There are essentially two categories of taxes that a citizen of the United States pays: one group is called progressive and the other is regressive. A progressive tax is one that is “gradually increasing as an individual’s income increases beyond a certain minimum level. The income tax is an example of this type of tax. The more one earns the higher percentage of his/her salary the individual has to pay in taxes. In the case of State and Federal income tax the earnings have to be above a certain minimum for the person to pay any tax and then as the income rises so does the percentage paid to the government(s). Of course there are deductions which lower the income and the amount paid. Mitt Romney, with an income running into the multimillions in 2011 paid 14.1 % of his yearly income. It should be noted that he paid that much because he refused to take a two million deduction on his charitable contributions. In 2010 he paid thirteen something percent. The average earner getting about above fifty something thousand dollars a year, pays somewhere, after deductions, between twenty and thirty percent of their yearly compensation in income taxes.
(Parenthetically Romney has three years to file an amended tax return to claim and get money back for the two million in contributions he did not use in his 2011 income tax. If he loses the 2012 Presidential Election, or, for that matter, even if he wins the election he can still claim that amount and bring his percentage down to eleven or twelve percent of his income for that year.)
Most other taxes: sales, excise, etc. are regressive taxes. Paying this tax has nothing to do with your income. Everyone buys food and the assorted items needed for daily living; and they all, more or less, pay equally for these items. Consequently the more one earns the less a percentage of their income is spent on these items. These taxes are regressive in form because the smaller the income the higher a percentage is paid in taxes. Those people who are earning too little to pay income taxes are spending a large part of their resources on these survival items and paying a goodly percentage of their incomes on these taxes.. Both the poorest and richest people around must have food and shelter to survive. The difference that they would spend on these items is astronomical.
The other tax that seems to fall between these two areas is property tax. In order to pay this tax one has to own property and the appraised value of the property determines the amount of the tax. In the state of California there is an exception to this principle. In 1979 Proposition 13 was passed which lowered everyone’s tax rate and there after only allowed it to increase two or two-and-a-half percent per year. Everyone, who bought property after that point, paid and has continued to pay a higher tax rate than the people or corporations who owned property before the measure was passed. Still the category of this tax is somewhere between progressive and recessive taxes. For example Mitt Romney owns five houses, each valued at well over a million dollars. I own one house valued at well under one million dollars. In addition I have owned this house in California since 1970. I pay far less in property taxes than Mitt Romney. My neighbors, who have purchased similar houses after 1979 pay more than double what I pay. A person, who does not want to purchase or cannot afford property and rents, pays his/her share in their rent.
The question raised by Franklin Delano Roosevelt in his first Administration, during the low point of the Great Depression was: How much does a person need to live comfortably for a year? Roosevelt felt that beyond a certain point the amount of money being earned was ridiculous; after all, how much could any individual spend, for himself and possibly for his family, in a year. Amassing large amounts of funds for their own sake was ridiculous, particularly in a dire time of need. He felt that the balance should be taxed. To Roosevelt, the progressive or graduated income tax should be a means of serving the entire nation. Both Houses of Congress refused to go along with this idea and it never even came to a vote in either House of Congress.
In his Third Administration, during World War II, Roosevelt brought the same point up again in terms of war profits. Again Congress refused to consider the idea. It was not really an issue then because anyone who could or wanted to work was employed helping the War Effort. The problem then, with the war, was that there were not enough goods for everyone who had money to spend.
The problem seems to deal with the concept of what is really wealth. Is the money spent to acquire the goods and services produced or is it really the goods and services produced? Is it the productivity of the nation or the money, which the government prints?
If it’s the money then some individuals can amass great amounts of currency in their lifetime and they will then be very wealthy. But if the true wealth is the productivity of the nation, then the wealth is determined by both the level of productivity, and the prosperity of everyone in the nation.
The issue is confusing. Obviously the answer is on two levels: one, money determines an individual’s level of success within the economy. Also money has value in that it can be exchanged for goods and services in the present or in the future. Actually the currency is really a means of exchange. In itself, money has no real value except that arbitrarily assigned to it by the state. In a manner of speaking, money is the tail that wages the dog, the economy.
Roosevelt’s point is well taken: there are only so many goods and services that can be used in a year or even in a lifetime. If there is much more money than is needed, then those amounts are superfluous funds and should be taxed and used for the common good. Money ceased to have any real value when it became paper with nothing behind it but the word of the government.
It can and has been further argued that if tax policy stuck to its principles and was truly graduated for the rich then why should anyone create new industries. Take for example Bill Gates, one of the enervators of Microsoft. Gates is today a billionaire, who is currently spending his life giving millions away to assorted charities. And he and his wife are trying to upgrade the human condition, through medical, educational, and assorted other charities.
Another justification for gathering wealth is so that it can be used for inheritance purposes to create a future dynasty. Mitt Romney is a good example of that category; he has set up a trust fund for his five adult sons and their families of one hundred million dollars; and he has kept for himself and his immediate family between one hundred and ninety to two hundred and fifty million dollars, which was mostly “harvested” from his years as CEO of Bain Capital. In addition he has a ten million dollar retirement fund, from which he should start collecting soon, since he is in his sixties. It’s interesting to note that no one in his family even has to get out of bed to live comfortably for countless generations. Parenthetically, I would wonder if he’s really doing them a favor? What is needed there is a stout inheritance tax for a number of generations!
To the individual, monetary success is important; to the Federal Government economic prosperity is necessary. These two forces contradict one another. What we are dealing with, here, is microeconomics vs. macroeconomics. Microeconomics is the individual and his level of success, which, unfortunately, has led to economic winners and losers. In 2012 the estimate is that twenty percent of the population in the U.S., one in five people, are food insecure and go to bed hungry or without proper nutrition every night, while one percent lavish in lush wealth.
Money, itself, as we have seen, has no real intrinsic value: it is all token, fancy printed paper and cheap metal coins that have only the word of their government behind them. As long as everybody, nationally and internationally, agree on the value of the currency, it exists. To the Federal Government money is a tool to enhance productivity. In a manner of speaking the Federal Government owns the printing press and all it takes to issue more dollars is an act of Congress signed by the President. The amount of money in circulation has to be great enough to allow for full possible productivity and just short of the amount that will start a spiral of inflation.
The question then is: What is more important Macroeconomics or Microeconomics? Where should the emphasis be placed? Should it be with the prosperity of the country, or with the prosperity of a small number of the population?
I don’t think there’s any question that the prosperity of the entire population should be primary and Franklin Delano Roosevelt’s point about the graduated income tax is valid. The Federal Government should control the money supply and its continuous goal or mission should be the welfare of the entire population.
We desperately need realistic tax reform!