Now, you may think that those making more than $250,000 a year need to pay more in taxes and that's fine, it is your opinion. However, there is another aspect to "fair" that Obama and many politicians seem to overlook:
- According to the Tax Foundation, in 2006, before the recession hit, a whopping 41% of American Federal tax filers paid nothing in Federal income taxes or actually got a check from the Federal government in addition to paying nothing in income taxes.
- According to the Tax Policy Center of the Brookings Institute in cooperation with the Urban Institute, in 2009, after the recession, 45% of American tax filers paid no Federal income taxes.
- According to an April, 2010 Associated Press report, in 2009, 10% of American tax filers accounted for about 73% of all Federal income taxes.
- According to the National Taxpayer Union, in 2008, 1% of Americans paid for 38% of all Federal income taxes, 5% paid for 59% of all Federal income taxes, and 10% paid for 70%.
- During the Bush administration years, the number of American tax filers not paying anything in Federal income taxes rose dramatically from the long term average of about 25% to the current levels of about 45%, indicating that not only did the wealthier benefit from the Bush tax cuts but about 20% of the U.S. population went from paying income taxes to getting money for filing taxes.
If Obama and his crowd want to talk fairness, I find it a little hypocritical that almost half of the adults in this country can get a free ride on Federal tax expenditures on such things as education, defense, infrastructure, FEMA, government agencies such as the SEC, FAA, FCC, etc. and other Federal government services. They paid no taxes to fund these services yet get all of the advantages of using them. In most logical and fair thinking people's minds, that is not fair, it is called freeloading.
Again, if you think that the wealthier in this country need to pay more in income taxes, that is your right and your opinion. However, it is also my right to believe that if you are receiving something of value, you should be paying for that value. The bigger issue has to do with the suicidal path we are on as it applies to our fiscal solvency as a nation. If half of the country is not feeling the pain of deficit spending, why should they get excited about fixing the problem? Life is good the way it is from their perspective. This is not conducive to solving our national debt problem.
This is where the utopia reference comes in. In a a fair and just world, everyone pays their fair share. However, we do not live in utopia and fair is a very subjective measure. Republicans would look at the above numbers and say that those paying the load of Federal income taxes are already paying too much. The Democrats would say that the wealthy are not paying enough in spite of the above numbers. As a result, there is never any meaningful and fair tax reformation undertaken and the country hurdles towards a financial disaster.
In the absence of utopia, how about the following solution for the current income tax chaos:
- The Bush tax cuts are restored for those Americans making more than $250,000 a year as Obama desperately and irrationally fixates on. Remember, that doing this will increase income taxes received by the Federal government by about $70 billion and reduce a typical annual Obama budget deficit by only about 5%, not a big impact on our debt.
- However, as a condition for this tax increase, that extra $70 billion would never get into the hands of the political class. It would go directly to a Treasury Department virtual "lock box" which is untouchable by any politician. The Treasury Department would use the funds solely to pay down our nation's debt.
- For all Americans, both individuals and businesses, that receive money for filing their taxes and pay nothing in income taxes because of the current tax code, they would have to rebate back, via their tax forms, half of what they would have received from the Federal government. For example, if you were to net $1,000 from the Federal income tax code (i.e. you would be paying no Federal income taxes and getting $1,000 anyway due to tax breaks), you would have to pay back half of that $1,000 or $500. That $500 would go into the same Treasury account created above and the $500 used to pay down the debt.
How much would this generate? Finding the right numbers has proven impossible so let's try an estimate by a "what if" approach. What if we assume there are about 135 million tax returns filed every year (that number can be estimated by online sources), what if we assume that 45% pay no Federal income taxes and many receive money anyway from the Federal government, and if we assume that the average amount of money received is $1,000, then putting these assumptions together would generate about $30 billion a year. If the amount of money received is only $500, then this approach would generate about $15 billion a year. Not earth shattering relative to our national debt but it would certainly get the message across that everyone has to contribute to solving the debt problem.
- Both tax actions would self destruct once either a balanced budget amendment was passed by the Federal political class or spending was reduced to such a level as generally viewed to be sustainable relative to GDP.
There are a number of advantages to such an approach. First, it would bypass all of the political posturing and inaction that we are cursed with from our politicians. Second, it would put every American's financial situation into the pot, no more of the rich paying under the lower Bush tax cut rates and no more of any American tax filer not feeling some pain of paying income taxes. Third, it would encourage taxpayers to put leveraged pressure on those in power to finally fix our out of control spending since until that happens, everyone in America would be paying more in taxes.
This approach would also apply to corporations and businesses. A few weeks ago (source: The Week magazine, April 8, 2011), it became known that in collusion with the political class, General Electric had $14.2 billion in worldwide profits in 2010 but because of various tax breaks, it not only paid no Federal income tax but it received a $3.2 billion tax refund from the Federal government.
Under this proposed scenario, that $3.2 billion refund would immediately be reduced by $1.6 billion and that $1.6 billion would be used to pay down the debt. This approach would obviously encourage General Electric and other such businesses and companies to also pressure Washington to get its fiscal house in order quickly in order to eliminate this charge. $1.6 billion from just one company is more than 5% of the $30 billion discussed above. Thus, very quickly, once you add in those not paying any income taxes at all, personal and business, and those earning over $250,000 a year, you start to generate some significant revenue to pay down the debt.
A great plan. Politicians do not get more of our money to wastefully spend, there is an accounting fail safe process to actually pay down some debt, all Americans and all Americans businesses now have skin in the national debt game, and this skin in the game leverages everyone to pressure Washington to finally act to fix the budget process and address our debt problems. It is not utopia but at least it has a chance of working. Waiting for our political class to enact overarching fair tax reform is utopian thinking and thus, unlikely to ever happen.
[Full disclosure note: I am not anywhere close to earning over $250,000 a year in case you think I am only looking out for my own best interest. For our latest tax return we fell into the 15% bracket and paid money to the Federal government for Federal income taxes for year 2010.]
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