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Posted by on Apr 15, 2015 in Business, Economy, Finance, Government, Politics | 10 comments

What We Talk About When We Talk About Taxes

We have a real communication problem in America, and it goes far beyond hysterical, dishonest news outlets and the general ignorance of the American people. No; this communication breakdown goes to the heart of the federal government—and aristocrats’ pocketbooks.

The Left and the Right frequently spar over taxes in this country: how to implement them, how much to demand, what a “fair share” looks like, and whether corporations should be allowed to steal from the American people by stashing their warchests overseas, or by taking advantage of numerous other corporate tax loopholes. But what’s less obvious is the way our very language on the subject of taxes has changed over the years.

Look no further than the debate surrounding the income tax—an issue that is of far greater significance to America’s wealthy than to her working poor or even to her middle class. According to the Joint Committee on Taxation, a vast majority of Americans (65.4%) pay more in payroll taxes in the average year than they pay in income taxes.

But as income approaches (and certainly once it exceeds) $200,000 a year, income taxes become a much bigger deal to folks. This, more than anything else, has steered public discourse in a very regressive direction.

Governing by Tax Credit

For better or worse, tax policy in the US often centers on the concept of tax credits. The JCT reports that citizens under the $40,000/year threshold receive a cumulative $81.1 billion more from the income tax system than they actually contribute. This is made possible by progressive programs like the Child Tax Credit and the Earned Income Tax Credit.

Nevertheless, that same tax bracket is still on the hook for some $121.5 billion in payroll taxes each year, meaning they still make a net contribution to a system that provides essential public services. But when you account for tax rates at the state and local levels, for America’s poor and middle class, you find these tax burdens are actually higher for poor Americans than they are for the rich.

And the middle class has it even worse: those within the $40,000-$50,000 range pay about twelve times as much in payroll taxes as they do in income taxes; for people in the $50,000-$75,000 range, the ratio is closer to 2:1.

In a rare example of his being on the right side of policymaking, Senator Marco Rubio (R-FL), along with Mike Lee (R-UT) are looking for ways to reduce the burden that payroll taxes impose on lower-income Americans. This is in stark contrast to the usual GOP line that income taxes are the greatest threat to economic opportunity for less-privileged Americans.



Source: Vox

Changing the Conversation

What we have, in the end, is a revealing look at the way that America’s wealthy have commandeered our conversations about tax reform—and at how our congressmen and congresswomen are playing along with the farce. The American people have been led to the mistaken belief that the majority of the tax burdens in America land on our “job creators” and tycoons—but in point of fact, nothing could be further from the truth.

Thankfully, a small percentage of millionaires and billionaires in America—most notably Warren Buffet, who’s still reminding us that he pays less in taxes than his secretary does—are aware of this contradiction and are actually voicing support for the idea that the rich should pay higher taxes—their “fair share,” to use the parlance of our times.

But for the dissenters, both in the private sector and the public, the argument goes something like this: The rich could always pay more if they want!. To this I say: since when is the US a charity, to be funded (or not) on the whims of her wealthiest 1%? Somewhere in the still-unwritten future of this country is a time where this holds true, and where the government need not write the most basic tenets of human dignity and fairness (to say nothing of common sense) into law. In this version of the future, common decency abounds for its own sake—not because it’s federally mandated.

Is the idea gaining traction in today’s America? No, not really. We have the wrong Congress for that, so for now we’re playing the waiting game. But for those of us paying attention, the wait for sweeping and comprehensive tax reform is beginning to feel interminable.

Image Credit: Flickr (via Creative Commons)