What is a fair tax policy?
One of the defining differences between liberals and conservatives is the issue of taxes. I think it is safe to say that no one likes taxes. However, most adults understand that taxes are necessary to pay for roads, hospitals, police and fire fighters, our military and many other important things. The preamble of our Constitution states that we the people will provide for the common defense and promote the general welfare. To do so our representatives levy taxes. The questions then become; what is a fair tax policy and what should those taxes pay for?
I should mention that I will not be addressing how taxes are spent in this post. National spending priorities are a enough subject for a separate diary. Suffice it to say that, according to Wikipedia, in 2008 the defense budget was 21% of the federal budget, so was Social Security. Only Medicare was higher percentage wise at 23%. I’ve heard an awful lot a about Social Security and Medicare being unsustainable at current levels. Has anyone said that military spending is unsustainable at current levels? Anyone on the conservative right, that is?
Many conservatives hate the idea of taxes all together. Some actually think we shouldn’t pay any taxes because the government should not be providing any services at all. We need only reference the recent tea parties as evidence of the party of just say No Taxes. Odd thing is a lot of these same people are hawks that want our military to be the enforcement wing of our foreign policy. Remember, our military spending, as a percentage, is right around the same levels as Social Security and Medicare.
How the monies are spent does not bear on the fairness of how the tax is collected. There are some who advocate a flat tax where everyone pays the same percentage. This sounds fair, everyone paying the same. However, if you think this is fair then please do not ever invite me out to dinner. We have a fundamental disagreement. I do not believe it is fair to ask anyone living at or just above poverty to pay the same rate as the highest incomes in the land. Furthermore, the net result of that tax policy would ultimately reduce the amount of money going to the government.
Let’s have an example of a flat tax policy, using four archetype people. The first makes 40k annually, the second 100k and the third 400k and the fourth 1,000k. For sake of easy math, we will set the flat tax rate at 10%. Under this system (ignoring any tax sheltering) the people would pay, 4k, 10k, 40k and 100k respectively. After tax they would have 36k, 90k, 360k and 900k, respectively. The total tax collected in this example is 154k.
Now, let us have an example of progressive tax policy, where you pay more if you make more. Using the same four people from above, we will change the tax rates to 5%, 10%, 20% and 40% respectively. Thus, each person would pay 2k, 10k, 50k and 400k respectively. After tax, each person has 38k, 90k, 350k and 600k, respectively. In this example, each person still has more remaining the next person below them started with before taxes. The total tax collected in this example is 462k, over three times the first example.
Some conservatives who see the first example as being most fair to all, will likely be thinking that there are 10 times as many people in the first two archetypes as the second two. Here the math gets a bit more complicated because of the difference between individual incomes and household incomes. However, even if that were true ten people making 40k nets the same tax as one person making 400k so it brakes even. If by even you think that one person paying as much as ten people is fair or even.
According to the census bureau, in 2005, 71% of individuals and 51% of households earned less than 50k. Compared to 22% of individuals and 29% of households making between 50k and 100k, you can see that households are likely to have more than one income at this level. Adding the two together we see that 93% of individuals and 83% of households make less than 100k annually. That means about one in five households make more than 100k. Under a flat tax system is would take 10 households making 100k to equal the tax collected from one household making one million. Going back to the census report, 7% of individuals and 17% of households make over 100k. However, if we break it down even further, 11% of households make between 75k and 100k and 10% make between 100k and 150k with the remaining 5.84% of households making above 150k. There are only 4 times as many people making between 75k and 150k as are making over 150k. Again it would take 10 people making 75k to equal one person making 750k.
In the above example, I have used elementary mathematics. No matter what tax rate you choose it still takes ten times as many lower earners to equal the tax paid by one person making ten times as much. According to the web site TruthAndPolitics.org, the top income tax rate between 1951 and 1964 was between 87% and 91% for people making more than 400k. This is an era largely considered to be a golden age of prosperity in America. Since then the tax rate has gone down along with the top tier of income level. While that occurred the deficit grew and grew. So, the question remains; what is a reasonable tax policy? What is fair?
I should mention that I will not be addressing how taxes are spent in this post. National spending priorities are a enough subject for a separate diary. Suffice it to say that, according to Wikipedia, in 2008 the defense budget was 21% of the federal budget, so was Social Security. Only Medicare was higher percentage wise at 23%. I’ve heard an awful lot a about Social Security and Medicare being unsustainable at current levels. Has anyone said that military spending is unsustainable at current levels? Anyone on the conservative right, that is?
Many conservatives hate the idea of taxes all together. Some actually think we shouldn’t pay any taxes because the government should not be providing any services at all. We need only reference the recent tea parties as evidence of the party of just say No Taxes. Odd thing is a lot of these same people are hawks that want our military to be the enforcement wing of our foreign policy. Remember, our military spending, as a percentage, is right around the same levels as Social Security and Medicare.
How the monies are spent does not bear on the fairness of how the tax is collected. There are some who advocate a flat tax where everyone pays the same percentage. This sounds fair, everyone paying the same. However, if you think this is fair then please do not ever invite me out to dinner. We have a fundamental disagreement. I do not believe it is fair to ask anyone living at or just above poverty to pay the same rate as the highest incomes in the land. Furthermore, the net result of that tax policy would ultimately reduce the amount of money going to the government.
Let’s have an example of a flat tax policy, using four archetype people. The first makes 40k annually, the second 100k and the third 400k and the fourth 1,000k. For sake of easy math, we will set the flat tax rate at 10%. Under this system (ignoring any tax sheltering) the people would pay, 4k, 10k, 40k and 100k respectively. After tax they would have 36k, 90k, 360k and 900k, respectively. The total tax collected in this example is 154k.
Now, let us have an example of progressive tax policy, where you pay more if you make more. Using the same four people from above, we will change the tax rates to 5%, 10%, 20% and 40% respectively. Thus, each person would pay 2k, 10k, 50k and 400k respectively. After tax, each person has 38k, 90k, 350k and 600k, respectively. In this example, each person still has more remaining the next person below them started with before taxes. The total tax collected in this example is 462k, over three times the first example.
Some conservatives who see the first example as being most fair to all, will likely be thinking that there are 10 times as many people in the first two archetypes as the second two. Here the math gets a bit more complicated because of the difference between individual incomes and household incomes. However, even if that were true ten people making 40k nets the same tax as one person making 400k so it brakes even. If by even you think that one person paying as much as ten people is fair or even.
According to the census bureau, in 2005, 71% of individuals and 51% of households earned less than 50k. Compared to 22% of individuals and 29% of households making between 50k and 100k, you can see that households are likely to have more than one income at this level. Adding the two together we see that 93% of individuals and 83% of households make less than 100k annually. That means about one in five households make more than 100k. Under a flat tax system is would take 10 households making 100k to equal the tax collected from one household making one million. Going back to the census report, 7% of individuals and 17% of households make over 100k. However, if we break it down even further, 11% of households make between 75k and 100k and 10% make between 100k and 150k with the remaining 5.84% of households making above 150k. There are only 4 times as many people making between 75k and 150k as are making over 150k. Again it would take 10 people making 75k to equal one person making 750k.
In the above example, I have used elementary mathematics. No matter what tax rate you choose it still takes ten times as many lower earners to equal the tax paid by one person making ten times as much. According to the web site TruthAndPolitics.org, the top income tax rate between 1951 and 1964 was between 87% and 91% for people making more than 400k. This is an era largely considered to be a golden age of prosperity in America. Since then the tax rate has gone down along with the top tier of income level. While that occurred the deficit grew and grew. So, the question remains; what is a reasonable tax policy? What is fair?