Taxes anyone?

If I wanted to know the tax rate, I could get it immediately, both federal and state. But if you think about it, that isn't all we spend on taxes. We also have sales tax, estate taxes, property taxes, Social Security tax, gas tax, excise taxes on phone usage, city taxes (in some cities).

Some things are taxed several times along the line, like liquor which gets a federal tax, a state tax, and sales tax, not to mention a tax added if the item is imported. Of course, I suppose I don't have to buy liquor, and then I don't have to pay the tax. I'm going to have a hard time going without gasoline, however.

My point is that we look at the tax rate, which is admittedly fairly low. In the year I was born, 1963 (please don't do the math, I'm eternally 30) the top personal income tax rate was 91 percent. Today it is 35 percent. So we look at this rate, and we think that's all we pay. We don't just pay that.

So I ask you, do you think that I could fairly easily find out how much I actually pay in taxes if you add all that other stuff in? The answer is no! I did find out that our tax system has been fixed and refixed, adjusted and readjusted, "vamped" and revamped so many times that it is a mess.

What about starting over? What about having a party come out with a pledge to write a new tax code, one simplier and easier to understand exactly what everyone -- rich and poor -- is paying. Because everyone I talk to seems to think that the other income classes have it better than they do.

I have heard that the wealthiest Americans don't even pay taxes because of loopholes. But I don't know if that's true or simply propoganda. What do you think? Are your taxes about right? Are you paying your fair share or overpaying? What about loopholes and tax simplicity? I'd like to know what you think.

You can actually go to the IRS Web site and note how much the top income earners pay.

http://www.irs.gov/pub/irs-soi/03in05tr.xls

http://www.cbo.gov/ftpdocs/57xx/doc5746/08-13-EffectiveFedTaxRates.pdf

If you look at the excel spreadsheet and do the calculations you will see that the top 1 percent of income earners pay one-third of all federal income taxes. It is fair to say that corporations evade federal taxes by offshoring their funds, but people don't have that luxury if their money is earned in the U.S.

There are propositions for "fair" and "flat" taxes:

http://en.wikipedia.org/wiki/Flat_tax
http://www.fairtax.org/

Both have upsides, both have downsides, but the general idea is that you repeal a hassle-filled tax code for a very simple one. The fair tax would increase tax revenues because it would be a user tax imposed on everyone, including those here from other countries or working for cash or other non-traceable income. Maybe that should be a post of mine...

I've been enjoying your posts. You are a good writer.
Concerning taxes, I heard on MPR during the run up to the primary for governor a statement by Becky Lourey that the middle class pay 26 percent more of their income in taxes than do the top 1percent or so of citizens.

The phase-out of tax credits between maybe $60,000 to $100,000 for college tuition would be an example of how the middle-class person earning $100,000 in joint income might pay more in taxes as a percent of income than a person earning $500,000, whose $1,000 or so tax credit for tuition means little. ( All these numbers are representative since I do not actually know the exact tax law.)

The tax code is surely a mess. Though I don't know how a party could deliver what you request; for one, as you've pointed out, there are many entities (i.e. city, county, state, fed) creating taxes.

More importantly, part of the problem is the way certain taxes are set. Take the state gas tax for instance. It is set at a specific value, that hasn't changed for something like 18 years. Yet, the cost of asphalt has gone up. There've been 18 years of inflation. Who, in their right mind, would imagine that a number picked nearly 20 years ago would provide proper funding today? So, firstly, funding sources need to be indexed so they fluctuate with costs.

You may not have noticed since President Bush's committee to re-think the federal tax structure report was submerged by the fight against Social Security reform, (wouldn't you like to have that opportunity back again?) but the committee's ideas offered some innovative ideas for improving our federal tax system.

If I were the Democrats, I might be thinking how to adapt some of these ideas.

I agree with Joanne on this one. This is a perfect opening for the Dems to steal an issue from the Republicans if they regain control.

It won't be enough to be a simplified tax plan, it also has to be fair. Flat tax is not fair unless you exempt income up to the real poverty line and get rid of all deductions, but who the heck is going to vote for a plan that phases out deducting mortgage interest? I doubt even wealthy people would go for that.

How about changing how we deduct health care costs?

David Kay Johnson's book "Perfectly Legal" is a good primer on how the super wealthy are able to take advantage of the system to dodge taxes - everything from offshore accounts to bald-face cheating. Hint: the biggest problem is that the IRS is woefully under-resourced to do anything about it.

cjb: Hint, they still pay an effective 37 percent-plus tax rate on their earnings. Hint, if you start overtaxing the rich they stop making the big money. Hint, if you remove incentive for wealth, wealth stops being created. If you think that taxing the "wealthy" is the only way to make the country succeed you do exactly the opposite. See the failed luxury tax...Hint hint.

Seems like the Laffer Curve arguments carried a bit more weight when the top tax bracket was well over 50%. Now that its been lowered so much, its a much harder argument to make that moving it will have a huge impact on productivity. I frankly can't see that some CEO is going to retire because their tax rate moves from, say, 37% to 40%. Given the obscene salaries these folks are making these days, that argument is laughable, on its face.

Even the Laffer Curve admits that there is a 'sweet spot' where tax revenue is maximized. There are points at both ends of the spectrum at which revenue falls. i.e. your tax rate can be both too high and too low. The people arguing for more and more tax cuts need to start focusing on how they're going to make up the revenue shortfalls; the predicted windfalls have not materialized, at least according to the CBO.

Yes taxation needs overhauling. But Americans have lost their common sense.

Income tax is one of the main reasons we left England in the first place. You'll notice that it is not part of the Constitution but was added later as an amendment to finance the war. That simple 1% on land owners has ballooned into our massive debt that beholds us to our creditors - the largest of which is China. We never should have enacted an INCOME tax!!!!!!!!!!!!

Human dynamics proves that whatever you tax, people will find a way to do less of, whether rich or poor. So the more you tax income, the less incentive for people to earn. With economic engines in Asia threatening the superiority of the USA in the next century, we need our tax rates to be competitive with those of the rest of the world. Reducing or eliminating income taxes would massive boost American investment and productivity.

So what do we tax? CONSUMPTION! First off, it's easy to collect - just like sales tax. No IRS needed. Second, it's unavoidable. No matter how rich Bill Gates gets, he can't enjoy it without paying his fair share of taxes.

Best of all, such a tax will motivate Americans to consume less and save more. Last year, for the first time, the average American saved a negative 1.7%. While other countries in Asia save an average of over 20% of their incomes.

I predict that all countries in the world will start adopting such taxation plans in the future. The question is, will the USA be one of the first, or continue our egocentric ways and be the last.