The perennial pitched battles in Congress continue unabated over taxes with the rapid approach of the fiscal cliff. Conservatives continue to ally themselves with the wealthy and with corporate bosses to the detriment of their constituents. The refusal to even consider a miniscule increase in taxes on the already super-wealthy is causing enormous damage to the economy.
Conservatives want the wealthy to pay less, because they believe that the wealthy already pay more than their fair share of the taxes, and are carrying the poor along with them. The wealthy consider that their taxes benefit the poor far more than it does themselves, and that they should therefore pay less tax.
In the United States, the very poor, or those earning under $20k/yr pay no income tax. For many conservative commentators, this translates into the idea that they pay no taxes. This is a fallacy that conservatives love to perpetuate. Everyone pays taxes in one form or another, and the wealthy, like the poor, pay no tax on their first $17k in income (married filing jointly).
Everyone pays the payroll tax up to a maximum of $110k at a rate of 6.2% of gross income for Social Security. This is an insurance against poverty in old age. The employees portion is matched by the employer at the same rate. This is not an entitlement program, this is a pension into which employees pay, and which the government then owes to them in return once they retire. This is a state obligation, an earned benefit to which employees have a moral right.
The wealthy only pay into the Social Security trust fund if they have earned income, and only up to $110k per year. All income above that is exempt from this tax. In an equitable system, they would pay this tax on all their income. Conservatives want to cut the benefits received from this program, tying it to the deficit, upon which it has no impact.
They claim that people will get more out of the system than they put into it. This is true of any pension system, since the funds invested will increase with interest, dividends and capital gains. There is no distinction between Social Security and any pension scheme.
The second tax paid by the poor is the Medicare Insurance tax, also taken from paychecks. This amounts to 1.45% of gross income, as well as the 1.45% added by the employer.
With these two taxes alone, every employed person in the United States pays tax. In addition, most people pay sales tax in many jurisdictions, state tax, city tax, hotel tax, fuel tax, cigarette and alcohol taxes, as well as many smaller taxes paid on their utilities.
Everyone, employed or not, with income or not, pays taxes of some form. They may pay a very small total amount, but even that small percentage may exceed the percentage paid by the wealthy.
The payroll taxes alone amount to a total of 15.3% of total income if the employers portion is counted, exceeding the percentage paid by Mitt Romney on his 2011 tax return. We include the employers portion since, if the person is not employed, the tax is not paid, therefore, the tax is ultimately taken from the employees total earnings.
Consider what the poor must endure to live from day-to-day. The median rental in a mid-sized city is around $800/month. If a landlord will only accept a maximum of one-third of income for an apartment, the tenant must earn at least $2400/month. which is often too much for tenants. Even at the low-end of the rental market, rents often exceed $600/month, or at least $1800/month. This takes a large chunk of the employee’s salary.
On the other end of the scale, consider someone earning $10m/yr. His salary is 190 times the U.S. median income of $52,762. If he were to buy a home and pay an equivalent monthly payment for a home, he would pay about $152k per month, which would buy a home valued at $28m.
The wealthy person does not need a home of this value, and could live very comfortably in a home of a far lesser value. The poor person, cannot. He has no choice but to pay much of his income in rent.
Consider medical insurance. If the poor want medical, they must pay anywhere up to $500/month per person for insurance. The wealthy do not pay 190 times more for their medical insurance. They may pay $1500, as an example, but nowhere near the proportion that the poor will pay.
The same goes for utilities. While the wealthy may pay more in total for their electricity , they cannot possibly pay 190 times more without being overly extravagant. If the poor pay $150/month, a not uncommon figure, the wealthy won’t pay $30k/month even in extreme cases.
On a far more prosaic level, the poor will pay the same for a tomato, a lettuce, a bottle of milk as the wealthy will pay. The same goes for fuel for their transport. The fuel cost is the same, the wealthy do not pay any more than the poor, just because they are wealthy. They may have a vehicle that uses more fuel, but not 190 times more.
The poor must use a far higher proportion of their income to pay for basic necessities, leaving the wealthy with a far greater value of disposable income than the poor. This allows them to pay a far greater rate of tax than the poor, who plainly cannot afford any more. The greater the amount of disposable income, the greater the marginal (tax rate on income exceeding a certain amount) ought to be.
If the poor paid for their services the way the tax system worked, they would pay $3 for a gallon of gas, and the wealthy would pay $570. Since it does not work this way, neither does the tax code.
This brings us to the question of why the wealthy ought to pay more in tax. Why not make all taxes very low. The answer to this is not overly complex. The more advanced a society becomes, the more it costs to run. As new technologies evolve, they become more ubiquitous and more available to the entire population of the nation. At some point, they become essential to the smooth running of the nation.
Take electricity. A hundred and fifty years ago, very little ran on electricity, so no-one paid for it. As it became a part of society, power lines needed to be laid, substations set up, power plants built and maintained. A society today cannot run without it.
The same goes for roads, bridges, ports, airports. They all need to be built, maintained, extended as a public good. Since society as a whole benefits, society as a whole pays for it. This is why we pay taxes.
In order to assure that the country has utilities, transportation systems like trains and roads, a military to protect the nation, taxes must be paid. The poor plainly cannot afford to pay for all this, so those that have the ability, pay for these things.
Additionally, the wealthy are far more likely to use more of these resources than are the poor. The poor live in apartments, take public transport, where the wealthy live in large homes that need additional resources for transport, electricity and real estate. The wealthy are more likely to use airports, and ports for shipping their goods.
Companies often receive large subsidies that are paid for from tax revenues, and benefit company executives and shareholders. Corporations also benefit from the military, who protect shipping lanes and overseas investments. The poor do not benefit to the same degree from these public resources.
It should also be pointed out, that the poor and Middle Classes provide the labour that drives the companies. Without their labour, the companies would not run at all. A company like Wal-Mart would not run for ten minutes without its labour.
Yet, many companies pay their employees far less than the employees need to pay for the basic necessities of life in a modern state. This, despite the fact that executives are paid handsome salaries. What this amounts to is a tax on employees, since their labour is paid less than the company can afford.
Additionally, employees are consumers, without which no company can survive. Companies do not create jobs, consumers create jobs, since unless they are prepared to buy a product, the company will go out of business regardless of the number of employees they would like to employ.
Considering that it is the economic environment in a country that allows for the accumulation of wealth, the wealthy benefit to a far greater degree than do the poor and Middle Class. It is by this token that they should pay more in tax. Without the nation and its infrastructure, the roads, medical system, ports and airports, the Internet, the natural resources, the real estate, no wealthy person would continue to be wealthy.
The wealthy want it all their own way, the infrastructure, the economy, the labour, consumers, military protection, and yet refuse to pay their share of the tax burden.
Conservatives are using an old argument that would justify slavery, since slaves are given a roof over their heads and food in return for their labour. Since the slave owner is providing employment, they are entitled to the income produced, while the slave is not. This is why conservatives refuse to raise the minimum wage, and yet want the poor to pay more in tax.
As long as we live in a system in which the wealthy benefit to such a large degree from the system, they should be expected to shoulder a larger burden of the taxes. If they are prepared to pay their workers a better wage, those workers can afford to pay more in tax.
Such a system would be far more equitable, and ultimately more profitable than one in which there is massive income inequality. The wealthy are starving the goose that laid the golden eggs, and eventually it will cut off their income supply.
Subscribe to our RSS feed!