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.