Just Blowing Smoke: Taxes by the numbers
Tuesday, July 27th, 2010As the fall elections approach, ending the “Bush Tax Cuts” is becoming a subject for increasing political discussion. Certainly, no one wants to pay any more than their fair share in taxes, or more that they have to. There seems to be some disagreement over what constitutes enough however, and whether some those who earn the most are paying enough. Cullen Hightower probably put it best when he said, “There’s always somebody who is paid too much, and taxed too little — and it’s always somebody else.”
Treasury Secretary Timothy Geithner, a man who has had his own problems with paying taxes over the years, certainly sees no problem with high earners paying more however. In interviews on most of the major networks last weekend, Secretary Geithner touted the end of the cuts. According to his interview on ABC’s This Week, “We think that’s the responsible thing to do because we need to make sure we can show the world that they’re willing as a country now to start to make some progress bringing down our long — our long-term deficits.” According to his interview on NBC’s Meet the Press, “I do not believe it will have a negative effect on growth”.
Setting aside the intelligence of such statements and economic philosophy for a moment, its apparent that Mr. Geithner has no problem using high earners to help the government balance its budget. The President meanwhile consistently maintains that his goal is to retain tax cuts for 95% of the American people. This curious number is one that organizations looking at taxes have been closely following for years.
According to both the National Taxpayers Union and the Tax Foundation, the 2007 tax information (the last numbers available) show the following:
- The top 1% of incomes in the US currently pay 40.42% of the nation’s tax burden.
- The top 5% of incomes (those that the Administration feels can accept more of the burden next year) already pay 60.63% of the taxes in this country.
- Meanwhile, the bottom 50% of wage earners in this country pay only 2.89% of the taxes on which this country operates.
Now some would say that such numbers indicate that the top 5% are already doing more than their part, but there’s more to these numbers than meets the eye. It should likewise be noted that most small businesses are “S” Corporations and that their profits are treated and taxed as the personal income of their owners. That means that the tax cut expirations will negatively impact many of the very people that have the best chance to have a positive effect on both employment and economic growth in this country. Higher taxes on them would mean less money to invest in building expansion, new equipment, and increased staff.
But wait, there’s more! Ending these ‘cuts’ will also raise the tax on capital gains from 15% to 20%, something guaranteed to discourage investors with any money from putting it back into the market. This lack of investment, beside stalling any recovery, will virtually assure that the money lost by 401k’s in 2008 will never be recovered.
If these two impediments were not enough to contaminate the numbers however, consider this. These changes would also re-establish the estate tax, taking its tax rate from 0% to 55% for everything over $2 million for families. While family farms have often been mentioned as targeted for destruction by this law, certainly many other small family-owned businesses would be forced to dissolve or go into horrendous debt if faced with such an onerous tax rate.
Support for penalizing the wealthiest 5% is not universal however. Ben Bernanke, chairman of the Federal Reserve seems to support retention of the cuts, along with spending cuts. As reported in Bloomberg.com Bernanke Says Tax-Cut Extension Maintains Stimulus “In the longer term, I think we need to be taking steps to reassure the American people and the markets that our fiscal situation is going to be well controlled. That means that if you extend the tax cuts, you need to find other ways to offset them.” Translated, this means that perhaps with debt that’s gotten out of control, Congress and the President might consider instead ending its insult to drunken sailors by discontinuing a level of government spending that even these intoxicated voyagers consider fiscally irresponsible.
Even for the mathematically challenged among us, it’s becoming apparent the numbers no longer work. Government taking money away from people is never an answer to economic recovery and it’s time to say so. Moreover, with its creditors and citizens equally concerned over mounting debt, It’s time to tell Congress and the President that trying to run the country by these numbers simply no longer adds up.
Tim Higgins blogs at http://justblowingsmoke.blogspot.com/










