"Only the little people pay taxes" --- Taxes 101

[MajorChode]

Most will remember former billionaire Leona Helmsley's famous words, "We don't pay taxes. Only the little people pay taxes".

She was right, and still is right. But Rush Limbaugh says, "Only the rich pay taxes". Too some degree, the fat junkie is right also, but how can that be?

Well, as Mark Twain used to say, "There are three kinds of lies: lies, damned lies and statistics." As proof for the fat junkie's assertion, he will tell you the top 20% of income earners pay 80% of taxes(to which he means federal taxes), and he's right. But what the fat junkie DOESN'T tell you is that his numbers are meaningless because they don't give you all the information.

To illustrate my point, consider a theoretical country that has a population of 100 adults. Let's say that 99 of those people earn $10 thousand per year and one of them makes $10 million per year. Let's also say that this theoretical country has a flat tax rate of 10% on all income. Given those parameters it would be true to say that the top 1% of income earners pays 90% of all taxes. So does that mean that the person making $10 million per year is getting an unfair deal? Using the fat junkie's logic, he's getting screwed, but obviously reality is not even within a cab ride of this assertion.

As the rich get richer and the poor and middle classes get poorer, Limbaugh's fucked up logic gets more and more skewed. The sad part is that every single wingnut pundit repeats this same flawed logic as if the fat junkie's postulation has now been proven and everyone has to accept it as a given. Even some reportedly "knowledgeable" DUers will break down taxes by what segments of the population pays what portions, but all of this logic is flawed because it assumes that tax "fairness" is based on what "share" each group is paying.

For the purpose of this discussion, I'm only going to include federal income taxes. Keep in mind that almost all other taxes are even more "unfair", but I'll save those thoughts for other discussions. Now certainly the Limbaughs of this world will never be happy so long as the rich pay more taxes in terms of dollars, but the reality is that our country could never work that way and be anything similar to the way it is today. The US federal government spends roughly $3 trillion per year. If you divided that $3 trillion by the population of 300 million, you get $10,000 for every man, woman, and child in this country. The median household income in the US is about $50K. It doesn't take a rocket scientist to figure out that a family of 4 with an average income is not going to be able to pay a $40K tax bill.

So the reality is, so long as we live in our current society, the rich MUST pay more taxes than everyone else. But don't fret too much for the rich. The secret that the fat junkie will never tell you is they can most certainly afford it. The reason is because the rich in this country already own everything. The top 20% in this country own 90% of all it's wealth. So even if they are paying 80% of all the taxes, they are still getting a great deal. According to the fat junkie, the top 1% in this country pay 32% of all the taxes. He won't tell you they own 40% of the country's wealth.

So how are the rich get away with this, aren't federal taxes progressive?

Yes, they are, but only to a point. Only WAGE income is progressively taxed. How many millionaires do you know that punch a timeclock? I'm sure there are a few, but the majority of the very rich get most of their income from capital gains and dividends. Well guess what? 10% of the population own 90% of all stocks. That stock income is taxed at a maximum rate of 15%. The 15% tax bracket affects people who earn more than $8K. It's a pretty good deal if you think about it. A person with millions in income gets taxed at the same rate as someone who makes over $8K. If you make over $32K, some of your income gets taxed at least 10% higher than a billionaire's.

So looking at taxes based on what "share" a particular group is paying is complete bullshit. The only thing that really matters is what "share" of that person's income is being paid. When a person making $78K is paying roughly 30% of their income in federal taxes while Michael Bloomberg pays 15% of his income, something is wrong folks, and I don't need a fat junkie to tell me what a raw deal Bloomberg is getting.

[w4rma]

1. There should be no capital gains tax, just an income tax. Income is income. (nt)

[MajorChode]

2. Obviously, however....

The right doesn't see it that way. They will tell you that some income is "better" than others. They will tell you that some income "creates more jobs" than other income. They will tell you that corporations are "already taxed" so capital gains taxes are "double taxation".

Until the average person on the street is better educated towards tax policy in this country, they are going to continue to win those arguments in the court of public opinion regardless of how flawed the logic is.

[Kansas Wyatt]

4. I am shocked that the Right is not ridiculed for insisting that a tax on labor...

Is more justified than a tax on a wealthy fat cat/ass.

A tax on someone's labor should be the last resort to taxation, not the first. This country is so screwed up today, because they have reversed progressive taxation and the New Deal. Until those stupid politicians admit and accept that fact in Washington, nothing will change. Then again, if they did that, then their cushy free ride goes away.

Hey dumb ass politicians! Did it ever cross your brilliant mind, that if you stood up and actually represented working people, you wouldn't have to ever worry about getting re-elected? And you just think you are so clever... NOT!

[OnionPatch]

3. The rich also use more of our tax dollars in many ways.

They have more wealth to protect, so our public security systems (police, fire, etc.) have more to guard. If they own companies, they probably need to use our highways and roads more than most people, to transport their goods. Ditto our ports and airlines. They depend more than most people on our court systems to enforce the business laws that protect them. They use our public airwaves to advertise their products. They get their employees from our public education systems. And we all know our military protects their international businesses by keeping international climate in their "favor". Raw deal my arse. :eyes:

[MajorChode]

5. Whether they use more tax dollars or not really doesn't matter

The US adopted a system of taxation that was progressive based on income many decades ago. It's the same principle that every civilized nation uses, which is the more you can afford to pay, the more you should pay. Pretending we live in some type of libertarian utopia where all taxes are fees for service is complete bullshit because we don't live in such a society, never have, and almost certainly never will.

Basic ignorance of the tax code by the masses is the strength of the right. If you keep people truly ignorant about the real score, the rich can get away without paying taxes. Back in the early 70's the top marginal tax rate was 70%, but the effective tax rate on the rich never approached that number. Nixon himself while he was in office reported millions of dollars in income, but paid almost no taxes, which was typical. After the public found out Nixon and Agnew were tax cheats, a lot of new tax laws came about like AMT and the rich at least somewhat began to pay. Then once the AMT rates started to eat into the middle classes, the Republicans petitioned to do away with AMT completely (rather than update the scales).

So these things often go in cycles because the right will continue to take advantage of ignorance unless people remain vigilant to their tricks and educate the voting public.

[OnionPatch]

8. Not disagreeing with you.

Just pointing out they aren't getting the raw deal the right says they are.

Progressive taxation has been around and accepted forever, but then the right has been so successful in changing so many our long-held values. We also used to think torture was unacceptable, and preemptive war.....

[MajorChode]

9. I understood your point...

and I wasn't trying to suggest you were disagreeing, so if that was the inference, it was not my intention.

Undoubtedly the wealthy do actually use more government services regardless of what the wingnut punduits would have us believe, but the argument for truly fair taxation can never be won on those grounds and really there is no need to even try. As a society we have decided which services our government will provide. Who actually uses those services really doesn't matter. Since they are being provided society has to pay for them and it only makes sense that those who derive the most overall benefit of that society (wealth) should pay a disproportionate share.

Wingnuts make the fallacious utilization argument in all sorts of situations. For instance, they petition their government representatives for "vouchers" for them to send their kids to private schools. Their argument is that since society is not having to pay for their kids to go to public school, they should be "entitled" to those funds. The problem is, our public education program is not based on a 'fee-for-service' system, so those vouchers actually create an entirely separate entitlement program where implemented.

[pilsner]

6. Larry Beinhart: Why we should be screaming for higher taxes (on the rich)

Thom Hartmann has been talking about Beinhart's ideas about everyday. Beinhart was a guest Tues.

Here's a link to Beinhart's latest article about tax policy:

http://www.commondreams.org/view/2009/01/12-10

Also, the inheritance tax ought to be raised to 90%, with the first 20 or 30 million exempted, IMO.

I read in the WSJ, that Obama will likely tax estates at 45%, with the first 5 Million or so exempted.

[Indenturedebtor]

7. Very well said. K + R! n/t