Taxes! I got an uncle living in Taxes…

Prosecutor: Something must be done! War would mean a prohibitive increase in our taxes.

Chico: Hey, I got an uncle lives in Taxes.

Prosecutor: No, I’m talking about taxes – money, dollars!

Chico: That’s-a where he lives! Dollars, Taxes! (from Duck Soup)

It’s tax day and Americans all over are complaining even though we have the lowest taxes of any industrialized country. Of course, they could be even lower for many of us if we just had a good, progressive tax system.

We’re the richest country on earth but yet our government is quite poor and in debt. Partially this is due to George W. Bush, who (a) started a war, (b) created a prescription drug plan and (c) cut taxes on the very wealthy without making any provisions for paying for any of these things.

The obvious solution when one is in debt is to increase one’s income. And, in fact, raising taxes on the very wealthy is supported by a majority of Americans. The problem is that the very wealthy have a lot more power than the majority of Americans.

Back in the old days after WWII and before Reagan handed the country over to the wealthy, we did great things. We built highways, created the internet and went to the moon — and these investments helped our economy and made us even richer. Now our infrastructure is falling apart (literally, bridges are collapsing with traffic going over them) and our science program is dead.

If we could just go back to the tax levels set by that radical socialist Dwight Eisenhower, we would create jobs, pay down the debt, and improve our standard of living.

The ultra rich though have managed to convince people that if you tax them fairly, it will hurt us because they are the “job creators.” This ignores all facts completely — we’ve had historically low taxes on these people for many years and no jobs have magically appeared.

One thing some people don’t understand is how progressive tax works. When you hear that the top tax rate under Eisenhower was 94% you think, “Wow! Millionaires only got to keep 6% of their income?” I know that’s what I used to think, especially after hearing George Harrison complain in Taxman: “If 5% appears too small, be thankful I don’t take it all.”

But that’s not how it works. You pay a certain percentage up to a specific amount. For instance, our current tax rates look something like this:

10% on taxable income from $0 to $8,700, plus
15% on taxable income over $8,700 to $35,350, plus
25% on taxable income over $35,350 to $85,650, plus
28% on taxable income over $85,650 to $178,650, plus
33% on taxable income over $178,650 to $388,350, plus
35% on taxable income over $388,350, plus
40% on taxable income over $400,000

If you earn more than $400,000, it doesn’t mean the government gets 40% of your $400,000. It means they get 10% of your income under $8,700 and then 15% on your income between $8,700 and $35,350, and so on. The highest rate is only for whatever income you have over $400,000. That’s how we were able to have tax rates in the 90% range on the very very wealthy without bankrupting them (while at the same time providing for budget surpluses).

Do I wish my taxes were lower? Of course. For those of us not earning a six figure salary, tax time can really hurt. One way we could fix that is by going back to the system that we know works, where the absolute richest pay a higher percentage.

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4 thoughts on “Taxes! I got an uncle living in Taxes…

  1. Many of the components of our tax system are actually regressive. Social Security tax caps out at a certain amount, meaning that it corresponds to a greater percentage of income for the poor than the wealthy. Mortgage tax credits hugely favor the rich. Even the tax benefit of health care favors the Cadillac plans more likely to be held by the wealthy than the poor. Then we have the “carried interest” loophole used by hedge fund managers, etc to dodge paying that 40% on their earnings.

    All of these points don’t even take into account the tricks that the wealthy use to keep money off-shore to avoid taxes all together. I’m sure if you take a tax savvy wealthy earner with a good account, his effective tax rate on his earnings is much lower than a bum like me. That’s a regressive tax system by definition.

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  2. Here’s a little thought about the economy and taxes from my side.

    I was unemployed for all of 2012 – except for a two days where I worked for a university theater. I was lucky enough to had paid into the system for the last 20 years and managed to get unemployment for most of that time.

    And then they taxed it.

    So collecting money because I have no income, they decide to tax that money as well – presumably knowing that I am not making money to PAY the taxes.

    I find that in some fundamental way is messed up.

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    • It is absolutely messed up.

      Here’s the key to power: When you have it, write the rules so you keep it.

      That goes for politicians making it harder to be ousted by challengers and rich people making it easier for them to remain rich and powerful.

      The rest of us greatly outnumber these people but if we do nothing, they win.

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      • The government taxes all sources of income. Employers, through their contribution to payroll taxes, fund the Unemployment Insurance programs, which are then run by a joint State-Federal agency. So…technically, unemployment checks are still, in a very roundabout way, income from your former employer (reduced pay with what could be considered reduced work responsibilities).

        It sucks, but that’s how the government looks at it.

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