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!

 

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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.

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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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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