Tuesday, August 7, 2007
Sunday, July 15, 2007
And remember -- this is what happens when the Bush tax cuts expire.Twenty-three months after the next president is inaugurated, the Bush tax cuts expire. The winner of the 2008 election and her or his congressional allieswill determine what is done about the fact that, unless action is taken, in 2011 the economy will be walloped.
The five income tax brackets (10, 25, 28, 33 and 35 percent) will be increased by 50%, 12%, 10.7%, 9.1% and 13.1% percent, respectively, to 15, 28, 31, 36 and 39.6 percent. The child tax credit reverts to $500 from $1,000. The estate tax rate, which falls to zero in 2009, will snap back to a 60 percent maximum, and exemptions that have increased will decrease. The capital gains rate will rise, and the marriage penalty will be revived, as will the double taxation of dividends.
Furthermore, the alternative minimum tax was enacted by Democratic moralists in 1969 because 21 millionaires had legally avoided paying any income tax. The AMT, which allows almost no deductions, had one rate (24 percent) until 1993, when Democrats replaced it with two (26 percent and 28 percent). It has never been indexed for inflation and in the current tax year will hit almost one in five households -- 23 million of them.
Interesting, isn't it, that the group seeing the largest tax increase when the "tax cuts for the rich" expire during the next presidential term will be those making the least? And I wonder how many of those low income Americans removed from the tax rolls completely by the Bush "tax cuts for the rich" will find themselves once again required to pay income taxes with the return to Clinton-era tax policies?
Editors note: "tax cuts for the rich" are often calculated like this:
The "rich" family making $200,000 a year (and paying TENS of thousands in taxes) gets a 1% cut saving $2,000. Only gets a ONE PERCENT cut in the rate, but probably a 5% cut in what they are paying.
The "not rich" family making $40,000 a year gets a 3% cut saving $1,200. THREE PERCENT CUT in the rate, but probably a 40% cut in what they are paying.
The class warfare politicians will only tell people about the rich guys $2,000 compared to the other's $1,200 and rail against the unfairness of this. How is this, in any way, unfair to anyone but the rich person who is still subjected to Karl Marx Communist Manifesto style taxation.
Sunday, July 8, 2007
The recent property tax disaster has opened the door for an idea thats time has come. Replacing the multi-tiered (income, property, sales) tax system in Indiana with a single-rate sales/consumption tax on NEW goods and services.
There is a Federal proposal in Washington D.C. that currently has 60 co-sponsors in Congress, and Michigan and Georgia have also been looking at a similar plan for their states; but, there is now a tremendous opportunity for Indiana to lead the nation in tax reform and make itself an economic powerhouse at the same time.
Before getting into the details we have to get a few basic truths and principals out of the way.
- Only people pay taxes. Corporations only pay taxes to the extent that they have collected them from the people who buy their products.
- Property taxes are woefully regressive and create an environment where a person can never truly own their property because they have to "rent" it from their government each year. As in item 1 above, a landlord paying more in property taxes must pass that cost onto his tenants so even renters end up paying property taxes indirectly.
- That encouraging people to save money and not spend it all is a good idea.
- That all people, regardless of immigration status or "legality of vocation" (ie: whether or not what you do for a living is legal) should pay their share.
- That something needs to change and "tinkering around the edges" isn't enough.
If we can agree on those items, or at least three out of five than there is no reason not to support the Indiana State FairTax proposal (or even the national version). If we can't agree on these things, please read "Economics in one Lesson by Hazlitt" and "Federalist #21 by Alexander Hamilton" and then see if you've been persuaded.
So we start by eliminating property taxes, this alone would save an average of 3% of most family's entire income that is current paid in taxes. Then we get rid of the 3.4% State Income. So, right off the top we've eliminated 6.4% of what people EARN. Most likely, local taxes would get rolled into this kind of program with a "local option" sales tax component.
We then increase the State Sales Tax to what would most likely be something in the 9.5% to 10% range (instead of the current 6%) on what people SPEND for NEW goods and services. One option that might be evaluated is a "PREBATE" version, similar to the national bill, but the current proposal does not include that element. This is the simplist implementation so that the politicians have fewer things to tinker with and fewer favors to offer "friends".
The effects of this would be as follows:
- One tax system, easy to understand and easily visible on every receipt.
- Taxed only once on NEW products and services (used goods not taxed).
- Money is no longer "withheld" before you ever see it.
- Prebate provides equal tax relief to all families and zero-tax liability for the poor.
- Only people at the higher end of the spending/consumption curve pay the full rate.
- Education would be tax-free if adopted with a no tax on tuition policy.
- Broadens the tax base to ensure illegal immigrants and "underground economy" pay.
- No need to file a tax return. It is no longer the states business how much you made.
- Tax is now optional. You choose to pay taxes when you buy something.
- Savings can be done with pre-tax dollars. Save money faster.
- Interest and dividends would no longer be taxed. Save for retirement faster!
- Decreases the tax burden on real property, increasing values.
- Eliminates uncertaintly in planning for a persons tax burden.
- Makes Indiana an IDEAL place for savings, investment and job creation.
- Businesses would have an incentive to move operations here and create jobs.
- No more "special tax deals" needed to lure those businesses here.
- Reduces cost of compliance for individuals and employers.
- Reduce size of State government by leveraging existing Sales Tax enforcement.
Now, of course, there will be people who dislike this idea because they don't like some aspect of it. What about all of the aspects of the current system we all dislike? We should never let perfect get in the way of better.
For more information go to: http://hoosiersforfairtaxation.blogspot.com/
While there is certainly an advantage for those who are politically connected, or better educated or just flat had better opportunities at the end of the day this is a (sort of) free country where people have to choose whether to stake their claim on the world or try to make it working in someone else's venture. And for the moment we won't get into the impact our oppressive taxation has on people trying to elevate themselves; but...
An Indianapolis Star Topix Forum person asked: "How do you explain the rich getting richer and the poor and middle class getting poorer?"
Well, the difficult thing here is to define "what is rich"? To MOST people, "rich" is usually not that much higher up the scale than what they have. Are we talking income or accumulated assets? But, in simple terms, the answer here is relatively easy. Rich people know how to make and keep money. Poor people do not or they would not be poor. In an American style capitalist system the difference between rich and poor is largely a function of:
The decisions you make + how you think + what you do with your spare time.
Make bad decisions or mistakes personally or financially; have a poverty, scarcity or entitlement mentality; or waste your spare time watching Oprah and American Idol and you'll have a hard time getting ahead. Of course, there is a small "luck factor" that can influence things but people people largely make their own "luck".
There is no guarantee of success, but trying and failing is certainly more respectible than not trying and all and whining because others did.
Saturday, July 7, 2007
Do we desire to be self-sufficient, empowered and free or do we desire to continue strapping on the chains of government and the high price tag that comes with them? In pure financial terms the price of government is slowly, inexorably crippling our country and our population. Have you ever done the math?
Federal income tax rates are currently 10, 15, 28, 33 and 35% depending on one's income level.
(note - progressive taxes on income were a core tenant of Karl Marx's Communist Manifesto)
The FICA / Medicaid tax contribution runs 7.65% for BOTH you and your employer making the total 15.30%. Your employer's matching funds are a direct expense to them and from their perspective, are a cost of your employment with them. This means that since it is treated in the budget as part of your salary, it arguably is money you could or would otherwise receive as salary depending on your employer and competetive nature of your industry or profession. Self-employed people pay the 15.3% right out of their pocket.
So, we have thus far generated a low number of 25.3% on up to 40.3% in Federal taxes depending on one's income level.
I live in Indiana. My state income tax rate is 3.4% plus a local county tax of 1.0% (the mayor recently asked for an increase to 1.65% [65% tax increase!!!!]). Property taxes are all over the board and recently got jacked an average of 34% in Indianapolis. Right now I'm paying more than 2% just in property taxes on a primary residence so let's use a range of 1 to 3% for property taxes.
Now we're at 32% to 49% of a person's income (admittedly not adjusted for deductions but that's not germane to this argument). SO, before you actually get money in your pocket to go spend the government has taken one third to one half of it, by force. "By force" of course meaning the threat of levy on bank accounts, foreclosure on your home, jail time, public ridicule or other methods to ruin your life or enjoyment of such.
Oh but wait. We still have state sales taxes (6% in my case), food/beverage tax when eating out (2% to pay for the Indianapolis Colt's stadium [welfare for multi-million dollar football teams?]). Plus gas taxes (around 40 cents a gallon), plate/excise taxes on our vehicles (another few tenths of a percent). PLUS, all of the embedded taxes in the things we buy (remember - the taxes companies pay are only collected by them in the price of the products they sell).
So if we start adding everything up. How much do we all REALLY pay for this big, massive, bloated, intrusive, unresponsive government animal? EASILY, half of what we make and considerably more for most.
It's no wonder Americans have a hard time saving money. Our Federal, State and Local governments have stolen it all before we get to buy food, shelter or a movie ticket. The income tax didn't exist prior to 1913 and when first enacted was only a few percentage points to the very wealthy. Property taxes are a holdover from when kings allowed the serfs to work the land in exchange for a tax or lease on the property. Or sometimes a tax on the fruits of a persons labor (income tax).
It's time to start rolling things back and it's time to change the tax collection system. There are some good ideas out there. Presidential candidate Ron Paul wants to roll back the spending and immediately get rid of the IRS (http://www.ronpaul2008.com/). There is also legislation before congress called The FairTax Act (http://www.fairtax.org/) that has 60 co-sponsors and would move everything to a simple sales (consumption) tax.