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Thursday, January 27, 2011

Taxes so simple a 12 year-old gets it

Last week I was sitting in the office working on a couple of things when one of my coworkers mentioned a conversation about taxes she'd had with her 12 year old son.
I'm not quoting verbatim here, so bear with me, I got the sense of it.
It went something like this:
"So they tax you on what you make?"
"Then they tax you on the food you buy?"
"Then you pay taxes on your car?"
"Then you have to pay taxes on your house?"
"That's stupid!"
My reaction was to jump up, throw my hands in the air and scream, "YES!! YES!!! A 12 YEAR OLD GETS IT! WHY CAN'T CONGRESS!?!"
And that's the thing, even a 12 year old can see we're overtaxed. Between state and federal income taxes, sales taxes, gas taxes, automobile property taxes, home property taxes, social security taxes, taxes on your phone bill, more taxes on your Internet bill and probably a few more I'm forgetting, (some major cities have income taxes too) the average American taxpayer is taxed something like 50 percent of his income.
It's not just stupid, it's insane.
It should be pretty obvious in a market-based economy, which ours ostensibly is, that the more money you remove from circulation via taxes, the less there is for individuals to spend to drive the economy. Therefore taxation above a certain point has a chilling effect on the economy.
It's also pretty obvious that Congress just doesn't get it — and never has.
According to the Wikipedia entry on the income tax in the United States in 1944 and 1945 the top marginal rate was 94 percent on incomes above $200,000 a year. Granted that was a lot more money back then, but think about it — for every dollar someone in the top bracket made they got to keep six cents.
The only thing which made those tax rates even remotely sustainable was the war. There was 100 percent employment and most of the workforce was not at home needing to buy things, it was in the military.
These days the economy is in the tank, unemployment is, depending on who you ask, either hovering near 10 percent or well beyond it — taking half the money someone makes, given the falling value of the dollar is just nuts.
The purchasing power of each dollar we make is down, gas is over $3 a gallon and headed for $4 or $5 and half or more of our money goes to one governmental entity or another. Meanwhile they keep spending like drunken — I'd say sailors, but that would be an insult to drunken sailors.
All of it has to stop. We cannot continue to tax the way we do.
My suggestion has always been a flat tax. It doesn't get much fairer than that, or more progressive. If it's say 15 percent across the board, then those who make big bucks pay big bucks, those who make small bucks pay small bucks.
Unfortunately it's probably never going to happen. Neither will a national sales tax — at least not coupled with the elimination of the current tax system. I can see either or both being added. In neither case can the tax code simply be amended to put them in place. It will require the repeal of the the 16th Amendment to the the Constitution — which is unlikely to get through Congress although I suspect ratification by the states would be a foregone conclusion.
In the end, as I have noted before, the major problem is spending. But spending reform which is not coupled with tax reform is a half measure, and the time for half measures is long past.
All IMHO, of course.

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