Truth about Taxes Politicians enjoy arguing tax policy with each assuring us that they have the answer to fixing the tax system. Then we realize that the broken tax system that we have today was created by politicians just like them who promised they had the solution. We begin to wonder if the Politicans are the poison and not the Antidote. Plenty of Think Tanks issue reports prescribing solutions to the problems with the tax code. We soon realize the academic façade of many of these studies only masks the special interests of business and wealthy that funds the Think Tanks. What is the truth about tax policy? First some facts then some principles. Taxes can be categorized by government body collecting the taxes. A total of $5.6 trillion is collected in taxes with $3 trillion by the federal government. Nearly 1/3 of the federal taxes are redistributed to the states through various federal programs. There are four types of tax sources. Everyone is familiar with the income taxes including FICA. Consumption taxes are accessed when you consume something. Sales taxes, excise taxes on phones, gasoline taxes are all consumption taxes. The State Lottery is a consumption tax though states like to masquerade the lottery as a game. Ownership taxes are accessed on the ownership of an object like real estate, a car and business inventory. Marriage licenses, fees for birth certificates and estate taxes are based on an event. Marriage licenses fees are taxes, not fees. Regressive Taxes Regressive taxes are punitive to lower income levels. A person earning $10,000 / year will spend their entire income to survive. If there is a 7% sales tax they will pay 7% of their income in taxes. A person earning $3 million may invest some of their money, spending only $1 million dollars. Their sales tax is $70,000 on the $1 million or 2.3% of their income. Generally people think of income taxes as progressive taxes, but caps or tax loops holes often reduce the progressive nature of income taxes. The billionaire, Warren Buffet, infamously announced that his tax rate was lower than his administrative assistant. Most taxes are regressive. Taxes are mostly regressive Mitt Romney, in the 2012 election, derided as takers the 47% of people that pay no Federal income tax. Everyone pays federal taxes, not all make enough to pay federal income tax. The lowest income level pay 6.8% of their income in federal taxes – excise taxes on their phone, gasoline taxes and payroll taxes to name a few. Most state and local taxes are regressive, placing the burden primarily on the lower income tax payer. The lowest income levels pay 19% of their income in taxes. A person earning $1.5 million pays $500,000 in taxes leaving disposable income of $1 million. A person at the lowest income level pays $2,800 in taxes leaving a disposable income of $11,000. Where do you fall in the above chart? True Principles Any changes to the tax code will result in winners and losers despite claims to the contrary. An example is the Flat Tax that many extol as solution to our Federal Income Tax code. The flat tax is a regressive consumption tax that will reduce the tax burden of the wealthy – the winners. The losers will be retired individuals that saved money to live on during their retirement. Their savings were taxed once when they earned it and will be taxed again when they spend it. Politicians are magicians because they make taxes disappear. In Georgia there was a Car Valorem tax billed on your birthday and was a percentage of the value of your car. It was a very visible tax. The State Legislature replaced the Car Valorem tax with a car sales tax. The car sales tax is just one of many line items on a car purchase agreement, hardly even noticed in the flood of paperwork. You can even finance the tax into the payments for your new car. Do you have any idea how much you pay in sales tax every year? Most people have no idea, but they can tell you the size of their income tax bill. Politicians are magicians that can hide your tax burden in every small purchase you make. Fair, Job Creating, Equitable and Reform are some of the words that politicians use to mask the impact of tax changes. Hold tight to your wallet because you might be the loser in the proposed tax change. Be careful of the politicians bearing tax breaks.
Posted on: Fri, 02 Jan 2015 21:42:39 +0000
Trending Topics
Recently Viewed Topics
© 2015