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Taxing Our Way to Equality
A few weeks ago I promised a discussion on the implications of using taxes to support the increase of almost $1 trillion in the cost of our federal government in the last two years. This discussion addresses only that number. Additional costs to address the shortfalls in Social Security, Medicare, Medicaid and Obama Care are not addressed in this analysis although I plan to do so in the future. My analysis suggests that baring some strange new source of income, federal income taxes would need to be increased by just shy of 100% to provide the needed revenue just to stop the growth in our federal deficit.
It is my intent to remain within the “middle class” in addressing this issue. An accepted definition of “middle class” does not exist. Some consider the center quintile the middle class. That would make 40% rich and 40% poor. I use the definition used by many that the center three quintiles represents the middle class (60% of us). That leads to those with income between $25K and $100K and based on prior analysis published here I used incomes of $50K and $100K as bounds for the analysis.
I did my Quicken analysis on two families composed of a police officer and a teacher living in Lawrence. The first family represented those just starting out with two young children. Their combined income was set at $50,000 (about the average here in Kansas and representative of local salaries). The second family was thirty years along, had doubled their income and their kids were out of the house. The table below reflects their calculated taxes at today’s rates. I avoided the impact of inflation by sticking with current values.
Now, if we commit to funding all the additional revenue to support the Democratic Party adds to our current federal budget the total tax take for the older family increases to $37,980 while the tax take on the younger family does not change. The analysis assumes we handle the increase with changes in rates and not changes in deductions which might affect the younger family.
These numbers can be read many ways. For one, our progressive tax system is working at least for those in the middle class. Two, there is a very broad variation in taxes between the center and the top of the middle class. Three, the tax take on the 53% of us that pay federal taxes is significant. Four, we would be approaching a tax take of almost 40% in direct taxes on a two wage earner family making $100K.
The question I ask those who seem to want to raise taxes to support all the many Democratic Party initiatives is a psychological one. Do we as a society really want to signal our citizens that the reward for thirty years of work is to have any gain achieved reduced by almost two thirds as a result of government tax policy? Sounds pretty steep, but that is the implied result of using taxes to pay for all the added Democratic Party initiatives.
There has been much ado lately about preserving the middle class. My analysis above suggests that the operative meaning of the word “preserving” is that all of us in the middle class will be reduced to pretty much the same standard of living no matter where we are in the earning cycle or what level of contribution we make to the society. Do we really want to do that?