Wednesday, June 11, 2014

CBO Graphics-Part 3: Tax Revenues to the Federal Government

'Death and Taxes'. Soon to be a great
restaurant in Downtown Raleigh
'In this world, there is nothing that can be said to be certain except Death and Taxes!'- Benjamin Franklin

We don't like to talk about death so let's talk about taxes for awhile today, shall we?

The first bill on the floor of the US Congress when it convened for the first time in 1789 was a bill to debate import duties.


Because now that the Framers and Founders of this country had achieved what they wanted, they had to figure out how to pay for it. Having a national central government with an army and navy to support and roads to tend to and post offices to build cost money, right? It just wasn't going to spontaneously combust and happen all of its own accord, now was it?

The US Congress set up the first committee and called it 'The Ways and Means Committee'. For the simple reason that those guys were tasked with the job of finding the 'ways' and the 'means' to collect taxes without inciting a riot post-Revolution to be able to pay the bills of the new consolidated national government.

'Don't tax you. Don't tax me. Tax the guy behind that tree' became a famous saying from one of the more colorful Chairmen of the Senate Finance Committee in our history, Senator Russell B. Long of Louisiana.

Mainly because it points out the truth of tax-writing legislatin'.  We have to find the revenues to fund the basic essentials of our government...or else we are right back to the weak-kneed Articles of Confederation where each state has to defend for itself.

And no really wants to be taxed do they? Even some liberal wealthy people such as Warren Buffett say they think 'tax rates should be higher on the wealthy!' and then they hire armies of tax attorneys and accountants to make sure they don't pay those higher rates!

The point of raising taxes to pay for what we want out of our government is solely that; raising money to pay for services. The tax code should not be set up to provide special benefits for any person or any business. The tax code should not be set up to conduct 'class warfare' for political purposes. The tax code should not be set up to try to engineer social policy.

Raising taxes should be only to do one thing: pay for what we ask our legislators to pay for collectively that benefit the nation at large.

With that core concept in mind, let's look at where the current American tax system has deviated far from that mark. And why it needs to be completely replaced.
  1. Look at the graph below to see how much of our tax revenue actually comes from gift and estate (death) taxes. $19 billion a year. 0.76% of all revenues we take in in taxes.

    Believe it or not, that is decimal dust in the grand scope of things. It should be scrapped immediately.

    The time and effort to fight over death taxes, pay expensive tax attorneys and accountants to figure out complicated ways to avoid paying estate taxes and then collect any left over the threshold with IRS agents probably costs more than $20 billion per year to do so.
  2. Check out the amount of payroll taxes we collect each year. $948 billion in 2013, close to $1 trillion. These technically go to the Social Security and Medicare Part A 'Trust Funds' (sic) but don't come anywhere near to covering all the expenses. Medicare Part B is 25% covered by senior-paid premiums; the rest of it, 75%, is paid for by you, the general taxpayer every year.

    God only knows how much Obamacare, which is Medicare Parts E-Z apparently, will wind up costing the American taxpayer.

    Payroll taxes are the single most prominent example of a flat-rate tax we have ever seen in American politics. Everyone pays them when they have a paying job. Everyone pays the same rate; except for the self-employed who pay both sides of the employee/employer payroll tax or double what everyone else pays each year.

    Maybe it should become the basis for a true flat-rate tax in America and wipe out all the hundreds of thousands of special tax provisions, exemptions and deductions. It is already in place.
  3. Corporate income taxes bring in close to 10% of tax revenues each year; in 2013, that was $274 billion.

    Guess who really pays those 'corporate income taxes', class? You do, the American consumer.

    Every single thing you buy each and every day has some corporation's or company's income taxes baked right into the pie, cake or tofu burger that you pay for when you eat it.

    Without corporate income taxes to pay, every item in America would cost that much less proportionally. The cost of those income taxes are now built into every tofu burger. Instead of it costing $5, it may only cost $4.50 or so.

    Corporate income taxes are just another form of double-taxation that nobody really realizes. Thomas Jefferson once said the first principle of taxation should be that every dollar gets taxed only once.

    We agree.
  4. The level of tax revenue collection has hovered around the average of 16.7% of US GDP for the last 40 years at least. No matter how may times we have cut taxes or raised taxes or created new taxes, the American public is willing to let go of about 16.7% of GDP in tax revenue to Washington.

    So let's just stop messing with the level of income taxation and beefing about the marginal rates that the average person really doesn't understand anyway.
The 'answer', it seems to us is to move to a consumption-based tax to collect national tax revenue. It would replace the income, corporate, estate and excise tax system now in place which accounts for about 66% of the tax stream flowing to DC today.

The payroll tax part of our revenue stream should then be aimed at filling personal individual retirement and medical savings accounts for every person who works and pays payroll taxes. This should have been done decades ago. It would take about a 20-year transition period but it can and should be done starting today if we can.

Minimum-wage earners over the course of their lives could build up assets of close to $350,000 even under conservative investing methods going this route. Millions of Chilean citizens started to do so in 1980 and are now retiring with substantial nest eggs when compared to the rather meager $1300/month SS benefits most US seniors receive, assuming they reach the retirement age of 66 and don't die beforehand and not have anything to pass onto their families.

Take a look at the chart below. Study it. Memorize it. And then use it in your discussions with other people today and later in the week, month and this year.

You may teach some people some valuable things.

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