Here is my column this week from The Winchester Star:
"Our Constitution is in actual operation; everything appears to promise that it will last; but in this world nothing is certain but death and taxes," - Ben Franklin
Once again, I waited until the last minute to do my taxes this year. There was no reason for me to wait. I just dread doing them. However, the annual April 15 deadline and some discussions about the tax system in general got me to thinking about the issue and wondering if there isn't a better and more equitable way to address the tax issue.
Since 2004 is an election year, you would think there might be some serious discussion about taxes beyond what we have heard so far. President George W. Bush has cut taxes twice since 2001. Presumptive Democratic nominee John Kerry says he would repeal the top bracket tax break and use the money to balance the budget. Bush attacks Kerry for voting to raise taxes hundreds of times; Kerry attacks Bush for being on vacation during the economic slide. Yawn.
Why does there never seem to be a serious discussion about taxes? Where are the big ideas to make taxes fairer? In a down economy, shouldn't we be figuring out ways to put money in people's pockets so they can grow the economy? Instead, partisan demagoguery always seems to get in the way of any substantial discussion or changes.
In my mind, the key to any revision of the tax code should start at the bottom, by exempting the lower tier tax rates altogether.
According to the 2003 tax rate schedules, people earning anywhere from $7,000 to $28,400 pay 15 percent of their income in taxes. People who earn under $7,000 pay 10 percent. It seems almost criminal to tax someone in this bracket. Most of these people are probably living paycheck to paycheck. Exempting the first $20,000 of earnings for everyone would be the fairest way to offer a tax break. Millionaires would get a tax break, families earning $75,000 would get a tax break and the guy sweeping floors for minimum wage wouldn't be taxed at all.
From there, you would have to work on the rate which could be progressive, tiered or flat.
If exemptions are taken away in the wake of lower rates, a progressive rate would probably have to be implemented. But a relatively low flat rate might work too. The myth forwarded about the flat tax is that "the rich" will pay less than they do now. Generally, this just isn't true. Few, if any, millionaires pay a 35 percent tax rate. They have accountants and CPAs find loopholes in the code to get their percentages as low as possible.
I tried to make the flat tax case to friends in 1992 when the liberal interest group Citizens for Tax Justice was attacking Jerry Brown's 13 percent proposal as "regressive" and "unfair." That year, incumbent President George H. W. Bush earned about $2.3 million and paid 9 percent in taxes, way below the 40 percent tax rate at the time. With a simple work sheet, the size of a postcard, Brown showed how most folks would pay thousands less in taxes while people like Bush would pay slightly more, with no deficit to the federal coffers. However, CTJ and others attacked Brown's plan and helped sink the idea.
Conservative politicians have also proposed flat taxes of anywhere from 17 to 25 percent. But they always have to wreck the idea by not exempting the lower tier wage earners. The conservative flat tax plans also don't allow for fair deductions and don't tax unearned income.
Others have proposed federal sales taxes with exemptions for necessities which is another idea that might be worth studying. But since our economy has moved from a manufacturing economy to a consumer economy, a sales tax would probably crash the economy.
In researching the subject of taxes, I was shocked to find out that there wasn't an income tax until 1917 and that the entire federal government was financed by tariffs on imported goods and corporate taxes. Almost a century later, personal income taxes fund 43 percent of the federal budget. I was even more surprised to hear that top tier earners were taxed at a rate of 72 percent - and that was during Republican administrations.
While no one would ever dare propose such high income tax rates ever again, it might be time to rethink the tariff angle. A tariff - in the wake of lost revenue, the result of exempting first $20,000 of earnings - would replace government funds. The myth about tariffs is that it affects consumer prices. But a small tariff - say, 10 percent - wouldn't affect prices at all. The money, however, would replenish the thousands of dollars given back to tens of millions of people.
In the end, the problem with fixing the tax code is that none of the people in Washington - Democrats, Republicans, lobbyists, bureaucrats, etc. - can be trusted to do it properly. A group of ordinary Americans could easily sit down in a room and fix the tax code in 30 minutes, making it beneficial for most people, but it will never be done that way.
Currently, there is a Republican-controlled White House, House, and Senate. Before, there was a conservative Democratic president and Republican-controlled houses of government. For the last two-plus decades, there hasn't been anyone you could trust down there to create a fair tax code. Which makes you wonder: Is this a case where leaving a bad system in place is better than risking any more changes the people in power might make?
Kristina's letter to Kerry
The Star's reporter Kristina Arvanitis has a great letter to John Kerry on her blog today: ["An Open Letter to John Kerry"]. I was thinking about doing this myself but she beat me to it. Maybe I will have to follow up with something in a week or two.
"Our Constitution is in actual operation; everything appears to promise that it will last; but in this world nothing is certain but death and taxes," - Ben Franklin
Once again, I waited until the last minute to do my taxes this year. There was no reason for me to wait. I just dread doing them. However, the annual April 15 deadline and some discussions about the tax system in general got me to thinking about the issue and wondering if there isn't a better and more equitable way to address the tax issue.
Since 2004 is an election year, you would think there might be some serious discussion about taxes beyond what we have heard so far. President George W. Bush has cut taxes twice since 2001. Presumptive Democratic nominee John Kerry says he would repeal the top bracket tax break and use the money to balance the budget. Bush attacks Kerry for voting to raise taxes hundreds of times; Kerry attacks Bush for being on vacation during the economic slide. Yawn.
Why does there never seem to be a serious discussion about taxes? Where are the big ideas to make taxes fairer? In a down economy, shouldn't we be figuring out ways to put money in people's pockets so they can grow the economy? Instead, partisan demagoguery always seems to get in the way of any substantial discussion or changes.
In my mind, the key to any revision of the tax code should start at the bottom, by exempting the lower tier tax rates altogether.
According to the 2003 tax rate schedules, people earning anywhere from $7,000 to $28,400 pay 15 percent of their income in taxes. People who earn under $7,000 pay 10 percent. It seems almost criminal to tax someone in this bracket. Most of these people are probably living paycheck to paycheck. Exempting the first $20,000 of earnings for everyone would be the fairest way to offer a tax break. Millionaires would get a tax break, families earning $75,000 would get a tax break and the guy sweeping floors for minimum wage wouldn't be taxed at all.
From there, you would have to work on the rate which could be progressive, tiered or flat.
If exemptions are taken away in the wake of lower rates, a progressive rate would probably have to be implemented. But a relatively low flat rate might work too. The myth forwarded about the flat tax is that "the rich" will pay less than they do now. Generally, this just isn't true. Few, if any, millionaires pay a 35 percent tax rate. They have accountants and CPAs find loopholes in the code to get their percentages as low as possible.
I tried to make the flat tax case to friends in 1992 when the liberal interest group Citizens for Tax Justice was attacking Jerry Brown's 13 percent proposal as "regressive" and "unfair." That year, incumbent President George H. W. Bush earned about $2.3 million and paid 9 percent in taxes, way below the 40 percent tax rate at the time. With a simple work sheet, the size of a postcard, Brown showed how most folks would pay thousands less in taxes while people like Bush would pay slightly more, with no deficit to the federal coffers. However, CTJ and others attacked Brown's plan and helped sink the idea.
Conservative politicians have also proposed flat taxes of anywhere from 17 to 25 percent. But they always have to wreck the idea by not exempting the lower tier wage earners. The conservative flat tax plans also don't allow for fair deductions and don't tax unearned income.
Others have proposed federal sales taxes with exemptions for necessities which is another idea that might be worth studying. But since our economy has moved from a manufacturing economy to a consumer economy, a sales tax would probably crash the economy.
In researching the subject of taxes, I was shocked to find out that there wasn't an income tax until 1917 and that the entire federal government was financed by tariffs on imported goods and corporate taxes. Almost a century later, personal income taxes fund 43 percent of the federal budget. I was even more surprised to hear that top tier earners were taxed at a rate of 72 percent - and that was during Republican administrations.
While no one would ever dare propose such high income tax rates ever again, it might be time to rethink the tariff angle. A tariff - in the wake of lost revenue, the result of exempting first $20,000 of earnings - would replace government funds. The myth about tariffs is that it affects consumer prices. But a small tariff - say, 10 percent - wouldn't affect prices at all. The money, however, would replenish the thousands of dollars given back to tens of millions of people.
In the end, the problem with fixing the tax code is that none of the people in Washington - Democrats, Republicans, lobbyists, bureaucrats, etc. - can be trusted to do it properly. A group of ordinary Americans could easily sit down in a room and fix the tax code in 30 minutes, making it beneficial for most people, but it will never be done that way.
Currently, there is a Republican-controlled White House, House, and Senate. Before, there was a conservative Democratic president and Republican-controlled houses of government. For the last two-plus decades, there hasn't been anyone you could trust down there to create a fair tax code. Which makes you wonder: Is this a case where leaving a bad system in place is better than risking any more changes the people in power might make?
Kristina's letter to Kerry
The Star's reporter Kristina Arvanitis has a great letter to John Kerry on her blog today: ["An Open Letter to John Kerry"]. I was thinking about doing this myself but she beat me to it. Maybe I will have to follow up with something in a week or two.
