Or
lies, damn lies and statistics
There’s a specious argument being used to push for changes
to the tax code so that more people – read poor people – pay more tax and it
also used against calls for higher marginal tax rates. It’s the fact that almost 50% of people in
the US
don’t pay federal income tax. The
problem is that too often some important facts are not mentioned.
Some of those people not paying federal income tax are rich enough
that they can exploit the tax code. For
example, billionaires whose income is classified as carried interest so they
pay no federal tax on it. I don’t see
any proposals to tax these people.
But most of the people who don’t pay federal income tax are
too poor to reach the lowest threshold required to pay. You know, people who don’t earn enough to
make ends meet so they pay no federal income tax. But they still pay FICA. Since you asked, no, you don’t pay FICA on
carried interest.
Then there is the really big thing that no one seems to want
to talk about – when the modern income tax began ONLY THE RICH WERE SUPPOSED TO
PAY FEDERAL INCOME TAX. You might see
comments about how everyone was covered and the lowest rate was 1% up to
$20,000 of income. That’s true, but it’s
also true that the personal exemptions were designed so that the average person
would pay no income tax at all. In 1913
the personal deduction was $3,000 but the average income was only $800.
When it started most people did not pay federal income
tax. Adjusted for inflation the personal
exemption would be over $60,000 today.
The poor and middle class were exempt because they couldn’t
afford the tax and because they drove the economy. Keeping money in the hands of the average
American meant they might not starve or be homeless and they could also buy the
products that American businesses manufactured.
On the other hand, the rich could afford to pay income tax because they
had a surplus of disposable income. That
hasn’t changed, and while it could be argued that more people in the middle
class should be paying taxes now than there were a hundred years ago, shouldn’t
there have been a better adjustment in the personal deduction, and should there
be billionaires who pay nothing?
When someone tells you that half of all Americans don’t pay
taxes remember the history, and be sure to take a very close look at what they
think needs to be done about it. See how
much their plan asks of the poor and how much of the rich. Then check to see how much more money will
come out of your own pocket, and how much out of the pockets of millionaires.
1 comment:
The subprime mortgage fiasco taught a very valuable lesson to the lower- and middle-class. That lesson, distilled and condensed, is that most wealthy people are willing and able to intentionally poison the system so long as they think they will be able to get their money out before the system collapses. Wealth concentration at the top of the populace presents a similar dilemma: if the super rich hoard enough wealth, there will be a drastic societal backlash which will likely overcompensate for the greed of the wealthy. It will be a necessary but unpleasant time for everyone involved, and the wealthy will be vilified in the same way as the investment bankers of 2008. The wealthy would be better off as a group if they reduced their greed to a sustainable level, but the individuals who make up the wealthy class all believe that they can squeeze a few more dimes out of the lower class before it becomes unbearable. Therefore, these oppressive taxes are almost a welcome sign in my opinion, as it would be easier at this point to hasten the bursting of the "wealth bubble" than it would be to try to rectify the situation as it is.
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