William Thien

Toward a More Fair Tax Code, Part I.

Posted on: November 13, 2012

The thing about socialism and communism and/or any government program designed to help people during difficult times is that due to the frailties of human nature and the human condition whether it be single-mother pregnancies (recently reaching forty-one percent of the population!), treating the elderly, you name it , it is only a matter of time before a majority of the population is utilizing some form of government program that is part of what is traditionally called “The Social Safety Net.”

Add to that significant abuses of the social safety network such as false claims or hiding income to obtain benefits, and the costs begin to skyrocket. When a numerical majority of the population is using some government program or another and receiving some form of government payment, it is only a matter of time before the situation is no longer tenable as that portion of the population using the government programs balloons. The situation is no longer affordable unless of course you raise taxes or cut social and entitlement programs. Eventually the tax burden upon the working classes is so significant the matter really becomes one of social ethics. Those who are working find themselves in a state of tax servitude perpetuating those who are not working and often have no intention of doing so.

That is where the country is now. The country is unable to pay its debt. And it is at the brink of an ideological dilemma. Should we raise taxes or cut social programs? The result of the most recent presidential election would suggest that we raise taxes as the majority vote went to that candidate which has stated all along it is his intent to raise taxes. But is that what the country really wants?

A victim I of an unfair tax code myself I have many philosophical impediments to raising tax rates on anyone, poor or wealthy, because sooner or later that tax increase will most likely be used to raise my taxes once again, with the excuse that taxes were raised on one particular economic class, now it is my turn. History tells us this is how governments proceed to tax their populations into poverty, taxing one economic class, then another, then back and forth again and again until few have any discretionary income, commerce ceases, and everyone suffers, resulting eventually in the demise of the country itself. Shall we repeat history?

So, if raising tax rates is not an option, that leaves the alternative, cutting or scaling back on social programs. The problem with this approach is that with each suggested cut an outcry from the effected classes stifles the elected. Fear of losing future elections due to a backlash from recipients of a government check (not particularly SSN or Medicare) causes politicians to balk at any activity which might streamline that portion of the government called “The Social Safety Net.”

That in itself should tell you something about many of the recipients of government checks. If a politician is afraid of scaling back on a social program due to fear of not being re-elected by those receiving a government check (again, not particularly SSN recipients or Medicare), then perhaps many of those entitlement recipients don’t really need the entitlement in the first place. What, what is that you say?!

What I’m saying is that if the entitlement, government program (of which there are many programs now, perhaps thousands if you include all of those in all of the states) and government check recipients are still receiving a government check from some portion of the social safety net when the politician is up for re-election, chances are those recipients really don’t need the check, they are merely milking the system in perpetuity, they are abusing the system. The social safety net is meant, whether it is designed that way or not, the social safety net is meant to help those in need during times of crisis. It is not meant to be a perpetual source of income to last for years and years. But it is often used exactly that way. If a politician is afraid of scaling back on a social program for fear of not being elected three or four years down the road, then there simply are too many receiving benefits and receiving benefits for too long. That , ladies and gentlemen, is the primary, the main, the greatest reason to scale back on social programs, that there is a general expectation of receipt of benefits in a state of perpetuity and any suggestion of changing that to a finite period of time is met with drastic resistance.

I do not want to digress but this seems like the perfect time to introduce the subject of “term limits” into the discussion. Making unpopular adjustments to the social safety net is a prime example of why term limits would improve governance. Politicians would not fear a backlash from a portion or mass of the population and the politician may be more likely to make that type of decision which on the surface may seem cruel but really belies kindness to their constituency. But I do digress and so I return to my main premise.

If raising taxes in not a suitable solution, then cutting social programs, cutting government programs is the only alternative. This is the dilemma the country now faces. With the country approaching a fiscal cliff there really are only two alternatives.

But perhaps the subject is really not as simple as I’ve described. For instance, one portion of one economic class has been very successful at seeing to it that the tax code is structured in a way which almost insures they pay no taxes. Some corporations have been able to do that as well. The result being that said parties periodically have zero tax liability. Some corporations are not that profitable but they are structured so that their tax liability makes them so. Letting the population carry unproductive industry cannot be healthy for the country’s economy. If the only profitability a company has is through tax write-offs, then it’s time to close its doors and get it off the backs of the taxpayer.

Previously I have argued that the wealthy should not see a tax increase because though they often pay at a lower rate, they pay much more in taxes than someone with an income such as mine. But simply because they make more money than I raises a question of fairness, “does that mean they should pay more than I do in taxes?” Why should someone who makes a million dollars a year pay more in taxes than I do? If we both use the same amount of government services, then why shouldn’t we both pay the same amount of taxes? If I pay at a tax rate approaching the vicinity of 30 percent income tax, it in no way compares to what someone who makes a million dollars on investments pays, at the rate of 15 percent or $150,000. That $150,000 in taxes the person making a million dollars pays is multiples of what I make in salary. But does that person use a disproportionately larger amount of government services than I do? Probably not. In fact, they may use fewer government services because they have more options due to their income as to what services they can use, such as private schools and other such public services.

So, as a matter of fairness, I am not certain raising taxes, or tax rates rather, on the wealthy is fair. But cutting ridiculous loopholes and diminishing tax laws that allow the shelter of income which effectively zeroes out what is paid in taxes by corporations and particular tax payers, that seems to me to be fair. This is something that you don’t hear much about in the media and I believe it is due to the fact that an entire industry exists designed to hide wealth and the members of that industry vote and they lobby.

Prior to this dilemma the subject of a flat tax has come up again and again. It is really, truly the only fair way to tax across the board. The problem is that the very poor will suffer to a greater extent, it is believed, because 10 percent (randomly chosen number to make a point) to someone making $10,000 a year is more significant than 10 percent to someone making a million dollars a year. In essence, in our economy it is harder to get by on $9,000 than it is on $90,000 per year.

But again, I digress. I do so because of the social and political complexity of the matter, though. And due to the complexity of the tax code, which I believe is unfair, and the huge number of social programs, many of which, perhaps all the subject of abuses, due to the complexity of the matter I could digress and digress and digress ad infinitum.

Sooner or later though you have to make a decision.

As a matter of fairness then, when all is said and done, I believe the best path to balancing the country’s budget is by dramatically scaling back on social programs at the federal level and those mandated to the states and thereby curtailing the abuses they invite at both levels, and by eliminating the myriad of often seemingly ridiculous loopholes many taxpayers and corporations use, paying little or no tax at all.

As I’ve already stated here and in other essays and observations, I believe the tax code is unfair. Raising the tax rates themselves on any one particular economic class though won’t change that any. Because history tells me sooner or later my taxes are next.

Copyright © William Thien 2012

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