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Taxing Our Way to Equality - Reprise
A recent blog addressing the consequences of using federal income taxes to pay for the current accounts deficit and long term deficit at the federal level drew several meaningful comments. This blog will address those.
We drew the inevitable comment that equates payroll taxes to federal income taxes. That comparison is at best disingenuous and may well be considered absolute propaganda. Payroll tax is essentially an annuity that buys the payee a retirement program that includes health care. Federal income tax is the only tax we pay that funds the operation of the federal government – our largest government entity. If we remove the payroll tax from the comparison the $50K earner pays only $2500 in taxes exclusively to state and local governments. The $100K earner still pays over $21000 in taxes – mostly to the federal government to operate that government – the one with the big deficit.
There were comments about lifestyle driving the comparison. The only significant lifestyle issue is that of home ownership. The paragraph below addresses the cost implications. Changes in personal property taxes and sales taxes are small. It should be noted however, that both of those taxes are driven by consumption. Really significant differences in consumption might show a larger difference although a difference overwhelmed by the much larger payments for federal and state income tax.
Concern was expressed that a comparison of a family that did not own a home with one that did was manipulative. I went back and removed the house. The federal and state taxes increase for the non-home owning couple but the increase is offset by the elimination of the property tax. It should be noted that the end point is a reduction of about 5% attributable to the home. The real consequence is reflected when we consider increasing the tax where the total tax take of the couple without a home is significant more than the tax for someone with a home. The table below compares the differences
Since the real subject of both blogs was the significant tax increase that would be required unless we make major cuts to programs the real focus is on federal income tax – the singular tax that addresses those costs. For a couple making $100K with no kids and ho home the tax take to address the long term deficit approaches half of their income.
So, how much is enough? Who should pay? Why does almost half our population pay nothing toward the operation of the federal government. Why is the percentage of tax taken from tax payers at the upper reaches of the middle class essentially equal to that paid by our wealthiest citizens when the tax take on the middle of the middle class is about 22% of that take- what happened to the progressivity we claim our system has?