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Letters to the Editor

Tax basics

November 20, 2011

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To the editor:

We hear a lot today about tax reform, but not much about tax basics. Taxes are classified as either being regressive or progressive. Regressive taxes are those that place a larger burden on the poor and middle class than on the wealthy.

The most common of these is the sales tax. To illustrate this, consider a gallon of milk, the tax on which is about 30 cents. This places a great burden on the homeless woman who works at minimum wage to feed herself and her family while it is a minute part of a corporate executives $10 million-a-year salary. How about a gallon of gas with a sales tax of about 30 cents? This places a great burden on the working man who has to commute, but is only a small part of the wealthy man’s expenses.

Almost every dime of the working poor is spent on food and other basics and is taxed at about 10 percent. The wealthy do pay sales taxes but not much. As incomes go up, the percentage of them subject to sales taxes goes down.

The most common progressive tax is the income tax. The principle behind this tax is that it is supposed to tax according to how one benefits from the economic system of the U.S. The fact is no one pays income tax on about the first $15,000-$20,000 of their income due to exemptions and deductions. Sadly, 51 percent of Americans now pay no income tax simply because they don’t make enough money.

Comments

its_just_math 3 years, 1 month ago

So, what does a couple who earns $503k say when they pay $143k to the feds and about $12k to KS? That's not enough? How "basic" is that?

tange 3 years, 1 month ago

"Hmm... $503 - 143 - 12 = $348, which is several times what we need to live quite comfortably... How shall we put the rest to use...?"

jafs 3 years, 1 month ago

Because you're complaining about taxes.

Seems pretty straightforward to me - if my after-tax income is sufficient to live well, then it's not a practical issue for me.

So, I don't complain about taxes.

Fred Mertz 3 years, 1 month ago

Are you really saying taxes should be based upon an amount that leaves enough for someone to live well? Who gets to determine what is living well?

People live well on $50,000 after taxes so should everyone be taxed to that limit?

Just because I earn more doesn't mean I should be taxed more. Taxes shouldn't be a matter of leveling the earning playing field, but simply a source of revenue for the government to pay for their legitimate needs.

Someone who makes more often has contributed more through education and hours worked. Not always, but often so shouldn't that be rewarded instead of being taxed more?

jafs 3 years, 1 month ago

I'm saying that it's not a practical issue for me.

The theoretical questions about how tax policy should be formulated are interesting, and complex.

I agree with your central comment - the issue is who defines "legitimate" - which is a hotly debated topic.

Also, our tax policy is currently used to reward/discourage all sorts of behavior - in general, I find that problematic.

It also doesn't fit well with your legitimate need theory - if that's the theory, then no, tax policy shouldn't "reward" any particular behavior.

Fred Mertz 3 years, 1 month ago

I agree with you that tax policy shouldn't reward or discourage behavior like they do with "sin" taxes. The reward I was talking about was hard work should be rewarded by earnings and the government shouldn't penalize someone who works hard and earns more by taxing them more simply based on an idea that they can afford it.

The tax structure should be structured progressively but we should not simply tax the rich because they have wealth. We need to be fair to the poor and to the wealthy. I am not wealthy nor will I ever be. I am not for the rich but instead for what I beleive is right.

jafs 3 years, 1 month ago

If the only basis for tax policy is that the government have enough for it's "legitimate" needs, then rewarding hard work doesn't fit with that.

Why should the tax structure be progressive?

Isn't that exactly taxing the rich because they have wealth?

In my explorations of this topic, I have never heard any decent answers to what makes a system fair - each approach has parts that seem reasonable/fair, and others that don't.

I think the bottom line is that there is in fact no particular justification for any kinds of taxes, other than that the government needs money.

That's what makes it hard to determine a correct level, or system, for taxes.

Fred Mertz 3 years, 1 month ago

The only reason for taxes is to fund the government. Distibution of wealth, social programs, etc. are not reasons for taxes, except....

History has demonstrated, even recently, that when the rich get so rich and the poor get so poor that it is oppressive they will rise up and topple the rich. And then it starts all over again.

So, taxes have to be progressive, some social programs have to be funded to prevent society from getting so far out of balance that the poor rise up and rebel.

However, go to far in that direction and you have the rich rebelling. So it is a balance. We are out of balance right now. Too many people that should be paying taxes are not and too many deductions and ways to avoid paying taxes exist for the rich.

We need to bring things back into balance and quickly.

The path to finding a solution is simple - look at what worked in the past and what has failed and continue to fail and stop doing it. Problem is we have "crooks" on both sides and neither wants to go straight.

jafs 3 years, 1 month ago

Interesting - so your basis for tax policy is that we need to prevent revolutions, and the poor from rising up and toppling the rich.

It's certainly a practical approach.

What "works" that we should do immediately?

Fred Mertz 3 years, 1 month ago

It is harder to point to what works then what has failed. The war on poverty has failed because we give them fish instead of teaching them how to fish.

We have lived outside our means; spending more than we bring in and with little to no accountablity of how money is spent by the government.

We need to get back to independence and self-reliance if it is possible. Somehow we have to figure out how to break the generational cycle of poverty. The problem is poor parenting by parents ill-equipped to parent, but what do you do? Boarding schools for poor kids have worked in other areas.

We need to find a way to intervene and ensure that young children get proper health care, nutrition and education so they have the "boot straps" to pull themselves up and out of poverty.

We need to stop meddling in other countries' affairs and fighting wars that are meaningless. Think of all the billions of dollars spent in Iraq and Afghanistan and what those dollars could have done for Americans. Those countries were no real threats to us. Yes, bombing Afghanistan was justified, but not a long ground war with no real objective.

What has worked? Pride in one's self. Pride in one's country and knowing it is okay to judge people. Peer pressure is a powerful tool.

jafs 3 years, 1 month ago

Sorry to say those are rather vague suggestions.

I expected more concrete proposals, given your "the path to finding a solution is simple" post.

Perhaps it's not that simple after all.

headdoctor 3 years, 1 month ago

The tax laws are really written for higher income people to legally avoid taxes. If you are really making that kind of money annually and paying that much taxes, perhaps you are doing it wrong. Especially considering the economic condition of the past 4 years.

This sounds a lot like someone trolling. Did you just pick a high number and then take 28 percent of that figure to make your point? I would suggest some serious planning for your income. If you can't afford investments perhaps you are just outright spending beyond your means and yes, that is possible even with your alleged income.

jhawkinsf 3 years, 1 month ago

The solution isn't to tax more. The solution is reduce the tax laws.
You're absolutely correct that the wealthy and corporations benefit greatly from the complexity of our tax laws. In the case of large multinational companies, they might hire armies of tax lawyers and accountants just to find all the legal deductions they are entitled to. The solution shouldn't be to make the laws more complex. The logical solution is to make the laws less complex, so we can all benefit to the same extent from whatever legal deductions we're entitled to. And the more deductions, the more complex it becomes. So if the goal is less complexity, less deductions, then a simple solution is a flat tax.

Centerville 3 years, 1 month ago

Good point. And, we've let the brakes fail on government spending and government power. Given that, the tax side is immaterial. But a fund and easy diversion is you can be yanked around by envy.

Richard Heckler 3 years, 1 month ago

Is there such a situation?

Many upper income folks have access to loopholes which reduces their taxes significantly to sometimes zero taxes . The same with wealthy USA corporations.

Wealthy USA corporations who have gone abroad have a tax incentive that says profit from the outsourced facility cannot be taxed until that money is brought back to the USA. My how convenient.

Since Reagan/Bush the upper incomes have received at least a 35% deduction. The middle class have not been so lucky.

Richard Heckler 3 years, 1 month ago

The key is eliminating the Reaganomics that controls the former republican party. This cannot be pushed aside as if it does not exist. It is still the cornerstone of republican politics. So is the savings and loan scam and Wall Street bank scam mentality that centers around home loans. Two monster fraud episodes in 30 years says there must be yet another lurking in the Bushes.

bszemere 3 years, 1 month ago

And your good friends the Demorats were not part of it? Bull!!! They controlled congress most of those years. The Republicans have rarely controlled both houses of congress. Now the Demorats control the Senate and White House.The Demorats controlled both houses of congress from 1954 thru 1980, from 1986 thru 1994, 2000 thru 2002, and 2006 thru 2010. The GOP controlled both house from 1996 thru 2000 and 2002 to 2006.

verity 3 years, 1 month ago

Billionaires Use Tax Loophole to Lower Their Tax Rates to One Percent

http://www.truth-out.org/billionaires-use-tax-loophole-lower-their-tax-rates-one-percent/1321716065

Excerpt from the article:

"In 2009, 1,470 households reported income of more than $1 million but paid no federal income tax on it, through their use of various tax loopholes and shelters. Tax rates for millionaires have fallen by 25 percent since the mid-’90s, while one quarter of millionaires currently pay lower tax rates than the average middle-class household."

FHNC: One who forgets the past is doomed to repeat it.

verity 3 years, 1 month ago

Billionaires Use Tax Loophole to Lower Their Tax Rates to One Percent

http://www.truth-out.org/billionaires-use-tax-loophole-lower-their-tax-rates-one-percent/1321716065

Excerpt from the article:

"In 2009, 1,470 households reported income of more than $1 million but paid no federal income tax on it, through their use of various tax loopholes and shelters. Tax rates for millionaires have fallen by 25 percent since the mid-’90s, while one quarter of millionaires currently pay lower tax rates than the average middle-class household."

FHNC: One who forgets the past is doomed to repeat it.

Orwell 3 years, 1 month ago

There were also no airplanes in the late 1800's, so it's equally rational to claim airplanes are responsible for ay deterioration since then.

Mike Ford 3 years, 1 month ago

hey selective history teller...what about the panics of 1873 and 1893 and the labor strife in the 1880's? go read about the Quakers and the Walking Purchase of 1737 and the Delaware Tribe while you're at it...

headdoctor 3 years, 1 month ago

Yes I am certain that returning to the horse and buggy days would be the answer. Zero taxes regardless of the money standard. I am sure the bulk of the population would love to do away with modern roads and transportation. Not to mention better water supply, sewer, and other modern amenities that we have today.

Believe me when I a say it is no fun stuck with out door toilets, no running water and I sure as hell don't want to go back to being on the wrong end of a Buck Saw just trying to get a winter supply of firewood to cook with and heat the house. Been there, done that. Don't ever want to do it again unless it is the only option.

yourworstnightmare 3 years, 1 month ago

This idea of punishing success by a progressive income tax misses the point.

Would you rather make $15000 and pay no taxes, or make $500000 and pay $150000 in taxes leaving $350000?

The reward of hard work is having $300000 after taxes.

Flap Doodle 3 years, 1 month ago

On the other hand you could be like U2, urging your government spend more and more money on social programs and then moving your own business out of the country to avoid taxes.

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