Winners and Losers: This is How I Feel

Winners & Losers by Michael Ramirez

This is exactly how I feel. Did you know that 47% of American households pay NO FEDERAL INCOME TAX at all?

This post has generated the following comments:

Patrick:

Ya to be part of that 47% you either have to make too little money or too much money. Oh how this country rests on the backs of the middle class. We don’t live in a democratic republic, no friends we are still living in an oligarchy.

Never fear Steve – Large multinationals like Exxon made billions last year and didn’t pay a dime in federal taxes either (http://wonkroom.thinkprogress.org/2010/04/06/exxon-zero-taxes/)

In order to be one of the magic 47% that pay no income tax, it’s estimated you’d need to be a family of four, earning less than $51k a year. Not exactly the picture of the 2010 “winner” in the cartoon, is it?

All I ask for is fairness instead of blind, government supported “equality”.

47% may pay no income tax, but the lines drawn from one to the other are wrong on the facts. The biggest single chunk is going to military spending, then the next two in order are middle class entitlements like social security and medicare. Then there’s debt service, most of which is due to military spending. Tucked into a tiny slice of pie is … See morestuff like AFDC and WIC and other anti-poverty measures.

So if the real source of the ire of Tea Partiers was government spending, they would be the most avid doves in the political spectrum.

This is why we need emphasize a sales tax over income taxes – consumption would be automatically taxed at point of purchase (i.e., making collections about as fair and bullet proof as you can make it), and consumers are encouraged to save more and be more responsible vs. buy and borrow their way into eventual bankruptcy.

That sounds like a good plan Matthew, but consumers didn’t bankrupt us, Wall St. did. The reality of a sales tax is that it puts an even greater burden on the middle class – not the people, as Patrick pointed out, that “make too little money or too much money.”

I’ve looked at the FairTax movement a bit It looks good to me, except for the whole, messy “prebate” section.

Yeah, the “prebate” is designed to work in essentially the same manner as the current system – you get credit up front, so that the poorest don’t end up being unfairly burdened. The idea is that everyone needs to buy a certain amount of food, etc, just to survive. In other countries (Ireland, for example) they just don’t tax essentials – certain foods, childrens clothes, medicine – it’s essentially the same idea.

The problem is, the tax impact is a bell curve, as far as income is concerned. When you buy a house, have kids, send kids to college, go on vacations, etc, you consume more, which is fine, but a middle class family and a millionaire really aren’t all that far off of each other in general spending – food, clothes, gas, books, a round of golf, phone, cable.

Sure, the millionaire may buy 50% more food/clothes/gas than you, and end up paying 50% more sales tax, but the relative rate at which they are being taxed is MUCH less than their income, proportionately…. See more

Now, there are those that say, well, a millionaire will pay more tax on the Lexus they own, and that’s true, but those are durable goods, with a 5-7 year shelf life, and in countries with VAT, they contribute much less to the tax base than general

Yup, the bell curve analysis is probably correct. But a similar bell curve likely applies to the current income tax system too, and on top of it, not everyone pays in what they should (or anything at all). So it’s an incomplete analysis, IMO, because the sampling is only on the people that actually do what they are supposed to do. There’s no good … See moreway to extract real equality across the income spectrum unless you want to raise income taxes on the wealthy to obscene number and leave everyone else alone (and als assume there won’t be loopholes around such rules). My main point was that if 50% don’t contribute anything to the tax base (either pure ignorance or playing the system), the best way to capture those unpaid taxes is to use a sales tax where you pay as you consume. It’s definitely not perfect. Whether you overlay a sales tax with something else – restrictions, prebate, whatever – is another layer of debate. But just getting the other half to contribute would help us tremendously.

Matthew – you’re 100% correct, the current system is ALSO a bell curve. The “fair/flat” tax proponents just want to replace one bell curve with another – the end result is that the middle class still bear the burden.

We’re both making valid points, we just have different ways to tackle the same problem. For the record, I’m not saying we tax the rich to an “obscene number” – as Warren Buffet has pointed out, just tax the wealthy at exactly the same rate as the middle class, you’ll be addressing one side of the bell curve. That can be achieved by closing some loop holes, as you noted.

When it comes to the other side – the 50% – remember that the credits that allow them to pay little or nothing are the same credits the middle class claim to reduce their taxes also. Child / dependent credits, college tuition credits, mortgage interest credits, etc. If you remove those, you increase taxes on the middle class…. See more

Steve asked for “fairness” in the system, and that’s all good, I’m just pointing out that if you target the millions of households that survive on less than 50k a year, and don’t go after the Exxon’s of the world, that don’t pay a dime in tax, than that’s not fair. The path of least resistance, IMO, is to start with Exxon.