Taxation -- a different look

Muggaz wrote an article "Real rich people figure out how to dodge taxes," – Bush. Both the article and the responses are interesting, but the focus from the start was on personalities... the extent to which a President or a Congressman or a rich person or a Democrat is to blame. That "personal blame" slant is implicit in the original topic.

I am more interested in the basic tax issues lurking in the background. Baker Street addresses those issues thus:

for every dollar up to $311,101 you are taxed roughly 28%. Then, for every dollar thereafter you are taxed 35%... that is your private income. What you and others seem to be ignorant of, is that this money was taxed ALREADY when it was considered the income of your BUSINESS. If your business has previously re-invested its profits, those profits are taxed... and on, and on, and on...

Your business makes a profit, and the government taxes it.
Then, you take your cut and the government taxes it up to 35%, AGAIN, as your personal income.
Then, whatever you invested that money into is subject to capital gains and dividend taxes.
Then, your state steps in and starts the whole process over again, AT THE BUSINESS LEVEL
If you have anything left for "luxury items", you pay a special tax on that as well.
When the time comes to pay property tax on all that luxury, you are again taxed at a punitive rate.
This kind of taxation is egregious, and doesn't even take into consideration the host of other idiotic taxes our income goes to AFTER we have paid state and local taxes. Take a look at your phone/utility bill sometime. That is money going to taxes that has already been taxed at least two or three times.

Take Social Security, for instance. Your income is taxed before Social Security and other witholding. Then, when you take advantage of these benefits you paid in, it is taxable income...again. You have paid tax on your Social Security witholding twice. Then, when you spend it you'll pay whatever utility/sales/whatever taxes they can trump up to bite again.

People like Dave love to take a single step out of the tax system in the US and pretend that is that. If you want to pretend that the wealthy pay their 35% and are free from thereon, fine, but don't bludugeon me with your blindness and intolerably bad haiku. You can't dispute the fact that the "wealthy" in the US pay the lion's share of taxes, and you can only choose not to see that their tax burden is *vastly* greater than your grossly understated 27%, even if they take advantage of "loopholes".

I believe that I would be fair in isolating two separate tax issues here:

1) How much total tax should government be taking?<br>
I doubt that we can happily agree on a number here on this website.

However, I would urge people of all political bents to remember the goals: to "establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity."

Before we get all worked up over someone taking our[b] money, we would do well to remember the enormity of the goals that the government is charged with pursuing. Liberals are all too quick to see the money going for defence as money stolen from their pockets. Conservatives are all too quick to see the money going for the general Welfare as money stolen from their pockets.

The weighting of these goals, and the evaluation of the quality with which our government pursues these goals are both perpetual political concerns, to be worked out at the voting booth. However, it is nothing but self-centered propaganda to pretend that our money is being stolen -- we are buying a mass of valuable services. Our form of government assures that we, the people, decide collectively on the way that the money is spent for the collective good.

Only the most radical individualist can claim that this is an affront to personal rights. The American Revolution was not, as written in another thread, fought to free us from taxation. It was fought to free us from taxation [b]without representation, and that is a crucial distinction.

If you wish to battle to improve the quality of democratic representation, then I am on your side. I despair at the decline in popular involvement in the issues. But if you are only arguing that our armed forces, transportation infrastructure, law enforcement, and all the rest of it should simply be supplied to you free because you want it that way, then you and I must part company.

The United States is the greatest country on earth, and we American citizens are truly blessed, so I guess that our money might be purchasing us something. So, as a starter, we really have to set aside this idea that any money collected in taxes is wrongful. Further, the total amount is determined democratically, which makes it legitimate (but not permanent -- no problem with a democratic decision to raise or lower that amount). With this in mind, there remains no area to excuse someone from paying their taxes because "they don't believe in them." From where does anyone extract the right to have justice, tranquility, defence, general welfare, and liberty delivered at a self determined discount?

So I argue that there is an amount of money out there that is determined democratically, and that amount of money is legitimately raised by government. But there is an important point to be added, and it is one that I think Baker Street spends undue time battling: Truly, it is irrelevant whether this amount of money is assessed all in one place, or spread out over many taxes.

Put it this way. If the government is to collect $X this year, the legitimacy of that assessment is not affected a bit by whether the money is assessed all in an income tax, or whether it is spread out over income tax, sales tax, luxury tax, etc.

It is my observation that people can get tied up into knots looking at their own personal situations and analyzing for perceived injustices:
* I earned the money and was taxed. Then I invested part of the money and was taxed again. "I've been double taxed!!!"
* I run a business, and the business's profit is taxed. The business pays me a salary, and the salary is taxed. "I've been double taxed!!!"
* A corporation makes capital gains, which are taxed, cutting the effective gain. As a stock holder, I earn from the corportation's capital gains, but then I am taxed on this earning. "Double tax!!!"

No matter how the taxation is done, someone (actually most people) will be able to analyze such an injustice in their situation. What people don't like to face is that, if the "double tax" didn't exist, the "single tax" would have to be higher. The total amount of money has to be raised, and we need to recognize as childish the wish that we be able to turn over the brunt of this to others (while keeping a full portion of justice, tranquility, defence, general welfare, and liberty, of course).

2) How should the taxation to raise that amount of money be distributed over the population?

Truly, this is the crux of the matter, and it is the starting point of the other thread. My main point in this article is to show that this is truly a separate matter from issue #1. All too many discussion of what is fair in distributing tax just deteriorate into a debate over the above issues.

One of our country's main problems in distributing taxation is that we continually mix purposes. We try to achieve some measure of fairness, while also trying to use the tax code, particularly the income tax, to encourage certain behaviors. Depending on your political bent, you are probably enthusiastic about encouraging private individuals and corporations to favor: charity, domestic jobs, renewable sources of energy, marriage, and house ownership. There are thousands upon thousands of these things!

A government has every right to encourage things that promote the popular will of the people. However, every time you "encourage" something by using the tax code, you alter the distribution of taxes. In effect, you are transferring taxes to those people who are not in a position to take the particular action you are encouraging.

Since most ordinary people are not in a position to take most of the actions being encouraged by the tax code, most ordinary people see their share of the taxation load rise, as a cost of these tax breaks. This is the main issue in the distribution of taxation across the population, then. Do we want to continue to use taxation as a method of promoting "desirable" behaviors? Honestly, you cannot pick and choose your tax breaks -- the use of the tax code for such purposes will inevitably lead to these results.

However, we get a lot of obfuscating from all sides. People who should know better walk around claiming that the rich (or the poor, depending on the person's side of the political fence) don't pay any appreciable amount of taxes at all. That's just silly. What such speakers fail to mention is that they are talking only about specific kinds of taxes, typically income taxes. This overlooks the existence of property taxes, sales taxes, and all the rest.

I am not trying to say that the burden is now at the correct level for any particular part of the population, only that demagogues on both sides work hard to distort the overall picture, to the point that no one can ever be mollified.

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I think a major part of the problem is that there is too much "general welfare" spending at the federal level. Most federal spending isn't for roads, schools, police, or the military. The majority of the federal budget is used to pay someone's living expenses or medical bills.

The federal government can borrow money perpetually, and this continous borrowing to pay for huge "general welfare" programs has created our enormous national debt.

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this continous borrowing to pay for huge "general welfare" programs has created our enormous national debt.

One can compare government expenditures to government income and measure the shortfall. It is only a matter of opinion, however, which part of the expenditures is to blame.

The majority of the federal budget is used to pay someone's living expenses or medical bills.

Well, those are two of the major areas of expenditure. The total picture is this:

Looking here: Link at estimates for 2004, we find:
$453 billion for national defense
$87 billion for education, training, employment, and social services
$496 billion for social security
$243 billion for health
$270 billion for Medicare
$156 billion for interest

All of this gets extremely murky, however, because the placement of expenses in the budget can be judgment calls, at best. For example, spending on defense is greater than it looks because the number given only refers to spending by the Defense Department. However, several other departments also spend money on defense.

Link

That is just a sample. The same is undoubtedly true about, say, health, or training.

Other items require a philosopher to place into context. The spending on Social Security is not quite like spending on defense or health, because it is part of a social contract nearly three-quarters of a century old whereby today's workers pay the retirement costs of today's retirees, in return for the assurance, such as it is, that the same will someday be done for them. However, this is a part of the total taxation on the individual -- although one with a much more personal benefit.

It is probably true that any area of government expenditure could be cut if efficiency were the #1 goal, and this fact certainly fuels the tax cutting faction, though, of course, the liberals like to dwell on the military's less useful weapons systems, while conservatives prefer to dwell on money to feed and house able bodied slackers.

The trouble is most people only wish this efficiency on others. When federal money is being wasted in your home town, it looks a lot more like the congressman is doing his job in supporting the needs of the community -- not a ridiculous point of view.

After all, even the most wasted of money -- cash handed out to the lazy -- is very quickly spent, much to the pleasure of the local businesses.

Which makes for the final, crowning touch on the complexities in analyzing the budget. It is fun to think that if we lopped a billion off here and a billion off there, we could just add up the savings. However, it is not so simple. Many other expenses would rise as a result of those cuts (try cutting law enforcement, if you want a dramatic example) so the arithmetic is extremely difficult.

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