The Weiner Component Vol.2 #12 – Trump & Taxes

speaking at CPAC in Washington D.C. on Februar...

Donald J. Trump, the candidate, made assorted promises to assorted groups about what he would do with taxes. At a rally in Scranton, Pa. he promised to “massively cut taxes for the middle class, the forgotten people, the forgotten men and women of this country who built our country.” At a town hall meeting on NBC’s Today Show, Trump said he believes in raising taxes for the wealthy. He has also promised to lower taxes for the wealthy and for corporations. The last part, he said, will bring jobs back into the United States. According to one survey taken after the last debate he had with Hillary Clinton, 51 percent of the people intending to vote for him supported increasing taxes on high earning individuals.

 

Trump, the President, has come out with his tax plan. Under it the top one percent, people like himself, will get about half of the benefits of his tax cuts. A millionaire would get an average tax cut of $317,000 up, depending upon how many millions he earned over the year.

 

Trump reduces the current seven tax brackets down to three distinct categories. He does away or repeals the head of household tax filing category. He raises the standard deduction for married couples filing jointly from $12,000 to $30,000 and for single individuals with or without children from $6,300 currently for those with no dependents to $15,000. Those who are currently single heads of households, like divorced women with children, would actually have their income taxes increased.

 

A family earning between $40,000 and $50,000 a year would get a tax cut of $560. But millions of middle class working families will have their tax bills rise under Trump’s plan. This is especially true for single-parent families because of the repeal of the head of household filing status as well as that of personal exceptions. Under Trump’s plan a single parent with $75,000 in earnings, two school age children and no child care costs would pay an additional $2,440 in income taxes. While a single parent with an income of $50,000, three teen-aged school children would be taxed an additional $1,186. A married couple with $50,000 in earnings and two school age would see a tax increase of $159. Many married couples would see no benefit from his so-called tax reform.

 

Presumably Trump’s proposal to cut the corporate tax rate from thirty-five percent to fifteen percent will help all taxpayers by boosting economic growth. He would also eliminate the Federal Estate Tax completely. This tax is paid by only the wealthiest taxpayers, by less than the top one percent. It’s a good way to keep wealth in the hands of the few. And, of course, he will do nothing to raise the federal level of minimum pay beyond $7.25 an hour.

 

President Trump’s Tax Plan does not deal with the needs of the Middle Class nor with single individuals raising families but is basically a give-away to the wealthy and the large corporations. He seems to be satisfying the economic group to which he belongs rather than dealing with the needs of the many.

********************************

The United States is a Federal Republic consisting of federal, state, and local governments. Taxes are imposed on each of these levels. These include taxes on income, payroll, property, sales, capital gains, dividends, interest, imports, estates, school districts, and gifts. There are also various fees and licenses. These are imposed on net income of individuals, businesses, and corporations by the federal and some local governments.

 

Most business expenses and some living costs reduce taxable income. Among these are mortgage interest, if you own a house, state and local taxes, charitable contributions, and medical costs. Payroll taxes are paid by both the employer and the employee, as are Social Security and Medicare. An unemployment tax is an expense only to the employer.

 

Property taxes are imposed by most local governments and many special purpose authorities like school districts. These are based upon the appraised value of the property and more than one such tax can be imposed upon a single property.

***********************************

There are two types of taxation in the United States. One type is Progressive Taxation and all the others are Regressive Taxation. The Progressive is the Income Tax, as utilized by the Federal Government and a number of states. Here the more one earns the larger is the percent of their income they pay in taxes. In terms of Regressive Taxation, here everyone pays the same amount of their income regardless of how large or small it is.

 

A Regressive Tax would be a sales tax, value added taxes as in the purchase of gasoline or liquor, both of which would also include sales tax. It would be on imports, licenses for anything. It is a fixed amount that everyone would pay equally, regardless of how much or little they earn.

 

The problem with the progressive tax in America is that it is progressive up to a point and then it becomes regressive. Currently there are seven levels going from 10 to 40 percent of the taxed incomes after deductions are subtracted from the income. Progressive taxes go from $9,275 for a single person to $466,950 for a married couple filing jointly. In between these two there is another category called head of household, which is more than a single person pays and less than a married couple is taxed. After the income reaches $466,950, no matter how high it goes, the amount paid remains at 40 percent. Percentage wise the amount paid in taxes actually decreases.

 

Mitt Romney, when he was running for President in 2012 released his taxes for that year. The amount he paid was eleven or twelve percent of his annual income. The average family with an income well under $100,000 will pay 25 to 35 percent in income taxes.

 

The CEO of Hewlett Packard earns 15 million a year, which is over one million a month. Her taxes increase as her income rises in January, the first month of the year, until she reaches $466,950, then for the remaining eleven months of the year she will pay a fixed 40 percent of her income in taxes.

 

Donald Trump, who claims to have ten billion dollars, which he has never proven, has at least multi-millions. He pays the same 40 percent of his income in income taxes; but when eating at a restaurant would pay the same rate of sales tax as a man who could only afford to take his wife to a fancy dinner once a year.

 

Trump would reduce the current seven stages of income taxes to three levels: 12%, 26%, and 33%. His maximum income tax would be at 33 percent. A married couple filing jointly would pay $225,000. No one would pay a larger amount than the person earning a little under ¼ of a million dollars and heads of households would pay the single rate. Under Trump’s plan the system becomes far more regressive and the government collects far less in taxes during a period when the National Debt is over 19 trillion dollars. It could conceivably double under Trump.

*******************************

Trump also wants to reduce the corporate tax rate from 35% to 15%. He argues that this will bring industry back to the United States. The actual corporate tax that the government collects is lower than that of Germany, Canada, Japan, and China, among others. The reason for this is called tax expenditures, which is a term designed to legitimize special interest tax breaks and loopholes.

 

The 35% tax rate for most large corporations is a joke. Some of the largest corporations in the United States pay no taxes at all. Two examples would be General Electric and Wells Fargo. These and many other major corporations pay no income tax because the Tax Code is riddled with exemptions and loopholes. These were essentially created by lobbyists. The Tax Code is 71,000 pages long. It has been constantly added to over the years.

 

From 2008 to 2010 at least 30 Fortune 500 Companies, such as Pepsi Cola, Verizon, Wells Fargo, and DuPont, paid more to lobbyists than they did in taxes. They spent $476 million pressuring Congress for tax break loopholes and special subsidies. They kept $164 billion in profits and received $10.6 billion in rebates.

 

In a sense it can be said that Congress sells loopholes and subsidies. Monsanto paid 22 instead of 35%, while DuPont received a 72 million dollar rebate when it made a profit of 2.1 billion dollars. Basically the Tax Code is a mess.

 

In the United States elections are expensive. The Congressmen from both parties accept contributions, particularly in the House of Representatives when they run for office every two years. In addition Congressmen accept benefices from lobbyists but, here, the Republicans are the worst of the two. They prattle on about free markets while protecting just about any market-distorting loophole. Essentially their campaigns are largely funded by the Pharmaceutical Companies who they allow a very large return on what they sell.

*******************************

Legal tax scams do and have abounded in the United States; but will President Trump improve or worsen the situation? The high probability is that if Trump gets his way it will be like Christmas for the plutocrats in the country. While they have gotten away with all sorts of scams to date the situation will improve for them by 1,000 percent. The U.S. could well become a country of the rich, for the rich, run by the rich. Trump, who admitted to paying no income taxes for years will legally remain in that position. And so will others like him.

 

But Trump is not a legislator, he is the chief administrator in the country. Congress may not go along with him. As stated earlier the current Tax Code is 71,000 pages long. Trump had a problem with the Health Care Law. It is only 1,000 pages long. He found that group of laws very complicated. The Tax Code is 71 times more complicated. If he tried to simply eradicate the current law there would also be a lot of unhappy lobbyists whose companies would lose their subsidies. Some of these companies would even have to pay some taxes. Life can be very complicated at times!

**************************************

The major problem that Trump seems to be facing with tax relief for corporations and the economically upper one or two percent is that his tax relief program will reduce the Federal Government’s taxable income by over 8 billion dollars. Initially his plan was to reduce the funding for Universal Health Care by about 8 billion dollars. But since every electoral district in the country is vociferously against doing away with Affordable Health Care he has a severe monetary problem. A tax cut of the dimensions he wants could double the National Debt by the end of his presidency. It currently stands at 19 plus trillion dollars. In order to fund his tax cut he has to defund Obamacare.

 

Stay tuned in, after failing the first time, Congress is again talking about “repealing and replacing” Affordable Health Care. Paul Ryan is again talking about a new bill that will make health care available to everyone who can afford it.

 

 

 

The Weiner Component #138 – The Current System of American Taxation: Loopholes & Special Privileges

Distribution of U.S. federal taxes for 2000 as...

English: Tim Walz, candidate for United States...

English: Tim Walz, candidate for United States Congress, at a Memorial Day picnic in Rochester, Minnesota (Photo credit: Wikipedia)

English: Grover Norquist at a political confer...

English: Grover Norquist at a political conference in Orlando, Florida. (Photo credit: Wikipedia)

In this year of 2015 the American System of Taxation is set in such a fashion to totally favor of the wealthy and the large corporations, at the expense of everyone else.  Probably not since shortly before the French Revolution in the late 19th Century has a system of taxation been so unfair as to place most of its burden upon the middle and lower classes.  If the general public became aware of the total extent of this there would be an outcry throughout most of the society.

 

In prerevolutionary France the nobility and church paid no taxes and wealthy members of the middle class paid a bonus one year to the government and never again had to pay taxes for themselves or their businesses.  Poorer class of society bore the burden of paying taxes.  In the United States we have lobbyists representing the wealthy and their businesses and they tend to control much of the legislation passed.

 

The very wealthy have somehow created the illusion that taxing the rich limits economic growth, particularly among members of the Republicans Party which they largely finance.  Their slogan is that the rich create jobs.  Of course there has never been any evidence of this.  Invariably, the former Speaker of the House of Representatives, John Boehner, has stated publically that the very rich create jobs.  He has strongly implied that taxing them would limit economic growth.

 

Practically all federal, state and municipal taxes are regressive.  The income taxes for a married couple filing jointly is graduated up to $457,600, but regressive for any amount above that figure.  Above that amount it becomes $127,962.50 no matter how high the earnings go, to one million, to one billion or beyond.  The maximum graduated level is slightly lower for a single filing his or her taxes.

 

All other taxes with the exception of federal and state income taxes up to a certain level, are regressive.  Most are usage taxes.  Here the argument for them is that they are fair because everyone pays the same amount.  The fallacy here is that if all these taxes are taken as a percentage of income then the more the individual earns the lower is the tax as a percentage of his income.  Consequently the poor and middle class, the overall majority of the population, pay a larger percentage of their incomes in these so-called fair taxes where everyone pays the same amount regardless of their actual incomes.

**************************

The United States tax code is 71,000 pages.  This document was not written all at once; it came into existence on a piecemeal basis over a large number of years.  Many bits and pieces were passed for the benefit of specific individuals and companies or special interests mostly with aid by lobbyists.  A goodly number of these taxes were sentences or even clauses added to other bills at the last minute and had no relationship to the bill in which they originally existed.

 

And since for the last six or so years every Republican has signed a pledge to Grover Norquist not to raise taxes.  This has made all these subsidies and loopholes sacrosanct; doing away with any of them would be raising taxes.  It could also cut political contributions to their political party.

 

It is important to remember that a Congressional Bill does not have to deal with just one subject.  It can deal with any number of topics.  But that bill has to be passed as one whole unit or not passed.  In addition any number of amendments on virtually any subject can be added to it.  Unlike some of the states which have a line item veto, that is any sentence or group of sentences can be individually vetoed by the governor before he signs the bill, a federal bill can only be signed and totally approved by the President or vetoed and totally rejected.

 

Perhaps it time to reform this practice.  Ronald Reagan, as President, had a line item veto when he was Governor of California but not as President of the United States.  He complained vociferously about this fact.  Numerous other presidents have made similar comments.  Whatever it would take to change the current practice would be a long step in the direction of reform.

 

Too many times a bill has to be passed and unrelated changes have been added to it.  In order to keep the government functioning the President has to sign the bill.  A line item veto would certainly make his job both easier and saner.

**************************

The tax code allows numerous deductions that are taken from the yearly income.  Some of these have definitions that have been expanded phenomenally.  For example in 1913 the home mortgage interest deduction was added.  It was added to encourage home ownership.  (Interestingly countries like Australia and Canada do not have a similar law but do have the same large amount of home ownership as the United States.)  The law was to make home ownership more affordable.

 

In more modern times Congress declared in a new bill that boats can be homes if they have a kitchen, bathroom, and sleeping quarters.  The luxury boating industry had been able to buy its way into home mortgages.  Three percent of the boating industry qualifies as homes and interest paid on their purchase loans is deductible.

 

For example someone like Microsoft CEO, Paul Allen, has a $200 million yacht that comes equipped with an indoor pool, basketball court and its own submarine.  It also has a kitchen, bathrooms, and sleeping quarters.  He is able to deduct the interest paid on his ocean going home from his yearly income taxes.

 

One Congressman, Tim Walz (D-Minnesota) stated that the law was passed to make home ownership more affordable for the middle class.  He wrote a bill: Ending Taxpayer Subsidies for Yacht’s Act, hoping to end the practice by the wealthy.  The chairman of the committee that handled the bill in committee is a Republican and did not even allow the bill to come up for examination.  The bill died in committee; it never even came up for a vote there.  Would it have passed if it came up on the floor of the House?  This is a tax loophole that benefits a few people at the very top, according to Walz.

******************************

The House of Representatives is composed of 19 standing committees and the Senate of 17.  The Speaker of the House and the Majority Leader of the Senate is responsible for assigning bills to the proper standing committee.

 

The House Rules Committee manages the flow of bills to the full House by scheduling their flow.  They can also ignore a bill if they think it appropriate.  In the Senate the majority floor leader controls the bills.  He can also ignore a bill.

The Standing Committees generally have jurisdiction over a specific set of issues such as Agriculture, Appropriations, Foreign Affairs, and Commerce.  Each has one or several functions.  They hold hearings, can amend, and report a bill under their jurisdiction.  The chairman can also remove a bill from consideration and the committee votes on whether or not to forward a bill to their entire house or remove it from consideration.

The House originates all revenue bills and the Senate has the power of “advice and consent” over the President’s appointments and treaties.  Whatever is not directly stated in the Constitution is controlled by the Ways & Means Committee, which has more representation by the majority party.  The Ethics Committee has equal representation by both parties.

**********************

Obviously the committee system is necessary because there are too many bills proposed for them to go directly to one of the Houses of Congress.  Obviously the Committee, or Subcommittee for that matter, which is made up of a small number of Congressmen and women, can more easily do everything necessary, marking up the bill and even possibly changing it.  It can kill the final version or recommend it for passage by the full body of the House or Senate.

 

In addition, as we’ve seen, the chairperson of the committee, who comes from the majority party of his/her particular House has almost dictatorial power in running  the committee he/she chairs.  This person does this by almost completely controlling the agenda of the committee.  They can and have ignored one or some of the bills the committee is supposed to deal with.  In this way a bill can be killed without ever having a hearing.  And this can be done to a bill that will probably pass.  It can even be done to a bill that has been passed in the other House.  Once this is done it is almost impossible to bring such a bill before the House or Senate.  And this is what has happened to every bill that has attempted to do away with any subsidy or tax loophole.

 

In all fairness it should also be stated that the same power exists in both Houses of Congress.  Both the Speaker of the House and the Majority Leader of the Senate have done so with and without good reason.

 

From 2011 on, when they took control of the House of Representatives, the Republican majority had passed a bill to do away with Affordable Health Care (Obamacare) at least 50 times.  Harry Reed, the then majority leader of the Senate never once even brought it to the floor of the Senate.  The same thing happened to a large number of bill passed by the then Democratic Senate.

 

Interestingly after the Republicans won control of the Senate in 2014 by a slight margin both they and the House, which has no Constitutional ability to do so, attempted to stop the President from negotiating with Iran.  The negotiations were being done by the leaders of the United Nations, which also included the U.S.  It was not an American treaty.  It did, however, include the U.S. as one of the six nations negotiating with Iran.  Both Republican Houses of Congress wanted to pass laws controlling this two year process.  Apparently the members of the House hadn’t read the Constitution or didn’t care what it said; and young Senator Tom Cotton attempted with 46 other Senate signatures to openly negotiate with Iran.

 

Can reform be brought about in the Committee System?  One possibility would be to change the rules on Committees requiring that all bills be examined that receiver a 40% approval rate by all the members of the committee.  This could be done once a week and would require a bit more work by the committee.  It would be following the example of the Supreme Court.  It takes four affirmative votes out of nine for them to accept a case.  Would Congress be willing be willing to bring about such a rule change?

***************************

Barak Obama, during his campaign for the presidency in 2008 promised, among other things, to end numerous loopholes and subsidies but he couldn’t get any of those bills through Congress.  He wanted to eliminate “special tax breaks for oil and gas companies, including special expensing rules, foreign tax credit benefits, and manufacturing deductions for the rich oil and gas firms.

 

The American Petroleum Institute stated, I imagine proudly, that none of President Obama’s proposed bills, which would be presented by a member of Congress in one or both Houses of Congress, were enacted into law; in fact, they were dead upon arrival in either House.  Is lobbying sometimes open bribery?

 

When a bill is presented in either House of Congress it is given a number and sent by the Ways & Means Committee to a specific Standing Committee to be examined.  Each member of Congress is generally on at least two committees.  In the case of the House of Representatives most committees are also broken into subcommittees.  The Chair of each committee sets the agenda for each meeting.  From 2011, when the Republicans gained the majority in the House of Representatives, the chairman became a Republican and, from what I understand, no tax reform bill made it to a committee for examination and recommendation.  This also occurred in the Senate from 2014 on when the Republicans received a slight majority there.

 

From 2009 to 2010 both the House and Senate were very busy fighting off a giant depression and Republicans were busy fighting off Affordable Health Care (Obamacare) which they failed to keep from passing.  There would have been little or any time for the Democratic Congress to do anything else.  And if such a bill came up in the Senate it could have been easily filibustered.  In the House of Representatives extended debate and amendments to the bill, which would add endlessly, to the extended debate, would have easily killed any bill.

 

If we ask why any loophole of subsidy bill would present a problem?  The answer is that a very large percentage of Congressmen or women are dependent upon these very companies for large political contributions.  Are they then dependent upon bribes?  The answer is legally no, but technically yes.

 

In order for an individual to run for either House of Congress he/she needs large amounts of money for staff, adds, mailings, television commercials, etc.  This money is supplied for Republicans and many Democrats by political contributions.  For example Ted Cruz’s current presidential campaign is currently being financed mostly by four very rich individuals.  I suspect that if he got elected he would do nothing to make any of these individuals unhappy about anything.  The same attitude would be true for any House or Senate member.

 

The contributors, individuals and companies, which make large contributions to political campaigns have purchased almost instant access to the people they have financially funded.  In addition many government officials also have use of company jets and free expensive vacations.  Is it bribery or an exchange among friends?  The legislators are supposed to represent their constituents who elect them.  But who is primary?  Is it the constituents or the large contributors?

 

Whether the legislator truly believes he is acting for the good of his state or understands that he is paying a debt by supporting his major contributor’s interests is really beside the point.  The interests of the large contributors are primary in the minds of the legislators.  To go against their interests would be an act of financial suicide.  It would cut off large portions of their funding and they could easily loose them the support of their party as well as that of the large contributor.

 

Why then have the Republicans, as a group, refuted the concept of climate change.  Presumably for them the planet is getting less inhabitable not because of man’s increasing pollution but probably because God is ticked off with people.

 

Can the current system be adjusted so that Congress can go back to the original purpose of the Founding Fathers, to serve the people of the United States?  Interesting question!  Not too long ago the Supreme Court in the Citizen’s United Case expanded the meaning of a part of the First Amendment to make the spending of money part of the Free Speech clause of the First Amendment to the Constitution.  This has led to almost unlimited spending in political elections because money is now an expression of free speech.  To limit contributions in a political election is now to limit the expression of free speech.

 

The political system, by the way it is set up, practically puts every politician susceptible to some level of corruption.  Can this system be changed?  Another interesting question.  Can tax reform come about?  Not by the current organization of Congress.

English: This is a chart created to demonstrat...

The Weiner Component: Part 2 – Taxes & the Republican Party

English: Federal income tax amounts in the Uni...

English: Federal income tax amounts in the United States, based on average pretax household income (2003). The primary source of the information is the Congressional Budget Office’s publication titled, “Historical Effective Tax Rates.” (Photo credit: Wikipedia)

English: Plot of top bracket from U.S. Federal...

English: Plot of top bracket from U.S. Federal Marginal Income Tax Rates for 1913 to 2009. Data are from http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#History_of_progressivity_in_federal_income_tax (Photo credit: Wikipedia)

No one will argue that the Federal Tax System (the income tax) is fair and doesn’t need reform.  The problem is that both the Republicans and the Democrats come at it from totally different perspectives and cannot even begin to come to any sort of agreement about what should be done.

 

The Republicans are supposed to be the party of balanced budgets.  They have systematically held to two major positions: a balanced budget and not increasing the tax rate for the rich or for large corporations; in fact for a large number of years every incoming Republican to the House or Senate has sworn an oath/pledge in writing to Grover Norquist, a lobbyist with no direct connection to the Federal Government that he or she will not raise taxes.  They have also verbally and dramatically supported raising the rate of expenditure for the military with cuts to entitlement programs.

 

Yet the last three Republican Presidents, starting with Ronald Reagan and the two Bush’s, father and son, through military preparedness and wars have raised the National Deficit from one trillion dollars to over thirteen trillion dollars and, in addition, the last Republican President, George W. Bush, left the country at the end of his term in office at the very edge of a major depression.  Avoiding this potential Great Depression caused the next President, Barak Obama, in 2009 to have to spend a far greater amount than was taken in in taxes over most of his two terms to avoid economic calamity and to continue the two wars that Bush propagated, bringing the current deficit up to over seventeen trillion dollars.  Finally, toward the end of 2015, the administration may be able to reduce slightly the deficit.

 

The Republican majorities in Congress are still “Penny wise and dollar stupid,” refusing to spend money on fiscal policy which would both help leave the remnants of the 2008 recession behind us, improve the needed outdated early 20th Century infrastructure of the United States and significantly lower the current rate of unemployment.  They have since 2011, when they gained control of the House of Representatives, refused to pass any spending bills that would upgrade any of the needed infrastructure of the United States, like hundred year old bridges.

 

Their aim seems to be to lower taxes for the upper few percent of the earners, who they call the “job creators,” and increasing the taxes for the middle and lower classes.  In this process, regretfully, they have been fairly successful.  The middle class has been since 1980 decreasing in percentage of the population and the lower class has been growing, to a point where homelessness can be seen today in almost any major city in the U.S.  In fact poverty is at a higher rate today than it’s been in years and is continuing to increase.

 

Since the Republicans cannot get the Democrats in Congress to openly go along with tax cuts for the wealthy and paying for this with large cuts in entitlement programs they have in 2013 passed the sequester law, which automatically makes cuts across the board in government spending.  Most of these automatic cuts seem to be invisible but when one become openly harmful to the economy a law can quickly be passed funding it.  Such was the case with the air controllers at the airports throughout the U.S.   Such was not the case in terms of the U.S. military; they are currently in the worst state of preparedness they have been in decades.  It’s as though the Republicans in Congress are saying one thing, getting the nation ready for war with Iran when they completely take over the government after the next election and at the same time, assuming that they will not have to pay for the war or anything else.  Their actions and intent verge on idiocy and irresponsibility or on a total inability to deal with the real world.

 

One of their major actions during the last thirty-five years has been to systematically reduce taxes for the very wealthy and gradually increase it or make up for the increasing deficit by increasing the tax base for the middle and lower classes.  Some of this has been done by indexing income taxes; that is, with natural inflation incomes rise while purchasing power stays the same or decreases.  This throws many members of the middle class into higher tax categories because their incomes increase but their standard of living actually decreases.

 

Many or most Republicans legislators probably are not even aware that this is happening because it has been going on for over three decades.  Most, if not all of them, have come into office in Congress well after this process has been begun and have just continued it.  If we look at the pattern of taxation over the last fifty years this is one aspect that we can easily see.

 

The major responsibility for all these changes rests with the Republicans, their major contributors and the lobbies working for these people.  And the Supreme Court, in recent years, has expedited this process by defining contributions to political parties as just another form of “free speech guaranteed by the First Amendment to the Constitution.”

****************************************

First off, taxes are either progressive: everyone pays according to their ability to pay, or they are regressive: everyone pays equally, which means the rich pay a smaller percentage of their incomes on these taxes than the middle or lower classes.  In essence the lower one’s income the higher a percentage of his income would be paid on these taxes.  Examples of this kind of tax would be a sales tax or an excise tax.  Everyone pays these equally.

 

An example of a progressive tax would be the Federal or State income taxes.  They are progressive up to a point, that is up to a little over 400,000 dollars.  Up to this amount the percentage of the tax is gradually increased as incomes becomes larger.  After the maximum, a little over 400,000 dollars is reached the income tax becomes regressive in that the percentage paid becomes fixed no matter how great the income is over this amount.

 

An individual earning ten or twenty million a year or more would continue paying the same percentage as someone who has only earned 400,000 dollars a year.  In point of fact the higher his income the lower the percentage that individual pays in taxes.

 

Virtually all other taxes, which are touted as being fair because everyone pays the same amount, are regressive.  The wealthier one is, the lower that tax is in terms of a percentage of his income.

 

If we look at the 2014 Income tax schedule there are four categories for taxpayers: (1) Single, (2) Married Filing Jointly, (3) Married Filing  Separately, & (4) Head of Household.

 

Using Schedule Y-1: Married Filing Jointly as our example one sees the sequence of taxes for 1914.  For earning up to $18.150 there is no income tax.  For a couple earning between $18,150 and $73,800 the tax is $10,162 + 15% over $18,150.  For earning of $73,800 to $148,850 the tax is $10,162 + 25% of the amount over $73,800. If a family earns between $148,850 and $226,850 the tax is $28,925 + 28% over $148,850.  For between $226,850 and $405,100 the tax is $50,765 +33% over $226,850.  If they earn between $405,100 and $457,600 the tax is $$109,587.50 + 39%.  At $457,600 up they pay $127,962.50 + 39.6% no matter how much they earn.

The amounts are slightly less for a single person and roughly half for a married taxpayer filing separately.

 

In essence everyone pays increasing amounts for each category until they reach their total income after legal deductions.  This would be true for those earning over $457,600, except that after that amount they would pay $127,962.50 + 39.5% of their income.  If they earn a million it would be that amount and would remain the same with earnings of a billion or more.

 

Note that anyone earning any amount over $457,600 pays that same percentage whether his income is one million or over a billion dollars.  While this may seem like a lot of money still in comparison to the percentage of their incomes which most taxpayers have to pay who are under the $450,000 benefit it can be a very much smaller percentage of their yearly incomes.  In the case of someone like the Koch Brothers, who are estimated to have at least a $100 billion each, it can be well under ten percent of their yearly incomes.

 

Mitt Romney, in 2012 when he was running for the presidency, released one year’s tax percentage.  It was 11 or 12%.  No one earning less than $400,000 a year pays that small a percentage of their income

 

If we look at the taxes in 1980, the last year of Jimmy Carter’s presidency, the percentage in income paid in income taxes were graduated up to an income of one million dollars.  The more one earned the higher the percentage he paid in income taxes.  At $100,000 the tax was 27.3%.  At $200,000 it was 33.1%.  At $500,000 it was 40%.  Up to $1,000,000 it was 44.6%.  And over $1,000,000 it was 47.9% of the yearly income.  The income tax became regressive on earnings well over the million dollar mark.  But it was still a fairer income tax than that of 2014.

 

From 1932 to 1935 the percentage of income taxes for those earning one million or more was 63%.  It rose to 94% from 1944 – 1945 and then gradually declined to 92% by 1952 – 1953.  By 2013 for those earning $450,000+ the rate of taxation became 39.6%.

 

In 1981 Ronald Reagan became President of the United States.  From that point on the maximum percentage seemed to flow toward 39.6% for those earning $457,600 or more.  This amount was fixed, under the guise of tax reform, during the Obama Administration.  The Republicans who then held a majority in the House and were able to freely filibuster in the Senate absolutely refused to go over that amount.  It was that or nothing.

 

With the oncoming 2016 election this issue hangs in the air again.  A Republican majority currently exists in both Houses of Congress.  If a Republican president is elected then the tax reform will be enacted for the upper few percent of earners in the country.  The rich will keep more of their incomes and the middle and lower classes will get far less than they currently have.  It will truly be Government of the Rich, for the Rich, and by the Rich.  All entitlement programs for the poor and general public will diminish considerably.

 

In fact in one of his speeches Jed Bush has promised to lower taxes for the upper few percentage of the earning population.  His justification is that this will increase employment in the U.S. because these are the people who create jobs.  Historically this has never happened.  But Bush Jr. presumes he knows best.

 

If, on the other hand, the Democrats were to win both Congress and the Presidency then we could see genuine reform of our income tax system.  But the probability is that 2016 will give the country another Democratic President and the House of Representatives will maintain, through gerrymandering, a Republican majority.  The Democrats will still not have a super-majority in the Senate, so it will again be open to filibustering.  There will still be no way for real tax reform.  However we can hope for miracles.

Distribution of U.S. federal taxes for 2000 as...

Distribution of U.S. federal taxes for 2000 as a percentage of income among the family income quintiles. Source: Department of the Treasury, Office of Tax Analysis Working Paper #85, “U.S. Treasury Distributional Methodology” by Julie-Anne Cronin (September 1999)- also available here (Photo credit: Wikipedia)

The Weiner Component #27 – Subsidies & Taxes: Is There a Difference?

End crop subsidies

In order for any government to function it must have some source of revenue that allows it to pay its expenses.  In addition, for a nation to grow, both during periods of peace and war, it must have a means of encouraging the development of new or fledgling industries.  A major method of doing this is through subsidies, which reduce taxes in specific areas of economic growth.  These are tax subsidies that are supposed to be used only when they are needed.  Once the fledgling industry can compete on a world-trading basis or can supply the needs of its-own country these subsidies are no longer needed and should be done away with.  Unfortunately that is not always the case.

During the early days of the United States the source of government income was mostly tariffs, a small tax on all goods being imported.  As the country grew so did its need for money to fund its operation and other things within the nation were taxed.  Eventually, with wars, beginning with the Civil War, individual gross income was taxed.  The Supreme Court eventually declared this income tax unconstitutional.  Early in 20th Century the Constitution was amended, Article XVI, legalizing the income tax.  It has existed ever since as one the main sources of revenue for the Federal Government and also for most of the state governments.

This tax, from its beginning was supposed to be a graduated tax; the amount people paid was to be based upon their ability to pay, the more one earned the greater the percent the individual paid.  Thus the amounts paid were based upon the individual or household’s ability to pay.

During the later part of the 20th Century taxable income, the income tax, was divided into two major categories, regular income and capital gain or active and passive income.  Active income was money directly earned by some form of employment; passive income was an increase in value of something, stock, property, art or anything increasing in value over a passage of time.  The object of this was to encourage the sale of the property or stock or whatever the item was, since it could only be taxed when it was exchanged for money.

Also with capital gain the increase in value had to be significant if it were to be sold, otherwise the profit would be eaten up by the amount of the tax.  Consequently capital gain was considered a reasonable extension of the income tax laws.  However over the years many accountants have been able to extend it to cover a goodly percentage of the upper echelon’s income and subsequently have considerably reduced the percentage of their earnings paid in taxes.  Someone like Mitt Romney pays fourteen percent or less of his million plus income while the ordinary citizen earning far less than one hundred thousand dollars a year will pay twenty to twenty-five percent of their income in these taxes.  There is now a move to reduce the capital gains tax and/or increase the tax base of anyone earning a million dollars or more a year.

On the other hand the Federal Government is and has been giving subsidies to many people and companies investing in green forms of power, saving or producing devices like those that make electricity or hot water from light.  These devices are usually installed on the roofs of homes or they can be money invested in electricity producing windmills that generate electricity or similar resource creating devices.  The individual’s benefit derived from this type of investment is not to decrease his overall taxable income by the amount spent on the device but a direct deduction from the money owed to the government.  If you owe fifteen thousand dollars in income taxes that year and the power-saving device cost ten thousand dollars to buy and install, then the tax owed is reduced to five thousand dollars.  If the cost of the device is greater than your taxes then you can carry the difference over to the next year.  It is a means of economically encouraging households “to go green” and inexpensively increase the amount of available resources for the country

In the case of businesses or corporations this encouragement is carried out by “subsidies.”  Subsidies according to Webster’s dictionary are “grants of money by a government to a private person or company to assist an enterprise advantageous to the public.”    Usually these grants are supposed to function as long as it is advantageous for the country to fund that entity.  This usually means allowing a fledgling company to grow large enough to become competitive with similar concerns from other nations or to allow forms of exploration that the concern cannot itself afford, such as drilling for oil in the Gulf of Mexico.  The oil subsidies, for example, were begun in the early 1940’s to allow for rapid exploration during World War II.  With some modifications and additions they are still going on today.  If the government were to stop or limit these subsidies in no way is it taxing these companies which today are making profits in the billions of dollars.

For practical reasons over the years many corporations were given innumerable subsidies, generally for very good reasons.  These subsidies are, in most cases, no longer practical, as currently most of these corporations are multi-profitable.  In point of fact many, like the oil interests, tend to use some of their subsidy money to hire lobbyists and for contributions to both political parties.  While this is not legally bribery, it comes awfully close to being both coercion and bribery.

The current argument in Washington between the Democratic and Republican Parties defines these subsidies as being taxes.  If they were cancelled, John Boehner has argued, it would be raising taxes on “the job creators.”

As we’ve seen the large corporations that get these subsidies use the money mainly to fund lobbyists and to make financial contributions to both parties in both Houses of Congress.  What they are mining is the American taxpayer who indirectly ends up paying their bills.  Isn’t it time we stopped subsidizing companies that are making many billions of dollars in profits.  Subsidies are not taxes and should not be treated as such.  Let’s have a more reasonable system of taxation!

 

Enhanced by Zemanta

The Weiner Component #21 – Regressive Taxation

Tax

ALL TAXES PAID IN THE UNITED STATES ARE REGRESSIVE; THE MORE A PERSON EARNS THE SMALLER THE PERCENTAGE OF HIS/HER INCOME IS PAID IN TAXES.

 Mitt Romney released his income taxes for 2011 during the Presidential campaign in 2012.  He paid 14% of his total earnings, after deductions, in income taxes for that year.  He chose not to take one particular charity deduction of several million dollars so that his taxes would be as high as 14%.  After losing the election he probably filed an amended tax return and was able to lower his 2011 taxes to 12% or better.

 The official United States Government level of poverty, as issued by the Census Bureau in 2012, is $11,170 for one person.  $3,960 is added on for each additional individual above in number. The poverty level for a family of four would be $23,050.  The rate is somewhat higher in Alaska and Hawaii.  Do these people pay the graduated income tax?  I think not.  No one pays any income taxes on the first $10,000 they earn; but everyone does pay a goodly percentage of their incomes in all other taxes.  Of course, the more one earns the smaller a percentage of their income is paid on all taxes.

 No one in the middle or lower class pays as little as Mitt Romney does in income taxes.  The total taxes they pay would be between 25 and 35% of their gross incomes; and that is after all the deductions they can take.  For example, out of all earning up to $110,100 every employee has 10.4% taken out for Social Security.  That amount will rise to 12.4% in 2013 when the payroll tax will return to its original level.  Medicare, with no maximum limit, takes out 2.9%.  While it can be argued that these are government insurance programs they are still part of what every employer has to pay for each worker he hires.  Together these constitute 15.3% of every employee’s total compensation.

 It would be much fairer and far less regressive if the social security maximum were raised to include everyone’s total compensation package.  However it has been argued by a group of high earners that the $110,000 maximum income for social security should not be raised because it will create havoc in the society; but they say the retirement age for social security recipients should be raised to 75 years of age.  Self-interest seems to go far.  The economically privileged group would like to stay privileged. 

 In California the gasoline taxes are 69 cents per gallon.  In Wyoming they are 34.4 cents per gallon and in Alaska the cost is 24.4 cents.  All the other forty-seven states range between California and Wyoming, with Hawaii coming in as the second most expensive at 68 cents per gallon.  These amounts do mot include all Federal, state, city and local sales taxes.  Is the use of gasoline more extensive with the wealthy or is it a generally fixed amount for everyone?  Actually everyone pays about the same amount, either directly or indirectly, for gasoline usage and the greater the income the smaller a percentage of the income that is.

 The above is one example where the tax is included within the price of the item.  Another example would be cigarettes.  In 2009 the Children’s Health Insurance Program Reauthorization Act was signed into law.  It raised the Federal tax on cigarettes from 39 cents per pack of twenty to $1.81 cents.  In addition the individual states have taxes going from 17 cents per pack to $4.32.  There are also sales taxes in each of the states that tax not only the cost of the cigarettes but also the cost of the hidden taxes placed on them.  Granted that cigarettes have been proved harmful to the people using them but the taxes here are put on other taxes.  Do the well to do smoke more or is this both a sin and regressive tax?

 If we take a look at all the taxes paid in the United States on all levels of government they are all regressive; the more you earn the smaller a percentage of your income is paid in taxes.  There are no exceptions to this be it income, sales, excise taxes, tariffs or licensing. 

 While there are assorted rationales for many of these taxes there still should be a rationale for a fairer system of taxation.  Mitt Romney, if I remember correctly, earned eight million dollars in 2011.  He paid 35% of his income after deductions on his income over $379,150.  A person earning a half million dollars, $500,000 paid the same on his income over $379,150.  Who paid a lower rate of taxes?  Obviously Mr. Romney did.  Yet even Romney’s income is low next to many CEOs of major corporations.  The major irony here is that about 98 percent of the U.S. population earns well under $110,000, the cut-off point for social security.  They all pay a far larger percentage of their more limited incomes in taxes.  And these people are the consuming base of the country.  It is their expenditures that determine the Gross Domestic Product, the amount of money spent for goods and services in the United States. 

 The taxing system in the country is absurd.  In 2013 the top income tax level was raised to 39.6% for those earning more than $400,000.  For basic fairness it should be raised again at one million dollars, and again at two million dollars, and again at three million dollars.  It should be continuously raised until it reaches ninety five to ninety nine percent.  After all, how many millions does one need to provide for themselves and their children into future generations?

 Isn’t it time we had a fair system of taxation, one that stopped exploiting the lower end of the population for the benefit of the upper few percent.

Enhanced by Zemanta

The Weiner Component #20 – Taxation, Money & The Distribution of Incomes

taxes

 

 

 

Taxation, Money, & the Distributions of Incomes

 

 

 

The general concept of taxation is that (A) the government needs a certain amount of money to function and (B) everyone within the nation by being a member of that society deserves a certain minimum standard of living to function comfortably.  Taxation, then, is a system that allows the country to exist and serves as a means of redistributing part of the National Income to all the people within the society in order to allow for a level of economic fairness for everybody.

 

The government of every nation also controls the money supply within its borders.  In a manner of speaking, the National Government owns the printing press and can issue as much currency as it wishes.  There is nothing behind any national currency today other than the word of the government of that nation.

 

Countries are limited as to the amount of currency they produce because an endless amount would lead to rabid inflation.  The amount of money available would exceed the level of goods and services that could be produced.  Therefore the prices of all goods and services would be continually bid upward making the currency decrease in value to a point where eventually it would be valueless.

 

National Governments are restricted as to the amount of currency they can release.  Too little in circulation causes a waste of human resources such as we currently have in the United States and Europe.  This kind of economic behavior brings about massive unemployment and very slows, if any, economic growth.  Too much money in circulation causes prices to hit the clouds and brings eventual depression.  Each government must steer a course between these two extremes to maintain a healthy economy and continued economic growth.

 

There are various types of taxation that all the government agencies use to collect money.  Some examples would be usage taxes, such as licenses for driving and for your automobile or for your property, like your house and land.  There are excise taxes that are placed upon such items as gasoline or tobacco.  These are internal taxes placed upon the value of the product; the amount is included in the cost of the item by being added on to the original commodity.  In addition there are tariffs placed on goods brought into the country that are supposed to keep them competitive with similar goods produced within the nation; these are also included in the price of the product.

 

But the two essential taxes or tax concepts are the flat or fixed tax rate and the graduated income tax.  The flat or fixed tax is one in which all income, regardless of its level, is taxed at the same rate.  Consequently if one earned $15,000 a year the Federal Government would tax him at, say, 15% of that amount, $225.  If one earned $100,000 it would be $15,000, for a million a year it would be $150,000.  Each would be paying the same percentage of their income.

 

This, it has been argued is a reasonable way to tax because everyone pays the same percentage.  But is it really reasonable?  The less one earns the smaller his income; the less he has to survive.  The person earning $15,000, if he/she is supporting a family, is living well below the poverty level, probably not being able to afford adequate food or heat in the winter, or, for that matter, even adequate housing.  How is it fair for them to pay the same tax rate as someone earning many thousands of dollars or a million or more?  The concept is advantageous to the wealthy but anathema to the poor.

 

Yet this is the principle under which the state sales taxes work.  Everyone pays a goodly sales tax on such items as toilet paper, tissues, and all non-edible items like clothing, shoes, and napkins.  The states and cities tend to use this method as a major means of raising revenue.  It has been suggested that the Federal Government could have a national sales tax as an additional way to raise money.

 

The progressive or graduated income tax is a personal income tax imposed upon income by the federal, most state, and some local governments.  The amount of the tax is determined by applying a tax rate that increases as income increases.  Beyond a certain minimum amount the percentage paid in taxes grows as income goes up.

 

It has been argued at different times over the years that the flat tax is a fairer form of taxation.  But many economists and others see this tax as a regressive one, where the tax rate or burden increases as an individual’s ability to pay it decreases.

 

Toward the mid 1930s during the Great Depression and again in the early 1940s, while World War II was occurring, President Franklin Delano Roosevelt wanted taxes to be raised significantly among high-income earners.  He stated, in both instances, that a person needed only so much money in order to live comfortably; that earning much beyond that amount was ridiculous.  During the 1930s he felt $100,000 was a princely sum; he raised that amount in the 1940s.  In both instances in Congress the Democrats and Republicans refused to go along with him.  He would have raised the tax rate upon amounts over $100,000 to 95% or more initially.

 

In 1932 the top rate was 63 percent.  By 1936 it reached 79 percent, with an inheritance tax, estate tax, gift tax, dividend tax and a progressive corporate tax being added.  During World War II the bottom tax rate went from 4 to 19 percent and the top income tax rate climbed to 88% by 1943.  In 1945 it had risen to 91%.  It remained there until 1964 when it dropped to 77%.  By 1965 the top rate was 70%.  The Economic Recovery Tax Act o f 1981, otherwise known as the Reagan’s supply-side tax cuts, lowered the top rate from 70% to 50%.  By 1990 the top income tax rate was reduced to 31%.  In 1993 the top Income tax rate was increased to 39.6% and the corporate rate to 35%.

 

By 2012 there were six steps in which Income taxes were paid according to amounts earned.  Using the Married Filing Jointly category: the tax rate went from 10% to 35%.  On an income of $17,000 10% is paid.  From $17,001 to $69,000 the percentage rises to 15%.  $69,001 to $139.350 it goes up to 25%; $135,351 to $212,300 requires a 28% payment; $212,301 to $379,150 requires a 33% level, and $379,151 up is 35%.  The increase, in all cases, is only paid on the amount above the prior level of income.  For single people or married filing separately the amounts were at about half of the above.

 

For 2013 on the 10%rate is joined with the 15% one, the 25% rate becomes 28%, 28% is increased to the 31% rate, the 33% rate becomes 36%, and the 35% rate is increased to 39.6%.  It should be noted that there is no income tax on the first $10,000 everyone earns.  That would be ten dollars an hour, which would place that person solidly below the poverty line.  It is also well below the poverty line.

 

Of course there are all sorts of deductibles.  One deducts for oneself, one’s mate, for each of ones children, for charitable and religious contributions, for medical expenses and for a myriad of other things.  In 1974, when President Gerald Ford appointed Nelson Rockefeller as his Vice President, Rockefeller released his income tax return for the preceding year and I discovered that we both paid approximately the same amount of income tax in 1973.  There was no way that both of us had earned the same amount of money in that year.  I was amazed at the thought of what his write-offs must have been.

 

If we go back to President Roosevelt’s comments on how high the graduated income tax should, in his opinion, be and tie that to what has happened in the 2012 Election on all levels of government then we come up with some very interesting considerations.  On State, Congressional, and the Presidential Election well over two billion dollars was spent.  In fact that much was spent just on the Presidential Election.  The total bill, which to my understanding, was never even calculated, must have been well over five billion dollars.  All that money was contributed, either directly or indirectly, to the campaigns.  Most of it went to the Republican campaigns.  For example twelve million was spent to get Michelle Bachmann reelected to her Congressional seat in the House of Representatives.

 

Why do individuals or corporations contribute this level of money to the political campaigns and do so in many cases secretly.  Is it because they believe in what the political party stands for or is it because they expect to get a return on their investment?  A Las Vegas billionaire, who is currently under investigation by the Justice Department, had invested hundreds of millions in the Republican Presidential Campaign.  The Koch brothers have spent far more, apparently mostly funding secret or semi-secret pacts that support “far right” causes.  Many of the contributors are making donations in the millions of dollars.

 

Where is all this money coming from?  Apparently, the income tax system as it is currently set up allows them to pay minuscule amounts of their incomes in taxes and leaves them with multimillions if not billions to buy influence in the government.  There has to be something wrong with a system that does this.  We have people living out on the streets today, going hungry on one side of the scale and, on the other, opulence beyond that of the wealthiest rulers of the past.  The economic system has to be completely out of kilter to allow for this vast difference in standards of living.  We not only need tax reform; we need tax reform that brings about a fairer distribution of the national wealth and does away with poverty in the United States.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Enhanced by Zemanta

The Weiner Component #7 – Taxes: Franklin Delano Roosevelt & the Graduated Income Tax

Franklin D. Roosevelt

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!

Enhanced by Zemanta