I have no problem with paying taxes. I do have a problem with paying at a greater rate than one of my employees because I simply earn more. This is why I favor the FairTax or at least a flat tax.
But, the Democrat in Congress would never go for even a flat tax because that takes away their effect at playing the class envy game.
Also, while Dusty's post seems to contradict this (and I'm not arguing with the numbers), mathematically it makes sense that the gov't could collect more tax money with a progressive scale.
To keep the numbers simple, if I'm making $25,000 a year and you're making $100,000 and we're both being taxed at %20, that's $25,000 for the government. If I'm being taxed at %20 and you're being taxed at %25, that's $30,000 for the government. And the argument is that you still wind up with $75,000 to my $20,000.
This isn't even including the fact that your 401(k) is growing faster than mine (if I even have one), you can afford an accountant to find you more deductions than my free TurboTax could find me, etc.
As I said, I could be convinced that a flat tax is the most fair way to go, but I haven't seen much evidence of that.
You’re absolutely right, NonDairy, when you say that “mathematically it makes sense that the gov't could collect more tax money with a progressive scale.” When viewed statically, it makes perfect sense that the higher the rate you charge, the more money you’ll collect. The problem is that there’s nothing static about the economy – and taxation and the economy are inseparably linked. I’ll illustrate my point.
Using your numbers (me making $25,000 a year and you making $100,000 a year, and a tax rate of 20% for both of us,) you’ll pay approximately $20,000 to my $5,000 – this is assuming no further deductions or loopholes for either of us. That gives you a net income of $80,000 per year to my $20,000. It’s likely that you’ll be able to invest some of that money, whether weekly, monthly, or annually. It’s also likely that you’ll spend some of that money on goods and services, whether weekly, monthly, or annually – say, a vacation, a car, new furniture, etc… My $20,000 isn’t going to let me do that – or at least it’ll make it a bit more difficult to do so.
When you invest your money or buy goods and services, you stimulate the economy by, effectively, redistributing your money to someone else. (Before anyone jumps on the word ‘redistributing,’ remember that in this context I’m referring to the exchange of money for something in return – not just passing out money for nothing.) Buying goods stimulates the economy in that someone has to create those goods, someone has to transport those goods to market, and someone has to sell those goods. Buying services (say a meal in a restaurant,) stimulates the economy in that your purchase not only employs a server and cook, but the food suppliers, farmers, and transport personnel (among many others.)
Now remember that I’m keeping $20,000 of my annual salary. I’m less likely to buy a new plasma screen TV than you are, so I’m less of a factor to the overall economy than you are. You’re keeping $80,000, so you’ll be in a better position to buy that plasma screen TV.
Now, the tax rate suddenly changes – for you, anyway. You’re suddenly keeping $5,000 less a year. While some may argue that $5,000 isn’t all that much to someone making that kind of money, let me assure you that it is. That additional $5,000 will come out of your disposable income – the money you would have spent on goods, services, or investments. So you’re less likely to buy that plasma screen TV, buy that new car, or go on that vacation – and everyone involved in the businesses you would have patronized suffers for it. You only have to look at the number of stores, restaurants, and other small businesses that have closed down in your own town to see evidence of that.
Lest you think that disposable income isn’t all that important, or is restricted to the rich, let me ask you how many times a year you currently go to the moves, rent a DVD, or eat out? Are you more likely to do one of those things when you have more money in your pockets at the end of the week or month? Of course you are – you have the money to spend. I work in the casino industry – an industry that is dependent on disposable income. I’m living the results of a reduction of disposable income for the general public – people don’t have the money to spend, so they’re not spending the money they do have. They’re staying home because they just don’t have the money to spend on entertainment. The industry is suffering for it – and it’s not restricted to the casino industry. Nation-wide, hotel, restaurant, car rental, and theater incomes have dropped dramatically. The travel industry is really suffering.
By dropping the tax rates, therefore allowing you to keep more of your $100,000 per year, the gov’t is effectively putting more money back in your hands. You might save some of that money, but you’re more likely to spend it in one way or another. That’s what “supply-siders” hope for – and history proves that this is in fact the case. Given the opportunity to keep more of the money they’ve earned, the average American will spend it, therefore boosting the economy. It worked when JFK did it in the early 60s, and it worked again in the 80s under Reagan – in both cases revenue collected by the gov’t at least doubled because more people were buying and selling, creating more jobs that provided taxable income.
I know this a very long post, but it’s difficult to explain a dynamic economy in one or two sentences. I maintain that a dynamic economy can’t be taxed statically. I’m saying that while a 25% tax rate on your $100,000 might look good on paper, but when put under the spotlight of reality, it just doesn’t stand up to scrutiny. Yes the gov’t will collect $30,000 (using your numbers,) but misses out on the additional revenue it could have collected from the jobs you directly and indirectly created by spending that $5,000.
A good demonstration of that principal is the Luxury Tax of the 90s.
Starting in 1991, Washington levied a 10% tax on cars valued above $30,000, boats above $100,000, jewelry and furs above $10,000 and private planes above $250,000. Democrats like Ted Kennedy and then-Senate Majority Leader George Mitchell crowed publicly about how the rich would finally be paying their fair share.
But it wasn't long before congress realized they’d made a big mistake. The taxes took in $97 million less in their first year than had been projected — for the simple reason that people were buying a lot fewer of these goods from US suppliers. Boat building, a key industry in Messrs. Mitchell and Kennedy's home states of Maine and Massachusetts, was particularly hard hit. Yacht retailers reported a 77% drop in sales that year, while boat builders estimated layoffs at 25,000 – that’s 25,000 jobs lost. With bipartisan support, all but the car tax was repealed in 1993, and in 1996 Congress voted to phase that out too.
The boat-building industry still hasn’t fully recovered. We’re talking about an entire industry being seriously damaged on just a 10% tax, and a resulting estimated loss of $97 million in projected revenue. The congress viewed things statically, thinking that people would buy the same number of cars, boats, and such, and they’d just sit back and collect – well, it didn’t happen.
My point in this e-novel? Let people of ALL income brackets keep more of their own money and they’ll use it to boost the economy – then everyone wins. A flat tax may or may not be the answer – I really don’t know. I do know that in our current economy, tax increases of any kind is precisely the wrong thing to do. It’ll discourage people from spending and boosting the economy, which I think everyone would agree is what we really need right now.