We are living in American where nearly 1/2 of the country lives off the benefits provided by the other half:
NEW YORK (CNNMoney.com) — Most people think they pay too much to Uncle Sam, but for some people it simply is not true.
In 2009, roughly 47% of households, or 71 million, will not owe any federal income tax, according to estimates by the nonpartisan Tax Policy Center.
Some in that group will even get additional money from the government because they qualify for refundable tax breaks.
The ranks of those whose major federal tax burdens net out at zero — or less — is on the rise. The center’s original 2009 estimate was 38%. That was before enactment in February of the $787 billion economic recovery package, which included a host of new or expanded tax breaks.
The issue doesn’t get a lot of attention even as lawmakers debate how to pay for policy initiatives like health reform, whether to extend the Bush tax cuts and how to reduce the deficit.
The vast majority of households making up to $30,000 fall into the category, as do nearly half of all households making between $30,000 and $40,000.
As you move up the income scale the percentages drop.
Nearly 22% of those making between $50,000 and $75,000 end up with no federal income tax liability or negative liability as do 9% of households with incomes between $75,000 and $100,000.
As the article points out, these numbers do not tell the full story because they don’t take into account other forms of taxation such as the Social Security Payroll Tax. Nonetheless, there are some serious policy implications for numbers like these:
If asked to vote up or down on whether they are comfortable with such a large group of voters contributing no federal income tax or payroll tax revenue, the majority may well decide it is appropriate given the means of the households involved. Or they may decide that it’s not.
Either way, that decision should inform the debate about the many costly policies and deficit-reduction strategies that lawmakers will be grappling with for years to come.
“As the number [of nonpayers] becomes larger, we have to question whether we’ll make good decisions about how to allocate resources,” economist George Zodrow, a professor at Rice University. “Most people don’t understand how skewed the tax distribution is.”
Experts say that to pay for all the things on the country’s growing tab, the money can’t just come from a shrunken pool of taxpayers.
Once the American people realize that “soak the rich” isn’t going to pay for all the things they claim they want from government, it’s entirely possible that they’ll decide that maybe the state doesn’t need to be as intrusive as it’s become over the years.
Or, more likely, the soon to be 60% of those who don’t pay taxes will use majoritarian tyranny (what the democrats so fondly refer to as democracy) to make sure that hose of us who do are robbed to an even greater degree.
Truth be told, this country is becoming dependent, not on the government, but the rich. If just 1/2 of 1% of the top income earners quit this country for just one year, the US is screwed!
I hope they screw us and show the moochers who they are REALLY willingly giving the power to screw them.
Just one year, please rich people, go “John Gault.”
Society fractures and destablizes as the cycle of dependency grows; for the sake of our future everybody (the 90 percent who are able at least) should have a stake in the game. This is not a matter of raising revenue or fairness; it’s a question of responsibility, and unification of purpose and vision. Our country is becoming sanctuary of whiners instead of an incubator of winners. We are lost.
I am a little confused about tax policy. It’s a complicated, almost Rube Goldberg-like system of tax rates on various forms of income, deductions, depreciation, etc. with loopholes (as it were) and social and environmental policy inducements and punishments.
I presume the commenters here are of the opinion that this is not a “fair” tax system. Some benefit from taxes that they don’t pay. I assume that they are also put off by those who pay taxes and don’t benefit (such as the taxes going to school systems when they don’t have children).
So, to be practical, all histronics aside, what is a fair tax for someone?
Is it a flat tax on all income, no deductions, no loopholes, people and businesses taxed the same, since under the supposed Supreme Court ruling corporations have rights under the Constitution?
Is it a consumption tax, based on any/all purchases by anyone and all corporations?
Is it a graduated tax, varying based on
the amount of income,
the source of income (investment income taxed differently than wages taxes differently than inheritance taxed different than gambling taxed differently than retirement accounts taxed differently than gifts, etc.)
the time-frame of income
the use of the income (deductions for residence mortgage interest, health insurance premiums, state or local tax payment deductions)
etc?
Is there an income level under which taxes would be a life-affecting burden, i.e., poverty level?
Any comments on these practical questions?
I hope you’re right about the consequences, but I doubt it.
It’s simply not healthy for a country with a republican (note the little “r”) form of government to have a tax system in which the burden is borne by a small percentage of the population.
Robert,
The last time there was any real tax simplification was during the Reagan administration.
The “fair” system that we now have is killing us by a thousand cuts.
You say you raise practical questions but you don’t touch on economic issues, which is a sad commentary on how far out of touch the debate has become.
We need to stop viewing the tax system as the source of healing for all ills real or perceived.
I say this as someone who grew up in a household where the adults became unemployed and we were evicted from our home. When the unemployment benefits ran out, my parents walked down the street and begged for jobs until they were hired for minimum wage. As a teenager I became solely responsible for my expenses. I understood college wasn’t going to happen unless I figured out a way to swing it.
In fits and starts we worked are way out of the hole and up the economic ladder brick by brick and led happy productive lives. What enabled this was hard work and opportunity — not fair taxes.
Cheers,
LBF
@LBF:
So no offers or thoughts of a solution or even a broad summary of what tax system should be, as opposed to plenty of complaints of the current system.
This post was about the tax system, not economics, and while you could make a claim that the two are inextricably linked, this post was focused on the current tax system.
Fairness, however you define it, is however *you* define it. What fair means may and does differ from person to person.
Fair might mean:
each puts in a portion based on pure income, so that there is no “punishment” for earning more
each puts in a representative amount based on the benefits they obtain from the use of taxes
Some questions are evident, based on experience in the current tax system:
Is there a poverty level?
are there deductions used for inducing social/economic impact to American society?
So, since taxes are a burden on people, and burden is the pejorative choice of word here, what’s the appropriate (i.e., minimum) level of burden required? And how should it be calculated?
If there were a flat tax (or perhaps even a moderate progressive tax) on *all* income, regardless of source, for people and businesses, with *no* deductions, then the free market would rule in encouraging all kinds of progress. Businesses could be started that would be rewarded, not on those programs encouraged by the government and the lobbying groups of social, environmental, or economic engineering, but on the customers deciding what to reward with their money.
Money coming in, X %rate tax = taxes owed.
3 lines, some supporting forms to substantiate the income, and boom. Done.
Of course that puts whole industries out of business and closes down 99% of the IRS. Tax lawyers, tax filers, and all the support industries for the complicated tax system we have now go bye-bye, and have to find new jobs and careers…but then the economy opens up a ton of new avenues for career based on the boom of growth the free market will open.
So work from that..take out what’s wrong, expand on what’s right and at least it’s something to start with.
Robert
The fairest system, would of course be, you pay individually for the services that you use.
Of course, that’ll never fly.
Simple is better than complex.
Policy neutral is better than imposing policy. If you really want to subsidize something, make it very clear what you are doing so by giving an outright gvt grant so the population at large who is being taxed has a chance to understand and an opportunity to voice yea or nay. Don’t trick, game and deceive by burying in the tax code. (I would rid the system of the home mortgage interest deduction, the most sacred of all IRS sacred cows).
Double taxation is bad.
Tis better to tax consumption than factors of production. If factors of production are taxed, nevertheless, then don’t distort and limit economic well-being by disproportionately taxing one factor of production compared to the other.
Moderately progressive is fine. If the system is sharply progressive it will be undermined in any event by gaming and/or moving people, income or assets out of Dodge.
Have clear links between the tax and what the tax is supporting (this affects what tax structures are most sensible, many excise and local taxes are in the nature of user fees).
When taxes are collected for a particular purpose (e.g., FICA) the receipts should be used for said purposes and invested if intended for future use instead of going into the general fund.
Three lines or something much like it works for me for wage earners — can’t work for businesses because expenses need to be deducted (consider a grocery store for example which notoriously have low margins, like 2 percent).