Federal Taxes
Author's Note--There's much too much to say about taxes to put into one post, so I'll break this up into several related posts. I'll start today with the basic idea of progressive taxation; tomorrow I'll discuss conservative proposals to simplify the tax system, then go on to social security
If there's one thing that liberals have been beaten about the head and ears with in election after election, it's that we're the philosophy of high taxes. As with all good insults, there's a grain of truth there--but not as much as is commonly assumed.
First of all, there's a key quesion which isn't commonly addressed--"as opposed to what?" That is, if you aren't in favor of raising taxes in the current situation, what are you in favor of? The usual conservative response is "cutting the size of government," but we haven't seen any sign of the current government doing that, despite nominal conservatives controlling both houses of Congress and the presidency. If you're in favor of increasing the deficit instead (which is what's happened so far under the tax cuts favored by Mr. Bush), how do you forsee returning the budget to balance? Or do you forsee doing so? (The current plan for "cutting the defict in half" requires that Congress not make the most recent tax cuts permanent. Since that doesn't seem to be what the President intends, what is the alternate plan?)
The federal government is principally financed through two taxes: the federal income tax, which is progressive (that is, tax rates increase with income), and a Social Security Tax (also called the "self-employment tax" when freelancers pay it) which is flat (it's the same rate no matter your income).
The progressive nature of the federal income tax is frequently misunderstood. Income is taxed at different rates depending how much income a person makes--the first seven thousand dollars that a single person made in 2003 was taxed at 10%, the next $21,400 at 15%, then 25% up to $68,800, 28% up to $143,500, and so forth. The problem is that people tend to speak as though they were in the tax brackets--so a person getting a raise from $68,000 to $69,000 often will say, "I'm in the 28% bracket now," as though they previously paid 25% on their entire income (that is, 25% of $68,000) and now pay 28% of $69,000.
That's not how the tax code works. At $68,000 of taxable income, you pay 10% of $7,000 ($700), 15% of $21,400 ($3,210), and 25% of $39,600 ($9,900), for a total tax bill of $13,810 (I'm neglecting exemptions and deductions here, for simplicity). This would be an overall tax rate of 20.3% (again, neglecting deductions and exemptions). At $69,000, you pay an extra $800 at 25% ($200) and an extra $200 at 28% ($56), for a total tax bill of $14,066, and an overall tax rate of 20.4%.
Conservatives frequently attack the progressive tax structure as "unfair," becuase it taxes higher-income people at a higher rate than lower-income people. Liberals (this author included) tend to favor progressive taxation, on the theory that it correctly reflects how much a person can afford to pay taxes. The first portion of anyone's income--rich or poor--can be thought of as going to essentials--food, clothing, and shelter. The difference between $17,000 and $18,000 in income is how many meals a family can afford to eat. The difference between $68,000 and $69,000 is a certain amount of comfort. The difference between $300,000 and $301,000 is nearly irrelevant.
Are there problems with progressive taxation? Yes--there are three. First, if a person holds a lot of different jobs, witholding the correct amount of money from a paycheck becomes tricky; unless one is organized it's easy to withold too little. Secondly, it tends to lead some people to treat the wealthy as an endless conucopia of tax money. This can lead to a lack of concern for what government programs cost, which in turn leads to bad policy. Finally, it tends to lead to a complex system of taxation, which gives rise to a lot of "gamesmanship" by people and corporations.
If there's one thing that liberals have been beaten about the head and ears with in election after election, it's that we're the philosophy of high taxes. As with all good insults, there's a grain of truth there--but not as much as is commonly assumed.
First of all, there's a key quesion which isn't commonly addressed--"as opposed to what?" That is, if you aren't in favor of raising taxes in the current situation, what are you in favor of? The usual conservative response is "cutting the size of government," but we haven't seen any sign of the current government doing that, despite nominal conservatives controlling both houses of Congress and the presidency. If you're in favor of increasing the deficit instead (which is what's happened so far under the tax cuts favored by Mr. Bush), how do you forsee returning the budget to balance? Or do you forsee doing so? (The current plan for "cutting the defict in half" requires that Congress not make the most recent tax cuts permanent. Since that doesn't seem to be what the President intends, what is the alternate plan?)
The federal government is principally financed through two taxes: the federal income tax, which is progressive (that is, tax rates increase with income), and a Social Security Tax (also called the "self-employment tax" when freelancers pay it) which is flat (it's the same rate no matter your income).
The progressive nature of the federal income tax is frequently misunderstood. Income is taxed at different rates depending how much income a person makes--the first seven thousand dollars that a single person made in 2003 was taxed at 10%, the next $21,400 at 15%, then 25% up to $68,800, 28% up to $143,500, and so forth. The problem is that people tend to speak as though they were in the tax brackets--so a person getting a raise from $68,000 to $69,000 often will say, "I'm in the 28% bracket now," as though they previously paid 25% on their entire income (that is, 25% of $68,000) and now pay 28% of $69,000.
That's not how the tax code works. At $68,000 of taxable income, you pay 10% of $7,000 ($700), 15% of $21,400 ($3,210), and 25% of $39,600 ($9,900), for a total tax bill of $13,810 (I'm neglecting exemptions and deductions here, for simplicity). This would be an overall tax rate of 20.3% (again, neglecting deductions and exemptions). At $69,000, you pay an extra $800 at 25% ($200) and an extra $200 at 28% ($56), for a total tax bill of $14,066, and an overall tax rate of 20.4%.
Conservatives frequently attack the progressive tax structure as "unfair," becuase it taxes higher-income people at a higher rate than lower-income people. Liberals (this author included) tend to favor progressive taxation, on the theory that it correctly reflects how much a person can afford to pay taxes. The first portion of anyone's income--rich or poor--can be thought of as going to essentials--food, clothing, and shelter. The difference between $17,000 and $18,000 in income is how many meals a family can afford to eat. The difference between $68,000 and $69,000 is a certain amount of comfort. The difference between $300,000 and $301,000 is nearly irrelevant.
Are there problems with progressive taxation? Yes--there are three. First, if a person holds a lot of different jobs, witholding the correct amount of money from a paycheck becomes tricky; unless one is organized it's easy to withold too little. Secondly, it tends to lead some people to treat the wealthy as an endless conucopia of tax money. This can lead to a lack of concern for what government programs cost, which in turn leads to bad policy. Finally, it tends to lead to a complex system of taxation, which gives rise to a lot of "gamesmanship" by people and corporations.
posted by The Polite Liberal | 8:36 PM
3 Comments:
Policy: A plan or course of action, guiding principle, or procedure considered expedient, prudent, or advantageous as of a government, political party, or business, intended to influence and determine decisions, actions, and other matters…
And what, pray tell, is the guiding principle of liberal philosophy in re taxation?
Is it possible that they are using my hard earned money to buy votes, to create a class of citizens dependent on the federal government? And just what effect does these transfer payments have on the country? May we look at your great War on Poverty for an answer, and how it has, according to intelligent black leaders, destroyed the black family?
The fact that the government takes, by the threat of force, far too much from its productive citizens cannot be masked by an attempt to shift the discussion to how much we can realistically take from the rich. In other words, methinks you’re dodging the policy question in re taxation and discussing mechanics instead.
Best regards,
John
Before I address the specific program that you're complaining about, I should point out that at the moment the government ended the last fiscal year $413 billion dollars in the red.
Which program are you specifically complaining about? I believe from your rhetoric that its TANF (Temporary Assistance for Needy Families), which replaced the old Aid to Families with Dependent Children program in 1996 when the Welfare Reform legistation passed and was signed by Mr. Clinton. If that's correct, it's worth pointing out that TANF's total budget is $16.7 billion--if you cancelled it entirely you'd still need a fairly substantial tax hike to get the budget back into balance.
As a matter of policy, why do we collect taxes (as you say, under threat of force)? To fund the government, of course, as provided for by the sixteenth amendment to the constitution. The government spends nearly $400 billion dollars a year keeping us safe from foreign threats. It spends about $24 billion a year (much more than TANF) supporting agricultrual prices. It spends about $232 billion a year on public health.
Did welfare need reform? Certainly. Is citing it a magic bullet that renders all tax arguments moot? Certainly not--eliminate it and you still need to explain how exactly you intend to fund the government.
A
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