Thinking about taxes

[KLS]

From: http://www.tompaine.com/feature2.cfm/ID/10222
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I remember the day last summer when I got my $400 tax cut, President Bush's advance on an increased child credit. I was happy to get the 400 bucks, but within a week I started to wonder if it was an illusion.

First, due to state and local budget cuts, my daughter's elementary school laid off our librarian, cut lunchroom monitors and cancelled hiring for an art teacher. Then I got a request from another parent asking each family to chip in 39 bucks for new chairs at the school, so the kids could have decent seating. Then I got my property tax bill, reflecting a 100 percent increase in local property taxes.

Like most Americans, I don't look forward to tax day. Nor am I enthusiastic about everything our government does with my money. But I don't resent paying for the peace, order and public services that we all enjoy. I confess that there are a lot of things government does that I take for granted because they function well and are invisible.

As we all prepare our tax forms and pony up to fund our government, it's important to understand that there's another invisible element at work here. The "tax cuts" that most working Americans have received under the Bush administration are actually not tax cuts, but tax shifts. Here are the five most fundamental:

Tax Shift #1: From Federal Taxes to State Taxes.
Since 2002, state governments have closed $200 billion in budget gaps by raising taxes and cutting services. During those same years, newly enacted federal tax cuts delivered about as much money--$197.3 billion--in new tax breaks for the wealthiest 1 percent of Americans (households making more than $337,000 a year). In essence, Bush chose to force tax hikes in the states in order to give tax breaks to multi-millionaires.

Tax Shift #2: From Progressive to Regressive Taxes.
President Bush has focused on reducing income tax rates. But 71 percent of us pay more in payroll taxes (Social Security and Medicare) than in income taxes. Payroll taxes are regressive: high-income people pay a lower tax rate than low-income people. The opposite is true of progressive taxes, such as federal income, corporate and estate taxes. Since the early '60s, this trio of progressive tax rates has dropped precipitously. But the regressive payroll tax rate has risen.

Tax Shift #3: From Taxes on Wealth to Taxes on Work. Politicians talk about the virtues of hard work, but their tax policies speak otherwise. Between 1980 and today, the main tax rate on work income-the payroll tax-has jumped 25 percent. In the same period, top tax rates on investment income and large inheritances have been cut between 31 and 79 percent.

This tax shift from wealth to work means that a person who derives millions of dollars in dividend income solely from his investments now pays a marginal tax rate of just 15 percent. Compare that with a schoolteacher with an adjusted gross income over $28,400 who pays a payroll tax rate of 15.3 percent, plus a marginal income tax rate of 28 percent, for a total marginal rate of more than 43 percent!

Tax Shift #4: From Corporations to Individuals.
Corporate lobbyists complain that the United States overtaxes business. But since 1962, the share of federal revenues contributed by corporations has declined by two-thirds, while the share contributed by individuals and unincorporated small business has risen 17 percent.

Tax Shift #5: From Current Taxpayers to Future Generations.
President Bush sold his tax cuts using the line, "It's your money." He left out the other side ofthe story: "It's your children's debt." According to Citizens for Tax Justice, between 2002 and 2007, Bush's fiscal policies will impose $13,000 in additional debt on each man, woman and
child in America.

Because of this tax shift, any "cuts" that ordinary taxpayers get will be lost to state and local tax increases and services cuts. Even the "married with children" families who have been thought to be big beneficiaries are losers after the tax shifts. The real winners in three years of Bush "tax cuts" are the very wealthy, those with incomes of more than $500,000. For them, these tax cuts are real windfalls. For the rest of us, though, they end up being burdens.

So as you prepare to crank out your tax forms, take note of how much you're paying. You might get the sensation-as I do-that your dollars are being shuffled around in a grand shell game of paperwork and political rhetoric.

[mandzach]

Vote Nader

[DJ]

I have several comments.

#1: At one of the "Democrat debates" recently, Al Sharpton was asked what percent of income taxes was paid by the top 1% with income, and what percent he though they should pay. He responded that they paid, "Less than 10%, less than 5%", which clearly shows that he doesn't know, and that they should pay "15%". Of all the people with income, the 1% with the highest income actually have 17% of the income and they pay 37% of the federal income taxes paid by individuals. You will NEVER hear any Democrat candidate state this or acknowledge it, and you will NEVER hear it on the network news shows.

#2: Corporations and business do not pay income taxes. For corporations and businesses, taxes are an expense that is passed on to their customers. ALL taxes are paid by those who cannot pass them on to someone else. That means CUSTOMERS pay corporate and business income taxes.

#3: Jack Kemp was right when he stated that you get less of what you tax and more of what you subsidize. The government taxes work, savings, investment, and productive activity, while it subsidizes sloth, parasitism, and consumption. You wanna see where that leads? Look to Britain since 1948. I suggest reading "Life at the Bottom", by Theodore Dalrymple. He writes EXTREMELY well, and his book is a wake-up call.

#4: Arthur Laffer was correct when he described the "Laffer Curve" (http://www.investopedia.com/terms/l/laffercurve.asp), which notes that, when tax RATES reach a certain point, increasing tax RATES results in less revenue to the gummint, simply because people won't work as hard if more of their income is taken from them. The simple fact that gimmint revenue INCREASED when tax RATES were reduced during the Kennedy and Reagan administrations PROVES the curve is real.

#4: Bush is big spender, but he understands the ideas of Jack Kemp and Arthur Laffer. Kerry is HUGE spender, and he wants MUCH HIGHER TAX RATES.

[KLS]

Bush cut the wrong taxes. 40% of his tax cuts go to the top 1% of tax payers. It would have been much better for the economy and for many people if he'd cut the payroll tax. If, say, the first $10,000 of income was exempt from Social Security and Medicare tax, then the folks that need it would be better off. This money would have been promptly spent and the economy given a boost.

I agree about taxing corporations. If we could figure out how to do it, I'd like to see corporate profits taxed on the owners of the corporations as individual taxpayers instead of taxing (or failing to tax) the corporation.

The Laffer curve is certainly true, but is anyone wise enough to know the correct point of maximum taxation without stagnation? We need to tax to pay for what we spend. The best way, of course, is to grow the economy and get tax revenues from the added economic activity. Short term deficits are OK during periods of economic decline, but what's short term about Bush's deficits?

Federal government interest payments on the debt (the accumulated deficits) is now 2% of GDP...about 11% of the Federal budget. How much can we afford?


Ken

[RoundTuit]

Originally Posted by DJ

I#2: Corporations and business do not pay income taxes. For corporations and businesses, taxes are an expense that is passed on to their customers. ALL taxes are paid by those who cannot pass them on to someone else. That means CUSTOMERS pay corporate and business income taxes.

Also, the tax rate on US corporations is one of the highest in the industrialized world. This puts them at a competitive disadvantage with other countries whose tax rates are lower.

[longwoodklon]

Putting all the politics aside(I don't think highly of Bush OR Kerry, another lose/lose decision come voting time). But all I ask for is for elected officials to use 1/3 of their brain. It's simple really, cut it down to basics. Use a typical family example:
-- $100k wage earnings. That family has debt of $500k(house/car) and still want some discretional income. How does this family cope? It's called a budget........
-- What I find UNACCEPTABLE here in CA. at least. From 1 year to the next, college tuition doubles/triples. Car registration triples. Property tax in my newer neighborhood is 1.8%, with inflated property values this is bringing in BIG bucks to the state and they still talk of raising this. Electricity is subject to corporate greed and any given month can double/triple(it happened 2 years ago).
-- At the same time, we get a 'tax credit' for kids while school funding is decreasing to the point that 5 classes all share the same 30 books, teachers are given 100 sheets of paper a month to make copies(any extra they buy, 100 sheets may last 1 week).
I don't know what the answers are, but it seems that a whole lot of people are NOT doing their jobs. It's simple mismanagement, lack of foresight, and it makes me sick. Then in the same breath, we are to applaud this new idea of taxing Indian Gaming. So people can throw away $1billion/year, of which we would be lucky to get 1% of that. Seems better to just increase taxes, and get the whole $1billion that you need.
I don't think anyone is talking of taxing the rich unfairly, but certainly it's hard for most to understand these cuts when at the same time the states are running in critical mode. And don't give me a child credit trying to look like a good guy, when you will take 3x that amount on the back end(registration, property taxes, utilities, etc..).

[KLS]

Originally Posted by RoundTuit

Also, the tax rate on US corporations is one of the highest in the industrialized world. This puts them at a competitive disadvantage with other countries whose tax rates are lower.

Tax rates are one thing...actual tax payments are quite another.

"More than half of US corporations paid no federal income taxes during the boom years of the late 1990s, and those that did were able to shelter much of their income, according to congressional accountants."
http://www.boston.com/business/globe..._taxes_in_90s/


Ken

[Rlockyer]

Originally Posted by KLS

schoolteacher with an adjusted gross income over $28,400 who pays a payroll tax rate of 15.3 percent, plus a marginal income tax rate of 28 percent, for a total marginal rate of more than 43 percent!

Not true.
It is a progressive tax, so the marginal tax rate on 28,400 would not be 28%.
For someone who is single, making... let's say $36,000, the Federal tax would be calculated as follows:
$7,000 * 10% = $700
$28,400 - $7,000 = $21,400 * 15% = $3,210
$36,000 - $28,400 = $7,600 * 25% = $1,900
Total taxes paid: 700+3210+1900 = $5,810
Actual percentage of adjusted income = 16%
Even adding the payroll tax rate of 15.3, we only have an effective rate of 31.3%

[DJ]

Originally Posted by KLS

Bush cut the wrong taxes. 40% of his tax cuts go to the top 1% of tax payers.

...

You can cut income taxes only for people who pay income taxes. The top 1% pay 37% of the income taxes paid. The lowest paid 50% pay less than 4% of the income taxes paid. Those on the bottom end get tax "credits" such that the gummint actually GIVES them money, which is pure income redistribution. So, if you're going to cut "income" taxes, where else can you cut them except for those who actually PAY them?

[Possum]

Originally Posted by KLS

Tax rates are one thing...actual tax payments are quite another.

"More than half of US corporations paid no federal income taxes during the boom years of the late 1990s, and those that did were able to shelter much of their income, according to congressional accountants."
http://www.boston.com/business/globe..._taxes_in_90s/


Ken

You got that right!

Thanks for the links Ken, interesting info.

Dan

[Rlockyer]

Originally Posted by KLS

Bush cut the wrong taxes. 40% of his tax cuts go to the top 1% of tax payers.

This is another illusion that goes transparent when the real numbers are revealed.
A few months ago I wrote a spreadsheed listing tax amounts on income levels of 40k, 70k, 150k, 500k, and 10m. This table shows tax levels for 2001, 2002, and 2003

2001 - $10,000,000.00 = $3,882,042.90
2002 - $10,000,000.00 = $3,817,249.20 Paid 98.33% of 2001 tax
2003 - $10,000,000.00 = $3,475,206.50 Paid 89.52% of 2001 tax

2001 - $500,000.00 = $167,542.90
2002 - $500,000.00 = $150,249.20 Paid 89.68% of 2001 tax
2003 - $500,000.00 = $150,206.50 Paid 89.65% of 2001 tax

2001 - $150,000.00 = $36,822.50
2002 - $150,000.00 = $35,410.50 Paid 96.17% of 2001 tax
2003 - $150,000.00 = $32,180.50 Paid 87.39% of 2001 tax

2001 - $70,000.00 = $13,600.00
2002 - $70,000.00 = $12,696.00 Paid 93.35% of 2001 tax
2003 - $70,000.00 = $11,120.00 Paid 81.76% of 2001 tax

2001 - $40,000.00 = $6,000.00
2002 - $40,000.00 = $5,400.00 Paid 90.00% of 2001 tax
2003 - $40,000.00 = $5,300.00 Paid 88.33% of 2001 tax

Looks to me like the middle class is getting the best end of the deal here, with nearly a 20% cut overall.
The 2003 cut only served to bring the upper 1% in line with everyone else. The bulk of the cuts were provided by the Bush administration in 2002, with further cuts offered to all in '03.
So saying that 40% of the cuts go to the top 1% is a bit misleading. You need to look at ALL cuts offered by the current administration... not just one year.

[longwoodklon]

I have some comments and some questions, it seems like we have some accountants on this thread so I'll shoot away.

(I can't figure out how to quote, so bear with me)
1) DJ posted: "The top 1% pay 37% of the income taxes paid. The lowest paid 50% pay less than 4% of the income taxes paid."
-- I believe you 100%. But how much of the U.S. is owned by the top 1%, that is the real question. I have heard crazy numbers like 80% of all assets are owned by the top 1%. But whatever the number is, this is needed to fully understand the situation because its all relative.
Example: If you win the $60million lotto and you friend doesn't. At the end of the year, if you paid $6 million in taxes and your friend who has a good job making $100k/year paid $10k. Both of you are paying a flat rate of 10% in taxes, but you are paying 600x more . Put another way, between the 2 of you, you pay 99.8% of the total taxes collected and your friend only 0.2%. But you are making so much more, this is expected. Percentages can be very misleading and both sides of an argument can twist them to support their claims, that's why I look at them very cautiously.
-- Or am I looking at this all wrong?

2) Rlockyer posted:
"2001 - $10,000,000.00 = $3,882,042.90
2002 - $10,000,000.00 = $3,817,249.20 Paid 98.33% of 2001 tax
2003 - $10,000,000.00 = $3,475,206.50 Paid 89.52% of 2001 tax"
-- This begs the question, how do rich people make there money? They don't collect a paycheck like most middle income families, they ARE the paycheck. And for that they deserve a lot of respect, that's part of the American dream. But I suspect that what they report on their income tax statement and what they actually make, are 2 entirely different things. Heck, during the CA governor race, Adrianna Huffington bragged about paying $0 in taxes.
-- The point is, there are plenty of loopholes and tax shelters for the independently wealthy. So although on paper they may look to be paying a slightly higher marginal tax rate, if you look at the whole picture I'll bet it is nowhere near that amount. Anyone have any numbers to back up my hypothesis?


3) Interesting Jack Kemps name was brought up, I have seen some interviews with him and surprisingly enough, do think he has a lot of good ideas. When he talks of wealth, he readily admits that you will NEVER become wealthy working a 9 to 5. It's is investing and taking risk that makes you wealthy. Problem is, most middle class people are having a hard time making ends meet just paying essential living expenses. And that is with BOTH husband and wife working. I don't know what the solution is, but this seems to me to be a very bad trend.

/Mike

[DJ]

Originally Posted by longwoodklon

...

How do rich people make there money? They don't collect a paycheck like most middle income families, they ARE the paycheck.

...

Interesting Jack Kemps name was brought up, I have seen some interviews with him and surprisingly enough, do think he has a lot of good ideas. When he talks of wealth, he readily admits that you will NEVER become wealthy working a 9 to 5. It's is investing and taking risk that makes you wealthy.

...

Another viewpoint is, if you want to work, do you ask a poor person for a job?

A quote I've long used, although don't remember its source, is, "If you want to be wealthy, then use your power of choice wisely." The easiest way to remain "unwealthy" is to repeatedly make really stupid decisions.

Jack is not quite right in his statement. I don't claim to be wealthy, but I retired at 48 after working a "9 to 5" for 26 years. Yes, investing made it possible, but the "9 to 5" provided what was invested.

[H2O_MAN]

Bush is working with a broken system that needs to be replaced.
It can not be repaired - it FUBAR.

This looks like the best solution available.

The FairTax offers long-needed tax relief to all Americans, while eliminating the income tax and allowing Americans to keep 100% of their paychecks. The FairTax is the only tax reform proposal that "untaxes" the poor and allows wage earners to keep 100% of their paycheck while still funding all existing government programs.

[longwoodklon]

Well I wouldn't ask a poor person for a job, but most jobs are actually created at the small business level. These are not the $1million/year wage earners, like I am assuming constitutes the top 1% of wealth. So the question is still, how much of the U.S. is owned by the top 1%?