published Monday, April 25th, 2011

A tax coincidence?

It’s probably safe to assume that most people who pay no income taxes think their tax burden is “fair.”

So it seems more than coincidental that with almost half of U.S. households paying no federal income taxes, about the same percentage of Americans believe their taxes are “fair.”

The Associated Press recently conducted a poll on Americans’ views on their taxes. Slightly more than half said they were paying a fair share. Meanwhile, the Tax Policy Center, a think tank in Washington, estimates that nearly that many got so many tax breaks in 2010 that they had no federal income tax burden.

Now, we do not blame anyone for making use of lawful tax breaks and credits to reduce his tax bill. But if almost half of all U.S. households — a figure that includes millions of middle-class families — have no federal income tax liability because of various breaks and credits, that puts the entire income tax burden on the remaining half of households.

Some defend that inequity by saying that even if many middle- and lower-income earners technically pay no federal “income taxes,” they do pay taxes for Social Security and Medicare, just as everyone else does. But in fact, many households escape paying those taxes, too!

About 23 million tax filers in 2010 who already owed no income taxes also got refundable credits from the IRS that were greater than what they paid in Social Security and Medicare taxes. So for them, the federal tax code is actually a source of income, not a means to “pay their keep” for being citizens of this great country.

That means the IRS is “delivering what are essentially welfare benefits to people who don’t pay income taxes,” The Tax Foundation noted.

“Whatever we think of the IRS, that is generally not a function it should play. ... [T]oo many people see April 15th as payday, not Tax Day.”

The Tax Foundation adds, “[N]ot only are these people not paying any income taxes to fund the general cost of government from which they benefit, but they are effectively not paying into the Social Security or Medicare systems [from] which they will benefit in retirement. That’s a free ride in any book.”

And yet even though millions of wage-earning households have no income tax burden, President Barack Obama and Democrats in Congress are determined to raise taxes on the rich and on small-business owners whom they falsely label “rich.”

Raising taxes is the last thing we need to do in a time of high unemployment and rising inflation. Higher taxes would further discourage investment we need to create jobs.

And for all the talk that the rich don’t pay their fair share of taxes, the top 10 percent of earners paid more than half of the federal income taxes in 2007, and the top 5 percent paid 44 percent. Plus, what is fair about millions of middle- and lower-income households paying zero federal income taxes and yet receiving the benefit of taxes paid by others?

It has been observed that at some point not far in the future, our nation may reach a tipping point at which most people are not paying federal income taxes. When that happens, they will have the power to vote in majorities in Congress who will provide them more and more benefits — paid for by the ever-shrinking number of people who do pay the taxes.

From there it will be a short trip to national bankruptcy, because the fewer and fewer people who are paying into the system simply won’t be able to sustain the costs of the growing welfare and entitlement state.

As U.S. Sen. Orrin Hatch, R-Utah, said at a recent Senate Finance Committee hearing, “You get a lot of takers when you ask people if they want more of something and you tell them it’s free.”

But as has always been the case, no benefit that government provides is ever free. Sooner or later, the bill comes due. Government can hide the consequences of a huge and expanding welfare state for only so long.

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nucanuck said...

If those earners at the top have had massive increases in income and substantial cuts in taxes while those at the bottom have had their income reduced over the same thirty year time period, then shouldn't we be discussing something other than America's poor not paying enough taxes?

Cut the pay for the poor and raise their taxes? I'm reminded of the unemployed Tunisian man arrested for selling vegetables without a licience. That arrest brought down a government.

Make life unfair enough and the poor will rise up and ruin the party for the affluent.

April 25, 2011 at 1:40 a.m.
bookworm said...

Let's see now: Ask the man on the street working for minimum wage trying to scrape to pay his bills ___just ask him if he would rather be a Billionaire paying 'high taxes' or himself, paying no taxes. But of coarse we all know that the Billionaire has Paul Ryan paid for in his pocket. Ryan wants to take the poor man's Medicare away from him and tell him to take his vaucher and go buy comparable insurance on the open market. Still, the funny thing, is the rich presently make out like bandits even after taxes. Witness after Clinton raised their taxes in what Rush Limbaugh called the 'biggest tax increase in history.' The rich under 8 yrs. of Clinton still increased their net worth by over 125%. Go figure. Are we talkin' Robes Pierre and the French Revolution?

April 25, 2011 at 8:21 a.m.
Plato said...

Warren Buffet the 3rd richest man in the world has an effective tax rate (all taxes) of around 17%, whereas his secretary that makes $60K a year pays nearly 30% in total taxes.

Tax fairness? bring it on.

http://www.timesonline.co.uk/tol/money/tax/article1996735.ece

April 25, 2011 at 11:30 a.m.
dougo82 said...

I am very puzzled by the current tax system. Isn't it DISCRIMINATION? Don't we put people side-by-side, compare their finances and then treat them differently? We can't do this with skin color or creed but it's OK with finances? We are discriminating against people that have worked hard, went to college and racked up large student loan totals, spent long hours building a business and took chances to succeed. Does anyone else see this?

April 25, 2011 at 1:53 p.m.
nucanuck said...

Doug, you may be looking at taxes from a narrow perspective. If your so called "hard workers" agregate so much of the national wealth while the 75% of presumed "non-hard workers" fall into poverty, then we will have a failed national economy or insurrection. Either way, your "hard workers" will enjoy their wealth on the run, because America won't be fit to live in.

America can only be rich with a large and thriving middle class.

If you have a better way to rebuild the middle class and leave the tax structure as it is...let's hear it. Things sure weren't perfect before the 1980s and 2000s tax cuts began, but America's middle class participated in a reasonably stable life and the rich had to work a little longer to create big wealth.

Maybe it's because I'm an old guy, but I look back on that time as a fairer time for all.

April 25, 2011 at 3:29 p.m.
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