In the previous blog entry, I wrote about the people who want high earners to pay higher taxes. I alluded to that kind of thought as tax envy - that the low earners want the high earners to pay up more.
Here are some things that will never fly: total confiscation of income above a certain level (communist!); national income taxes (regressive!), flat taxes (super regressive!) and value added taxes (double secret super regressive!) Income redistribution raises a lot of hackles, and sometimes ends up being entirely circular, defeating the purpose (i.e. the money taken from the high earners goes to the low earners as some form of "social justice" payment, and the government charges sin taxes, paid by the poor earners, and spirits it back to the government).
Rob Sama has a fantastic outline of what he'd do with the current tax code, but I have some ideas to eliminate (or at least reduce) tax envy is as follows.
1. Keep the progressive tax structure, but adjust the tax rates and broaden the income levels they fall under. The rates would be as follows:
- 5% absolute minimum tax (deducted from any refunds; explained below)
- 10% (income $15,600 and under)
- 20% ($15,601 to $78,000)
- 30% ($78,001 to $390,000)
- 40% ($390,001 to $1,560,000)
- 50% ($1,560,001 and above).
For head of the household, multiply by 1.25; for married filing jointly, multiply by 1.5.
Also, $15,600 is the minimum wage per year if you work 40 hours a week and 52 weeks a year, not including holidays. If the minimum wage increases or decreases, the structure also increases.
2. Everyone who works pays something - no ducking the IRS. I would propose an absolute minimum tax of 5% for people who have $100 or less in taxable income - and it's deducted from your refund. If you earned $20,000 in a year and had no tax liability, yet you had $3,000 withheld, the IRS will take $150 from your refund, leaving you with $2,850. If you earned $100,000 in a year and had a tax liabillity of $50, and had $15,000 withheld for the year, your absolute minimum tax would be $5,000 and would be deducted from your refund of $15,000, leaving you with $10,000.
The people who claim zero tax liability at both ends of the earning spectrum is part of the reason for tax envy, and curing that is as simple making sure no one escapes the IRS.
3. Change the Alternative Minimum Tax into the Alternative Income Tax, with a flat rate of 55%. However, unlike the current alternative minimum tax, which has rates of 26% and 28%, filers can choose to this higher tax, but there would be no exceptions, deductions or deferments allowed. The AIT would be applied to gross income, including income, stocks, bonds, investments, and other items. This would give those who truly want to give more a chance, but at a steeper rate.
Example: You've earned $1 million in a year. You decide to file the AIT instead of paying at 35%. You pay the government $550,000.
These ideas might not satisfy everyone, but it's a start.
Showing posts with label envy. Show all posts
Showing posts with label envy. Show all posts
4/25/2011
Getting rid of tax envy
I write this blog for free. Gratis. I get no income from it, and the only value I put on it is that people can read it.
Whenever I hear grumblings and sniffs that the higher earners* should be taxed more, and supporting propaganda such as "X% of higher earners pay Y% of all tax while Z% of low earners pay nothing," "The zillionaires should have their earnings (taxed heavily, confiscated above a certain level)," and "the fair tax/flat tax/Richard Simmons Shake Your Left Leg and Rub Your Tummy tax is regressive to the poor, the blind, and David Letterman", there is one word that sticks out like a sore thumb: Envy.
Envy is a powerful thing. Little wonder why the lower classes cast a huge green eye at the upper classes, and wish they were taxed to the stratosphere.
But there's a problem with punishing the high earners with punitive taxes, even though in the past, it was acceptable to have an income tax rate of 90% during WWII and a 70% rate in the 1960s and people were just as prosperous. The problem is that when there's a disincentive in place to earn money, the ambition to avoid that tax will go up exponentially. Whether it's plowing it into investments, putting it into an overseas tax shelter, or giving it away to charity, the high earners will find every which way but loose to avoid having that money snared by the IRS. And, when the high income earner gets fired, laid off or their business heads overseas, that narcotic tax income that the IRS has enjoyed evaporates - usually because the business itself cannot sustain handing over a high corporate tax rate plus salaries, so the jobs are either eliminated to save money or are sent overseas to countries where the tax rates are far lower and the employment rules aren't as strict.
The lower earners lose also, because to paraphrase John Scarne, Old Man Tax Collector will find a way to get their money, and it's as high or higher than the upper tax bracket of 35%. The lower earners think they pay no income tax, but they pay high taxes on cigarettes (45-70% effective), gasoline (10%), cell phone bills (12-20%), excise taxes, sin taxes, and many others. So while it's great to get all that money IRS withheld in your paycheck due to tax credits, all it takes is a sick kid or a major car repair (or a missed rent payment) to wipe that refund out in a jiffy. Meanwhile, even though the high earner is paying 75% to the government in income tax, they have the ability to save good chunks of their income and can live comfortably, whereas the low income earners are forced to live paycheck to paycheck while paying a ton in hidden taxes.
Ironically, when the lower income earners move up and make comfortable salaries, the revenge fantasies go away. They don't care if the guy across the street has four BMWs and just returned from a 60 day cruise around the world; so long as the mortgage is paid and the credit cards are current, that's all that matters. Even the former higher earners, when they lose their job and find a new one that pays less, get the ever-vigilant eye of the IRS off their backs because they've gone down two or three brackets. Sure, you're not earning as much as you did, but so long as the mortgage is paid and the credit cards are current, that's all that matters.
In my next entry, some ideas to reduce tax envy.
* Rather than using "the rich" as a pejorative term, "high earner" is a little more accurate to me because I'm not putting a random dollar amount on how "rich" a person can be.
Whenever I hear grumblings and sniffs that the higher earners* should be taxed more, and supporting propaganda such as "X% of higher earners pay Y% of all tax while Z% of low earners pay nothing," "The zillionaires should have their earnings (taxed heavily, confiscated above a certain level)," and "the fair tax/flat tax/Richard Simmons Shake Your Left Leg and Rub Your Tummy tax is regressive to the poor, the blind, and David Letterman", there is one word that sticks out like a sore thumb: Envy.
Envy is a powerful thing. Little wonder why the lower classes cast a huge green eye at the upper classes, and wish they were taxed to the stratosphere.
But there's a problem with punishing the high earners with punitive taxes, even though in the past, it was acceptable to have an income tax rate of 90% during WWII and a 70% rate in the 1960s and people were just as prosperous. The problem is that when there's a disincentive in place to earn money, the ambition to avoid that tax will go up exponentially. Whether it's plowing it into investments, putting it into an overseas tax shelter, or giving it away to charity, the high earners will find every which way but loose to avoid having that money snared by the IRS. And, when the high income earner gets fired, laid off or their business heads overseas, that narcotic tax income that the IRS has enjoyed evaporates - usually because the business itself cannot sustain handing over a high corporate tax rate plus salaries, so the jobs are either eliminated to save money or are sent overseas to countries where the tax rates are far lower and the employment rules aren't as strict.
The lower earners lose also, because to paraphrase John Scarne, Old Man Tax Collector will find a way to get their money, and it's as high or higher than the upper tax bracket of 35%. The lower earners think they pay no income tax, but they pay high taxes on cigarettes (45-70% effective), gasoline (10%), cell phone bills (12-20%), excise taxes, sin taxes, and many others. So while it's great to get all that money IRS withheld in your paycheck due to tax credits, all it takes is a sick kid or a major car repair (or a missed rent payment) to wipe that refund out in a jiffy. Meanwhile, even though the high earner is paying 75% to the government in income tax, they have the ability to save good chunks of their income and can live comfortably, whereas the low income earners are forced to live paycheck to paycheck while paying a ton in hidden taxes.
Ironically, when the lower income earners move up and make comfortable salaries, the revenge fantasies go away. They don't care if the guy across the street has four BMWs and just returned from a 60 day cruise around the world; so long as the mortgage is paid and the credit cards are current, that's all that matters. Even the former higher earners, when they lose their job and find a new one that pays less, get the ever-vigilant eye of the IRS off their backs because they've gone down two or three brackets. Sure, you're not earning as much as you did, but so long as the mortgage is paid and the credit cards are current, that's all that matters.
In my next entry, some ideas to reduce tax envy.
* Rather than using "the rich" as a pejorative term, "high earner" is a little more accurate to me because I'm not putting a random dollar amount on how "rich" a person can be.
12/04/2009
The altar of Gaia is fraught with Tofu-pup wrappers and crumpled pictures of Marx and Lenin in the nude
Note to the health Puritans and malignant gentry who are trying to hide their mega-control freak designs through Mother Earth - it's not nice to fool Mother Nature - in fact, pissing her off will give you something much more than you bargained for.
If they weren't so obnoxious on your neo-Puritan crusade, and actually MINDED THEIR OWN GODDAMN BUSINESS, people wouldn't see them as the fussy eaters and spoiled children they really are.
If they weren't so obnoxious on your neo-Puritan crusade, and actually MINDED THEIR OWN GODDAMN BUSINESS, people wouldn't see them as the fussy eaters and spoiled children they really are.
Subscribe to:
Posts (Atom)