Tag Archives: federal income taxes

The Problem With Taxes In America

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Walter Williams, a professor of economics at George Mason University, posted an article at The Daily Wire today about taxes.

Professor Williams noted a few things about taxes in America:

The argument that tax cuts reduce federal revenues can be disposed of quite easily. According to the Congressional Budget Office, revenues from federal income taxes were $76 billion higher in the first half of this year than they were in the first half of 2017. The Treasury Department says it expects that federal revenues will continue to exceed last year’s for the rest of 2018. Despite record federal revenues, 2018 will see a massive deficit, perhaps topping $1 trillion. Our massive deficit is a result not of tax cuts but of profligate congressional spending that outruns rising tax revenues. Grossly false statements about tax cuts’ reducing revenue should be put to rest in the wake of federal revenue increases seen with tax cuts during the Kennedy, Reagan and Trump administrations.

A very disturbing and mostly ignored issue is how absence of skin in the game negatively impacts the political arena. It turns out that 45 percent of American households, nearly 78 million individuals, have no federal income tax obligation. That poses a serious political problem. Americans with no federal income tax obligation become natural constituencies for big-spending politicians. After all, if one doesn’t pay federal income taxes, what does he care about big spending? Also, if one doesn’t pay federal taxes, why should he be happy about a tax cut? What’s in it for him? In fact, those with no skin in the game might see tax cuts as a threat to their handout programs.  (The underline is mine.)

The above information might explain why Democrats keep getting elected despite their overtaxation and reckless spending (yes, I know the Republicans also overspend).

The article concludes:

Another part of the Trump tax cuts was with corporate income — lowering the rate from 35 percent to 21 percent. That, too, has been condemned by the left as a tax cut for the rich. But corporations do not pay taxes. Why? Corporations are legal fictions. Only people pay taxes. If a tax is levied on a corporation, it will have one or more of the following responses in order to remain in business. It will raise the price of its product, lower its dividends to shareholders and/or lay off workers. Thus, only flesh-and-blood people pay taxes. We can think of corporations as tax collectors. Politicians love our ignorance about this. They suggest that corporations, not people, will be taxed. Here’s how to see through this charade: Suppose a politician told you, as a homeowner, “I’m not going to tax you. I’m going to tax your land.” I hope you wouldn’t fall for that jive. Land doesn’t pay taxes.

Getting back to skin in the game, sometimes I wonder whether one should be allowed in the game if he doesn’t have any skin in it.

It’s time to insure that everyone has some tax burden so that they will consider that burden when they vote.

The Facts vs The Talking Points

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Remember when the Democrats said that the Trump tax cuts would blow a huge hole in the deficit because of the money that would not be collected. Those who believed the Democrats need to study the Laffer Curve. Although liberals keep saying it doesn’t work, the history of tax cuts proves it does.

Yesterday Investor’s Business Daily posted an editorial about the impact of President Trump’s Tax Cuts.

The editorial states:

The latest monthly budget report from the nonpartisan Congressional Budget Office finds that revenues from federal income taxes were $76 billion higher in the first half of this year, compared with the first half of 2017. That’s a 9% jump, even though the lower income tax withholding schedules went into effect in February.

The CBO says the gain “largely reflects increases in wages and salaries.”

For the fiscal year as a whole — which started last October — all federal revenues are up by $31 billion. That’s a 1.2% in increase over last year, the CBO says.

The Treasury Department, which issues a separate monthly report, says it expects federal revenues will continue to exceed last year’s for the rest of the 2018 fiscal year.

The editorial concludes:

As we have said many times in this space, the problem the country faces isn’t that taxes are too low, but that spending is too high. The CBO projects that even with the Trump tax cuts in place, taxes as a share of GDP will steadily rise over the next decade, and will be higher than the post-World War II average.

But bringing in more tax revenues doesn’t help if spending goes up even faster. And that has, unfortunately, been the case, as the GOP-controlled Congress has gone on a spending spree.

Look at it this way. Tax revenues are up by $31 billion so far this fiscal year compared with last year. But spending is up $115 billion.

In other words, the entire increase in the deficit so far this year has been due to spending hikes, not tax cuts.

There are too many Republicans in Congress who don’t understand why the American voters sent them there. The Democrats have always loved to spend other people’s money, but the Republicans were supposed to be the alternative to that. Unfortunately, many Republicans have failed the voters. The only way to fix Washington is to unelect every Congressman who votes for spending increases. Otherwise the spending will only get worse.

Slowly Moving Ahead

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The Independent Journal Review is reporting today that the U.S. House of Representatives has passed the Senate’s 2018 $4 trillion budget resolution, providing a boost to President Donald Trump’s push for tax reform.

The article reports:

While 20 Republicans opposed the bill, it narrowly passed with a 216-212 vote amid tensions over the budget’s impact on deficits and the debt.

The House endorsed the budget without changes after it passed in the Senate last week.

President Donald Trump promptly tweeted his excitement over the big next step on the way toward tax reform, a goal Republicans have been pushing to accomplish for years.

I am still looking for a list of people who voted for and against the budget. I am sure the list will be at Thomas.gov tomorrow.

The article lists some of the comments made by the Representatives:

However, some House Republicans voiced their reservations over the budget, with Rep. John Faso (N.Y.) stating he couldn’t support the bill due to the elimination of the SALT deduction.

“We must provide middle-class tax relief and lower the burdens on job-creating small businesses. I could not, however, vote in support of a budget resolution that singled out for elimination the ability of New York families to deduct state and local taxes,” Faso said.

House Ways and Means Committee Chairman Kevin Brady (R-Texas) called the bill’s passing a “legislative runway for pro-growth tax reform.”

“Our successful vote will allow us to move forward quickly on delivering the first overhaul of America‘s tax code in more than three decades,” Brady added.

Rep. John Yarmuth (D-Ky.) said the planned tax cuts “will not a create an economic boom, but will instead lead to a higher concentration of wealth among the rich, while dramatically increasing deficits and debt.”

I would like to make a comment on the elimination of the SALT (state and local taxes) deduction. Why in the world should fiscally responsible states be subsidizing fiscally irresponsible states? That is what the SALT deduction does. As for the Democrats’ constant cry of ‘tax cuts for the rich,’ the rich are the people who pay taxes, why shouldn’t they get a tax cut? As I have reported numerous times, the top 10 percent of income earners, those having an adjusted gross income over $138,031, pay about 70.6 percent of federal income taxes. About 1.7 million Americans, less than 1 percent of our population, pay 70.6 percent of federal income taxes. These numbers come from actual IRS data. If you are cutting taxes, it is logical that those people paying the taxes would be affected.

Let’s just cut everyone’s taxes and cut the size of government in Washington.

Preventing The Fleecing Of The Middle Class

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The American tax code is a tribute to the effectiveness of lobbyists and big campaign donors. The loopholes in the code for people who make a lot of money are numerous. Even with loopholes in place, the rich pay a lot of taxes. As I have previously reported, The top 10 percent of income earners, those having an adjusted gross income over $138,031, pay about 70.6 percent of federal income taxes. About 1.7 million Americans, less than 1 percent of our population, pay 70.6 percent of federal income taxes. These numbers come from actual IRS data.

However, it seems that when it comes to eliminating loopholes, it’s always the middle class loopholes that go away.

Breitbart posted an article today about Congress‘ latest effort to take away a middle-class tax break. Because of a certain lack of faith in the future solvency of Social Security, many employers offer employees 401k retirement plans. Aside from allowing middle-class families to save for the future, these programs provide a place to put money so that it will not be taxed during the highest earning period of the employee. It will be taxed later at retirement when traditionally a person’s earnings are lower and generally taxed at a lower rate. Congress was evidently planning to alter the current system.

Breitbart reports:

“There will be NO change to your 401(k),” Trump tweeted. “This has always been a great and popular middle class tax break that works, and it stays!”

House Republicans were considering a plan to slash the amount of income American workers can save in tax-deferred retirement accounts. Currently, workers can put up to $18,000 a year into 401(k) accounts without paying taxes on that money until they retire and withdraw money from their savings. Proposals under discussion on Capitol Hill would set the cap lower, perhaps as low as $2,400. The effect would be a huge tax hike on middle class workers.

The plan to lower the cap on 401(k)’s would not have had an effect on long-term government deficits. Instead, it would have raised tax revenue now but lowered it in the future, since the retirement savings would already have been taxed. But taxing the savings would have had an impact on household budgets and may have discouraged workers from saving, increasing their future dependence on government benefits.

Let’s cut spending to ‘pay for’ tax cuts. Actually, if taxes are cut, economic growth should increase to a point where there is no loss of revenue. During the 1980’s, after President Reagan cut taxes, government revenue soared. Unfortunately, the Democrats who controlled Congress at the time greatly increased spending, so the government debt increased rather than decreased. Generally speaking, lowering taxes increases revenue–people are less inclined to look for tax shelters.

The Laffer Curve works:

Congress needs to keep this in mind while revising the tax code.

 

Why We Need Tax Reform

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Yesterday, Walter E. Williams, a professor of economics at George Mason University, posted an article in The Daily Signal. The article explains who pays taxes in the United States.

The article reports:

According to the latest IRS data, the payment of income taxes is as follows.

The top 1 percent of income earners, those having an adjusted annual gross income of $480,930 or higher, pay about 39 percent of federal income taxes. That means about 892,000 Americans are stuck with paying 39 percent of all federal taxes.

The top 10 percent of income earners, those having an adjusted gross income over $138,031, pay about 70.6 percent of federal income taxes.

About 1.7 million Americans, less than 1 percent of our population, pay 70.6 percent of federal income taxes.

The article points out that there are some serious questions about the fairness of this arrangement:

But the fairness question goes further. The bottom 50 percent of income earners, those having an adjusted gross income of $39,275 or less, pay 2.83 percent of federal income taxes.

Thirty-seven million tax filers have no tax obligation at all. The Tax Policy Center estimates that 45.5 percent of households will not pay federal income tax this year.

There’s a severe political problem of so many Americans not having any skin in the game. These Americans become natural constituencies for big-spending politicians. After all, if you don’t pay federal taxes, what do you care about big spending?

So why should the bottom 50 percent of income earners and those who pay no income tax be interested in electing people who will cut taxes and stop runaway spending? If less than 1 percent of the population is carrying the tax burden, they really don’t have any serious political leverage–they are a very small voting bloc.

There is also another aspect to this:

There’s another side to taxes that goes completely unappreciated. According to a 2013 study by the Virginia-based Mercatus Center, Americans spend up to $378 billion annually in tax-related accounting costs, and in 2011, Americans spent more than 6 billion hours complying with the tax code.

Those hours are equivalent to the annual hours of a workforce of 3.4 million, or the number of people employed by four of the largest U.S. companies—Wal-Mart, IBM, McDonald’s, and Target—combined.

Along with tax cuts, tax simplification should be on the agenda.

Our current tax code is a tribute to the successful efforts of lobbyists and special interest groups. That needs to change.