T Nation

Fair Share?


#1

Well, given that I just finished filling out my taxes last night, I have taxes on the brain. Specifically, how much of them I am paying.

There's been a lot of political rhetoric tossed about concerning how "the rich" aren't paying their "fair share." We have a highly "progressive" system folks, in that the rates get progressively higher as income rises. The top 20% of income earners pay 84% of all taxes (federal) according to this study by the Joint Economic Committee of Congress, just published today:

http://jec.senate.gov/_files/TaxReport04142004.pdf

Just think about the simple math this implies if one does a tax cut for all taxpayers, say a 1% rate reduction on all brackets: The "rich" -- those in the top 20% -- will get the bulk of the money because they pay the bulk of the taxes. The "poor" will get less or none, because they pay little to no tax -- the poorest quintile actually pays "negative" tax in that it receives benefits but pays no tax.

So what exactly is their "fair share"? I'm thinking whatever it is, if 20% of the people are paying 84% of the taxes, they're already paying it.

Thoughts?

PS -- I'm using my tax savings this year to purchase more Biotest products!


#2

I agree BB.The top twenty percent are paying 84%,of total tax revenue.Thats fair how???
I wish that I could operate my budget the way the federal and state govts. run theirs.


#3

I get more money back than I pay in, so I just wanted to say a quick "Thanks" to you people in the top bracket. I know it's wrong, but I just can't bring myself to tell the government to keep it.


#4

The percentages quoted are skewed. Rich people have more money, so they pay more taxes. Compare the actual tax rates between different incomes, for a more accurate comparison.

60% of American corporations pay ZERO taxes. The tax loopholes for corporations are big enough to drive a truck through. Corporations used to pay 35% under Clinton, but now the majority pay ZERO taxes. Is THAT fair?

If you want a tax break, think about getting corporations to pay their fair share.

Right now the Bush policies reward passive income (inheritance, stock dividends etc) and penalize middle class people who work.


#5

Lumpy:

I am going to try to make some sense out of your diatribe.

You said:

"The percentages quoted are skewed. Rich people have more money, so they pay more taxes. Compare the actual tax rates between different incomes, for a more accurate comparison."

I say:

How are the percentages skewed, or, not accurate. The top 20% of incomes pays 84% of taxes. This is because of two factors: 1) They have more money, so taking 20% of 10X will give a greater number than 20% of X; and 2) They pay higher percentage rates as they achieve higher incomes (this is what "progressive" means, as I explained above) -- the lowest quintile pays 0% or 10%; the highest pays 35%. Why? Because someone who has read too much Karl Marx believes that it is "fair" to not only take more dollars from those who have more dollars, but to take a greater percentage of dollars from those who have more dollars. This is "fair" how? Because they have as much as YOU think they should?

You say:

"60% of American corporations pay ZERO taxes. The tax loopholes for corporations are big enough to drive a truck through. Corporations used to pay 35% under Clinton, but now the majority pay ZERO taxes. Is THAT fair?"

I say:

First, this is a non-sequiter. This study, and my statements, concern individuals, not corporations. Corporate taxation is separate, and governed by separate rules, FYI.

However, I will add:

Corporate profits are double-taxed. They are taxed at the corporate level, and if any are dividended out to shareholders they are taxed again (luckily at a lower rate, thanks to GWB). That is hardly "fair."

And, on top of that, corporate taxation is very complicated. Suffice it to say that corporations can write off losses and certain expenses. Given that more corporations posted losses over the past down cycle, it seems a given fewer would pay taxes.

Corporate tax rules should be overhauled and simplified.

You said:

If you want a tax break, think about getting corporations to pay their fair share.

I say:

Once again, non-sequiter. See above.

You said:

Right now the Bush policies reward passive income (inheritance, stock dividends etc) and penalize middle class people who work.

I say:

Firstly, how is anyone "rewarded" by not having the government come in and take their possessions. In the case of inheritance, it was already taxed -- at the time it was earned. What precisely is the justification for the government to come in and take ANY tax on it just because someone died?

Secondly, as to investment income, this is hardly "passive" income. Investing is the fuel of the economy -- of the jobs you love to complain so much about. People invest in companies, companies take that money, invest in equipment, hiring, etc. This is also a risky endeavor -- there is no guarantee a company will succeed. If it fails, people lose money and get no dividends. People need to be incented to take on risk. The government takes no risk -- it just sits back and takes a slice of the profit. Why does it deserve a bigger slice? ANd why would it want to kill the goose that lays the golden egg by taking too much, so that the risk is no longer worth the net reward?

Finally, I will refer you again to the double taxation of corporate profits. They are taxed once at the corporate level, and again at the individual level. ANY tax the individual pays on dividends is above and beyond the corporate tax rate paid on those profits. How is that "fair" again?


#6

Doogie --

I wouldn't expect you to. For one, people should act in their best interests, according to the rules in place. Second, you're a teacher -- as is my fiancee -- so a little governmental spending toward education (done intelligently) is not begrudged by me.

If I'm going to begrudge, I'm going to begin with ethanol subsidies and farm price supports and work my way down from there.


#7

BB - I agree with you in much of what you said.

My friend and I go on and on about this and we spend a lot of time debating the progressive tax system. His point is that the people on top essentially get more value from the government, and thus should pay more for it. For example, if I have a million dollar house, the police protect a million dollars worth of my assets. If you have a house worth $50k, you're only getting 1/20th the protection. Essentially, his point is that rich people have more at stake and thus take greater benefits from government.

But - it is also true that rich people also pay higher taxes beyond just income taxes. Because they spend more, they spend more on sales taxes, income taxes passed through the cost of products, social security taxes, etc.

I need to disagree with your point that closing tax loopholes wouldn't affect your personal taxes. If all of those loopholes were closed, then the government would take in more money. This would mean that you could pay less in taxe, even though I am sure all that would happen is an increase in spending. So it does follow that coporate tax schemes do affect your income taxes.

Also, while most subsidies are stupid, there are some that actually make sense. If we can subsidize a company which employs a large enough group of people to ensure the company stays afloat, then there will be a net benefit. This is not such a great example, but look at sport stadiums. If we can build a stadium for $200 million in subsidies, but that stadium brings in $250 million in increased taxes, then we have a net gain of $50 million. The problem isn't subsidies, its the failure of a cost-benefit analysis to accopany them. That's why I am for building sports stadiums but wouldn't support subsidizing the lone farmer holding out against the larger farms. We get no net benefit from small farmers.

No matter what - the key is smaller government. We should all be able to agree on that.


#8

Can you tell me how you came up with this number?


#9

Well, my viewpoint on taxation is a little bit more radical. Direct taxation, which income tax is, is not something that governments were originally allowed to do.

Although it isn't exactly the same, what do you call it if all your income is taxed -- what if the tax rate is 100% of your income? That is called slavery and as we all finally know, these days, it is wrong.

This concept might even be why direct taxation was prohibited during the founding of various governments. I am not sure really.

However, given this thought, if 100% taxation on income is akin to slavery, what is 90% taxation? Is it okay? What about 50%? Maybe 20%? What level of slavery is okay? At 25%, 1/4 of the year, or three months of my effort, is owned by the government.

I'm strongly opposed to personal income tax entirely! There is no fair share for this type of taxation. Other taxation vehicles exist. The most likely replacement is some type of spending or sales tax. I can choose to buy expensive goods or cheap goods in order to conserve my income. Having this ability gives me the control over the distribution of my "wealth".

I can even choose not to spend much of it and invest the remainder in various things. Stocks, bonds, savings or whatever the hell I want, it would be my money after all. However, if the government doesn't take it before I spend it, then I have the ability to invest it and grow it if I want. As things stand, it is stolen from me and I am denied the use of my money for the purpose of spending or investing.

Oh well, nobody gives a shit what I think about taxation. Talk about simple though! Buy something, pay tax. Everthing else simply goes away. Fire the entire IRS and remove all the loopholes and bullshit. How easy is that, buy something, pay tax.

It's a crime things are so convoluted and complex. Seriously. We should be able to instigate class action lawsuits against the unreasonable complexity and slavery parallels of direct taxation.

If I had the money I'd try it.


#10

Let's move to the 23-30% Fair Tax! Get rid of all income tax, property tax, etc, and only have a 23-30% tax on all goods.


#11

Cory --

We're agreeing about the main ideas, but parsing at the edges. However, as Samuel L. Jackson said in Pulp Fiction, "allow me to retort."

Firstly, as to your friend's take: I disagree. Unless it somehow costs the government that much more to protect my million dollar house than the 50K house, I am paying for exactly what I am getting -- the protection of the asset. If I hire a guard to protect the Mona Lisa, and the charge is the same as to guard a water color by a 3rd grader, why should I pay more for the guarding of the Mona Lisa? It's not as if in paying the government more means I am getting a higher quality of service, or more service. My level of benefit from getting the exact same service is not a justification for a higher rate -- especially not when one is speaking of a coerced payment and not a contract where I can define my own level of desired benefit and payment.

Next, on the corporate loopholes point, I think I was misunderstood. I meant the loopholes should be closed and the rates lowered -- that was part of my short-hand use of "reform" that I should have explained more fully. A simpler, flat system with lower rates wouldn't need as many deductions and loopholes. It might put a few of my tax-lawyer friends out looking for work, but they are smart -- they could come work for the corporate side (there would be enough new business for them, funded by the savings!).

The biggest disagreement we have is likely in terms of subsidies. I'm almost never in favor of subsidies. Even in the situation you described, one presumes there are efficiency forces at play that are causing the company to fail, and that the resources could be better deployed elsewhere in the medium term. (Obviously, some short-term pain comes from such re-allignment of resources). As for the stadium example -- those are just free handouts to stadium owners, which are paid for via taxes and under-cover taxes (interest paid on government borrowing to finance the stadiums). If I'm not mistaken, they usually are not that great a deal economically for the community, as they give tax concessions to the sports teams for revenue produced at the stadiums as well as paying for their construction. There may be jobs created, but the argument is that more could have been created had the same resources been deployed more efficiently (i.e. not taking them from the taxpayers to begin with, and letting the taxpayers spend/invest/what-have-you). I won't say there could never be a cost-benefit analysis that would justify a subsidy. I am saying I think they are very few and very far between.

Finally, I definitely agree - the key is smaller government. We should all be able to agree on that.


#12

Musclerob Buffpants wonders if Lumpy voluntarily paid a few hundred bucks extra on his taxes since he hates Bush's tax cuts...


#13

Taxes are more complex then, "The rich have more then me, so they should pay a lot more then I do in taxes."

Nobody ever explains why the rich should pay so much more then they do, other then because they are rich.

The funny thing is that the numbers listed often don't actually list the actual rich. Just because somebody has a lot of money, does not mean they have a large income. I have heard of people working for $50,000 per year, yet have 8 mil in their retirement account. It is sheltered, and not actual income, plus the person does not actually have access to it. But this person is a multi millionaire.

Then there is the person making $100,000 living paycheck to paycheck. They aren't rich. Of course it is their own fault for not saving, and for spending too much, and getting way too deep into debt.

This tax debate is always fueled by envy. Never realizing what a person had to go through to get where they are.

I watched John Stossel interview Al Sharpton, who said that the rich should pay more in taxes. When asked what the richest 1% should pay, he said 15% of all taxes. But changed the subject when he was told that the top 1% pay over 30% of all income taxes.

Now can anyone tell me why anybody should be paying more taxes to the government? Why does the government need more money? To line more pockets?

There should be limits put on the increase in spending. The total budget should only increase by 2.5% a year until we have surpluses again. Then relaxed to 3% form then on. That number should be increased only when there is a recession.

The taxes should gradually be made flatter, with the first $50,000 (family of four) of income tax free, adjusted up. The AMT should be dropped immediately. But the other tax changes should generally be held, and slowly be introduced only when a slowdown of the economy is seen. Possibly any three month period where the GDP grows less then a certain rate. That way the tax changes always benefit the economy, and possibly prevent a recession.

Done right, there could potentially be 15 to 20 years without a recession. (Optimal planning.) With an economy booming like never before, and little, if no federal debt. Hopefully Social Security is fixed by then.


#14

BostonBarrister
Corporations are 'double taxed' but the average person is double-taxed as well... triple and quadruple taxed, even. Is it unfair to double tax a corporate stockholder, but not unfair to double tax the average consumer? Somehow, the rich are the only ones who need to be protected angainst 'double tax'?

Also, you seem to think that the wealthy and the poor have absolutely equal responsibility to pay the same amount of taxes, in order to see that the garbage is collected, the people are safe, the country is protected. I think that the wealthy have a much bigger stake in America and should pay more. The wealthy benefit the most from what this country has to offer, so they should pay the most. That's not Socialism, that is 'fair play'. That may be a foriegn concept to a "Greed is Good" Republican.

Re: the question on my statement that 60% of corporations currently pay no tax: Try Google.

I take back my comment that it was different under Clinton, the figures came from a period between 1996 and 2000.

"Hiding from taxes"

"As millions of Americans prepared to give their annual pound of flesh to the IRS, the government reported that more than 60 percent of U.S. corporations didn't owe any federal taxes between 1996 and 2000.

That's right. Sixty percent paid no federal taxes.

Now that you have caught your breath, please notice that these figures come from the Clinton boom years, when one would naturally have expected the federal coffers to overflow with taxes on corporate profits.

In fact, The Wall Street Journal reported last week, corporate tax receipts actually have shrunk in recent years as a percentage of federal revenues. "By 2003, they had fallen to just 7.4 percent of overall federal receipts, the lowest since 1983, and the second-lowest rate since 1934, federal budget officials say."

The reason? Tax dodging, a venerable American institution for individuals as well as corporations, has become even more deeply rooted in the executive suites of U.S. businesses.

Lest you guess, however, that foreign-owned corporations doing business in the United States are more public-spirited, guess again. About 70 percent of them didn't pay any federal taxes during the same period.

Some tax dodges are legal, others aren't. But as with sports, Americans bend the rules as part of the game.

If Americans are concerned that corporations are dodging their responsibility, there are two broad answers. The tax code needs to be reformed to prune away tax havens, and tax enforcement should be beefed up.

Of course, when the IRS cracks down on someone else, that's great. When it does unto me, that's police brutality.

Nevertheless, it makes sense for corporations to pay taxes. Some people would argue that only individuals should pay taxes, since corporate costs, including taxes, are passed on to consumers anyway. But like individuals, corporations benefit from government services and should help to pay for them.

The amount of wealth that benefits individuals in the form of corporate perks, rather than personal income, is another reason why businesses should pay taxes. If the tax code actually encourages these perks as a tax dodge, the law should be reformed.

Of course, like individuals, some corporations, especially smaller ones, do not make money every year. But when they do, they should share in the general tax burden."

http://www.sltrib.com/2004/Apr/04122004/opinion/opinion.asp


#15

Let's move to the 23-30% Fair Tax! Get rid of all income tax, property tax, etc, and only have a 23-30% tax on all goods.

Actually, you need both systems:

1) A flat income tax rate so that everybody stops whining about equality. (Obviously, you need something of an average or middle ground of actual tax levels).

and

2) A flat tax on all goods and services.

That way, everybody gets the opportunity to be skinned equally. If you try to fuck the system on the income tax level, they clawback at you at the cash register. And that includes the whining bums. YAY!

You just have to make sure it stays airtight and NO exceptions ever get created.

Simple. Beautiful. Efficient. Will never happen.


#16

Lumpy:

I am going to presume you are not understanding my use of "double taxed." I am not simply stating that corporations are hit with different levels of tax, such as federal, state and sales. As you said, everyone is hit with those.

And I also was not refering to "corporations" being double taxed. I referred to corporate profits being double taxed. There is a huge difference there.

The problem of double-taxation of corporate profits is because the same money is taxed twice under federal income tax rules if corporations actually give it back to their shareholders, the rightful owners of those profits, in the form of dividends. As I pointed out above, the corporate and individual tax systems are different. Corporations pay federal income taxes on profits at the corporate level. If they dividend those profits out to their shareholders, the shareholders then pay federal income taxes again on that same money, at the applicable shareholder rate (it used to be taxed as ordinary income, but thanks to GWB, the problem has been lessened, as dividends are now taxed at the same rate as capital gains).

That is the double taxation problem. It does not affect everyone. It affects corporate profits, and punishes corporate shareholders. Not to mention the fact it creates the incentive for corporations to retain profits, and find a way to spend the cash, as the takeover market provides a disincentive for management to sit on large cash reserves -- this is an incentive to invest in less efficient projects, or to find ways to use up the money on corporate perks.

On your next point, I don't know what I said that would make you think I believe that all people have to pay the same amount of taxes. I did not advocate a head tax of $1000 for every man, woman and child in the country. That would be each person shouldering and equal amount of the tax burden. I said there is no good justification for taking a greater percentage of one person's income over another's. As I illustrated above, 20% of 10X is greater than 20% of X. In both cases you are taking 20%, but the person with 10X is paying ten times as much -- although it is the same percent of his income.

Thinking that you can force "the rich" to higher and higher percentages of their income simply because they have more is pure socialism. And please do not simply repeat your argument from above. Besides the fact that I addressed it in my reply to Cory, it does not follow from your argument that there is justification for taking a higher percentage from one person than another -- the person with more pays more at the same percentage.

A flat tax is fair play. A sales tax would be fair play. Your position, and our current tax code, is a leftover of the semi-(and overt) socialism that pervaded intellectual circles in the 30s.


#17

I am for a flat tax, heres why:

Let's say a "rich" person makes $200-k per year and a "poor" person makes 30-k per year. If each is taxed at the same rate, 20% then the rich person is in fact already paying more, 40-k to 6-k. Why does the rate also have to be higher for the rich person? That is simply wrong!

Seems to me if you had a sales staff and punished them for making more, instead of rewarding them, that would hurt productivity!

Steve Forbes has it right-A flat fair tax for all. No loopholes! And those making under a certain amount (25-k perhaps) pay nothing.

Zeb for President...Haha


#18

A federal 30% sales tax with the removal of income tax, property tax, etc, will be fair for EVERYONE.

The poor will pay tax, drug dealers will pay tax, illegals will pay tax. Everyone pays and you get to keep your whole paycheck.

Sounds like a good deal to me.


#19

I'm all for a flat tax, but I think 20% is way out of line. If all loopholes and exceptions were eliminated, then 10% of AGI across the board would be more than fair. In fact the gov would probably see an increase in revenue, as people would be able to hide or exclude less.

The 20% figure should be an absolute cap for all taxes including income, SS, medicare, state, local, sales. I think I could live with that kind of setup.

tme for pres! I'll appoint ZEB as my "Minister of Family Values and Pull-Ups".


#20

I am with Zeb on that one. Flat rate, keep it fair acroos the board. If you fall under a certain level then you pay nothing.