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money on fiscal policy which would both help leave the remnants of the 2008 recession behind us, improve the needed outdated early 20th Century infrastructure of the United States and significantly lower the current rate of unemployment.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.