Because my father is in the hospital, I did his taxes last week. As a result, I am still finishing up my own return, which has put me in a mood to discuss the American tax system, in none too kind a sentiment. Basically I believe, as I understand most people do, that the system we have in place is inconsistent, inequitable, and simply fails in its most important functions. The questions of course are to find a better system, and then find a way to commit Congress to adopting that improvement.
There are essentially five ways in which a government can produce revenue through taxation. The government may apply a tax to the general population in some manner, it may tax consumption, it may tax foreign investment, it may tax the presumably wealthy and the acquisition of luxury items, and it may tax corporate wealth. The United States does all of these things. The average person pays taxes on his income, his home and automobile(s), pays sales tax on his purchases, pays additional tax on gasoline and “luxury” items, pays Social Security and Medicare, and gets less from his employer than he might because his employer is forced to pay Social Security and Medicare, as well as a variety of corporate taxes. If our man saves any money and invests it, he then has to pay taxes on any interest or profit from it. And most of that is Federal tax; we have not touched State, County, and Local taxes except for the property tax and license fees. There are tolls to pay on some roads, additional sales tax for all sorts of things, and additional fees for basic services, like water, sewer, trash pick-up and so on. Assuming our man has electricity, there are additional taxes and fees included in his statement, and the same for his phone service, his cable TV and/or satellite, and additional charges when he gets rid of his old tires, batteries, and motor oil. Small wonder the average American feels overtaxed; there are fees and charges hidden in just about everything.
This is just stupid. What I mean is, not only do I disagree with the present method, but the way the system works is sure to anger the taxpayers, regardless of their situation. Consider the Income Tax filing, for example. If a taxpayer finishes his form and discovers he owes money, he is angry at having paid taxes all year, and now is being told to pay still more. But if he has overpaid and is due a refund, the taxpayer will be unhappy that the government has taken too much of his money, and he has to ask for his own money back, money which he could have spent or invested earlier, but the government took too much. The 1040 Form is difficult to fill out, especially with the implied threat of penalty even if an honest mistake is made. All in all, the system is very poorly presented, and the whole manner very inefficient and punitive. It allows too many loopholes, yet at the same time punishes too many regular people. It is highly unlikely that any two people find themselves in the exact same tax condition, which further creates the impression that the system is inconstant and arbitrary, that someone who knows how to play with numbers is allowed to cheat while someone trying to pay his fair share gets taken for a sucker. Worse, the IRS has recently had to admit that its own telephone counselors sometimes give out the wrong advice, yet they still penalize the taxpayer for the error.
This only adds to the contempt the average American must feel for the tax agency. Then there is the tax rate. The U.S. Income Tax system uses a graduated tax rate scale, meaning that the percentage tax you must pay rises as your income rises. As Rush reminds us, the top half of wage earners pay 96.03% of all income taxes, which means that as you work harder and get your well-deserved promotions, the government will take more and more of your paycheck. Add to that the taxes paid on investments, capital gains, interest, and so on, and what you have is a clear disincentive to save or state your earnings.
Stupid, stupid, stupid.
It’s no wonder that every corporation of significant size and every individual of significant worth hires as good a tax attorney as he can find, to protect what he has. And this in turn angers the Middle Class taxpayer. He knows he is paying taxes which the poor escape, yet he feels he is paying a larger share than the rich, whom he believes use lawyers to skate from heavy taxes. So at every level, the taxpayer feels he is improperly burdened by the system. That’s not the best way to collect revenue, making your citizens feel that they are being played for suckers.
The Federal Budget being sorted out by Congress right now is an estimated $2.77 Trillion dollars.
Given the estimated 143.6 million working people in the United States, that works out to $19,289.69 per working person. That’s, uh, just your Federal tax tab for this year. Feel rich? It may surprise people to see the average so high, because most people don’t notice how much their employers have to pay, and how much more gets handled through bonds and the like. And, ahem, because the Federal government has been quite willing to spend money it does not have, and knows it will not produce. It seems to me that one necessary change in the allocation of Federal monies should be, that no member of the House, Senate, Judiciary or White House should receive a penny of money until and unless all other federal apportionments have been made, and then paid only from remaining balances, not allowing for any deficit spending for their paychecks. That would spur interest in a balanced budget, I believe.