system
Well I gawked at first at the 25% house tax. But if you think about it while it will mean a shift in buying for the first few years (if it were enacted) it would eventually even out and make sense.
I mean you would not pay it all up front, you would pay the tax as you pay for the house. Then the resale of that house you bought would be worth more when you go to sell it because you would add in monies for the taxes (to make it back out). This would mean that things would kind of even out.
Granted it would be interesting but I think it could work.
In the sales thing food is indeed exempt. I will admit that there is one HUGE problem with the sales tax idea. That is that you still have to somehow decide what is "new" and what is not (wholesalers, etc, products that are purchased by company X from companies Y and Z to be sold to consumer A, at what point is something "new") AND you will have to regulate and oversee that. Thats bad. Dont have that figured out ;).
Re: A backgrounder on the progressive tax system
ouch. you are getting into "from each according to his talents and to each according to his needs". Marx? No thanks.