Today I read a pretty interesting article from The American that analyzed some of Senator Obama's plans for new tax policy. There's a lot of technical tax code stuff like "phase in" and "phase out" and whatnot, but there is one particular bit that hit home with me:
"Although Obama is offering a new series of tax breaks, they undermine rather than improve economic incentives. First, whether or not you get those breaks will depend on your income. In Washington, taking away tax breaks as families work harder to make more money is called a "phase-out." Economists have a different name for it—we call it a tax. Reducing a person's tax credit as his income goes up also reduces his incentive to earn more income."
That last sentence in particular is pretty powerful. The typical conservative mentality, to which I subscribe, is that certain taxes are necessary to help the government do what it is bound by in the Constitution, but having people pay more taxes than their fair share is wrong. If you earn more money in today's society, you generally pay more taxes. Sure, there are tax breaks that the wealthy can get, but the general trend is: you make more, you pay more. Politicians like to make it seem "fair" that way.
But how does that fit into the psychology of the average American worker? Let's say you are on the cusp of breaking into a new tax bracket. You won't necessarily be paying a whole lot more in taxes (which might not be true because of the AMT and other taxes, but let's just stick with the standard federal tax schedules) because you're actually taxed on your last dollar earned, but you may feel like you're paying a lot more if you're put into the higher bracket. It's all about incentives.
What is a fair share? A lot of people say "If you earn more money, then you should have more money to contribute." That's a fair assessment, but that is assuming you have the same cost of living as those who earn less. Let's say you earn $1,000,000 per year before taxes. You probably live in a nicer home and in a nicer area than some one earning $50,000. That is also an assumption, but it is also more realistic. "Nicer" areas tend to be more expensive with cost of living, as they typically involve higher property taxes, food cost, etc. Nicer homes also cost more to maintain, and you don't get to deduct all of those expenses off your taxable income. Sure, you can deduct mortgage interest payments, but that's not a tax credit, so you are still paying a bit more than others.
But, it is still true that, in total dollars, wealthy people have more money to set aside. But is it fair for them to have to give that money to the government just because they earned it? The top earners pay nearly 50% of their income in taxes. There are many Americans who pay virtually nothing.
There is a legitimate concern when it comes to charity. People with money should give what money they can to help the needy. But is that legally binding? Who says all of that money goes to help the needy? Just look at the U.S.'s biggest spending items: defense and healthcare. Sure, health care does involve a tremendous amount of spending on those who cannot afford the care, so there is some charity in there. But should a millionaire be spending more on a gun for a Marine than some one earning $50,000?
And aren't there plenty of private charities who do a whole lot better at helping the needy than the Federal Government? Shouldn't people be allowed to free up some of their tax payments to give money to them? You should not legislate for mandatory charity. People with money often donate, and they're often smart enough to find the best charities. Think of it like a free market for charities.
Here comes the reality check: there are far fewer wealthy people than middle and low income people. It comes down to votes. If you are a politician who seemingly favors the rich, you may get their vote and economic support, but you may still end up losing to your opponent who wins over the majority. There's nothing wrong with that politically; it's a simple game of numbers. That's where "fairness" is lost.
Personally, I agree with the late Barry Goldwater: every one should pay the same percentage of their income. If the Federal government can't afford that, maybe they should watch how they spend their money. A lot of people talk about the "Fair Tax" and the "Flat Tax." These are programs designed to make it fairer for higher income earners to pay more equivalent taxes when compared to lower income earners. Both of these programs have issues, but both have the right idea.
It just doesn't seem right to say "America needs to progress," but have a tax plan that punishes those who earn more. Compelling people to be charitable is not fair, and isn't charitable. I don't have an answer to this, but I'm sure some genius economist will come up with something. I hope.
"Although Obama is offering a new series of tax breaks, they undermine rather than improve economic incentives. First, whether or not you get those breaks will depend on your income. In Washington, taking away tax breaks as families work harder to make more money is called a "phase-out." Economists have a different name for it—we call it a tax. Reducing a person's tax credit as his income goes up also reduces his incentive to earn more income."
That last sentence in particular is pretty powerful. The typical conservative mentality, to which I subscribe, is that certain taxes are necessary to help the government do what it is bound by in the Constitution, but having people pay more taxes than their fair share is wrong. If you earn more money in today's society, you generally pay more taxes. Sure, there are tax breaks that the wealthy can get, but the general trend is: you make more, you pay more. Politicians like to make it seem "fair" that way.
But how does that fit into the psychology of the average American worker? Let's say you are on the cusp of breaking into a new tax bracket. You won't necessarily be paying a whole lot more in taxes (which might not be true because of the AMT and other taxes, but let's just stick with the standard federal tax schedules) because you're actually taxed on your last dollar earned, but you may feel like you're paying a lot more if you're put into the higher bracket. It's all about incentives.
What is a fair share? A lot of people say "If you earn more money, then you should have more money to contribute." That's a fair assessment, but that is assuming you have the same cost of living as those who earn less. Let's say you earn $1,000,000 per year before taxes. You probably live in a nicer home and in a nicer area than some one earning $50,000. That is also an assumption, but it is also more realistic. "Nicer" areas tend to be more expensive with cost of living, as they typically involve higher property taxes, food cost, etc. Nicer homes also cost more to maintain, and you don't get to deduct all of those expenses off your taxable income. Sure, you can deduct mortgage interest payments, but that's not a tax credit, so you are still paying a bit more than others.
But, it is still true that, in total dollars, wealthy people have more money to set aside. But is it fair for them to have to give that money to the government just because they earned it? The top earners pay nearly 50% of their income in taxes. There are many Americans who pay virtually nothing.
There is a legitimate concern when it comes to charity. People with money should give what money they can to help the needy. But is that legally binding? Who says all of that money goes to help the needy? Just look at the U.S.'s biggest spending items: defense and healthcare. Sure, health care does involve a tremendous amount of spending on those who cannot afford the care, so there is some charity in there. But should a millionaire be spending more on a gun for a Marine than some one earning $50,000?
And aren't there plenty of private charities who do a whole lot better at helping the needy than the Federal Government? Shouldn't people be allowed to free up some of their tax payments to give money to them? You should not legislate for mandatory charity. People with money often donate, and they're often smart enough to find the best charities. Think of it like a free market for charities.
Here comes the reality check: there are far fewer wealthy people than middle and low income people. It comes down to votes. If you are a politician who seemingly favors the rich, you may get their vote and economic support, but you may still end up losing to your opponent who wins over the majority. There's nothing wrong with that politically; it's a simple game of numbers. That's where "fairness" is lost.
Personally, I agree with the late Barry Goldwater: every one should pay the same percentage of their income. If the Federal government can't afford that, maybe they should watch how they spend their money. A lot of people talk about the "Fair Tax" and the "Flat Tax." These are programs designed to make it fairer for higher income earners to pay more equivalent taxes when compared to lower income earners. Both of these programs have issues, but both have the right idea.
It just doesn't seem right to say "America needs to progress," but have a tax plan that punishes those who earn more. Compelling people to be charitable is not fair, and isn't charitable. I don't have an answer to this, but I'm sure some genius economist will come up with something. I hope.
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