Taxes - how high is fair?

[dakotagopher]

I would be interested to hear input on opinions RE tax rates. How much is fair? No one likes paying taxes, obviously, but they are quite necessary to maintain a functioning and successful society. All Public Goods come from taxes (roads, schools, national defense, etc), so we can never eliminate taxes entirely. But how much is fair?

For example, I live in MN. Some call it the Socialist Republic of Minnesota, for all the high taxes you incur here. I have used that phrase myself several times, but I also recognize I might not have a job or make any money to begin with were it not for the societal opportunities generated by taxes.

In MN, if you make, say, $60,000 (which I think is a solid middle class income) you can literally struggle to get by. I know lots of young families that make this much money and really struggle.

At least 40% of your check is phantom, since it goes right to state & federal taxes. You never see it, so most people never miss it. Add in the taxes you pay on a daily basis (property & sales taxes, etc) and ultimately, 50%+ of your salary is paid in taxes over the course of a year. And the state of MN is broke, by the way, big budget deficit, so the taxes we pay are apparantly insufficient to cover the programs and overhead the gov't has established.

So, out of a $60,000 salary you're left with $30,000 after taxes. This is $2,500 per month. By the time you pay a reasonable mortgage, a reasonable car payment, utility bills, grocery bills, etc, there's not a whole lot left for savings or fun stuff like travel. Much less saving for college for your kids if you ever have any.

But if taxes were to be, say, only 30% of gross income, you'd have an extra $1,000 per month to spend/save/etc. That seems to me to be a decent chunk of change. An extra $12k per year.

So how much is fair? Is 50% of your income an acceptable amount to part with - as a "cost of living in America"? I personally look at taxes as a Cost of Doing Business. You make money, you gotta pay The Man. Our lives are the easiest and most opulent in history. We have freedoms and opportunity most others only dream about. That is definitely worth paying for.

However, I think 50%+ is RIDICULOUS. I think, personally, that about 33% of gross income, total, would be fair. I base this on a true appreciation for our society, that all of us must contribute to the "collective whole" to keep the machine running. But half of your income? Isn't that a little over the top?

I am at a point in my career where I have achieved a decent amount of success, and make a very healthy salary - way, way more than anybody I know who's under 30. I also work as hard as anybody I have ever met, and I grew up on a farm, where Hard Work has a definition all its own. Have made major sacrifices to reach this "success."

I stop and wonder sometimes if I'm killing myself at this career thing for peanuts. And every day in the paper, there is more clamoring for the wealthy (those that make over $90k/year) to pay more. How much more? At what point is it just easier to quit the high production job and go work as a clerk or a janitor for $20,000 per year? Who loses then - me, or society, for driving out a Producer of Tax Revenue?

I would be interested to know input of y'all. There are obviosly some bright people on this board. Without going into too much detail, what's fair? What percentage of your gross pay should you have to contribute to society in order to keep society running smoothly?

[Benwa]

It isn't so much paying taxes that II don't like. It's how they are squandered. But more importantly it is what we tax. We tax things that are seen as "good". Why tax labor? Isn't people working a good thing? Don't you need people to work to keep the civilizatoin experiment going?

We should start taxing socially "bad" things. Tax based on consumption, those who use more pay more. Although I have environmental motives for suggesting this it makes financial sense as well. If you consume more goods, it costs more to produce for you, you should be held accountable and pay more tax.

A good book to read on this subject is Natural Capital. It helps to bridge between the granola eating hippie and the cut throat business man. It suggest you take into account natural capital, capital associated with the environment you get resources from. It always makes better business sense to understand the natural capital of your operation. Become efficient, the money spent to become efficient will be returned probably 90% of the time. In fact most companies turn profits just from becoming screwdly efficient. Something as simple as changing your electrical loads or turning a certain machine 90 degrees can do wonders. Any one wanting to enter business should read it. I'm not in business and I still found it fascinating.

Lets reform taxes. As for how much of a persons income should be taxed, I say none. There's your economy stimulator. You can't solve a problem by doing the same thing and trying harder, you have to do something different. Close to half my paycheck is stolen from me. Want me to be an active member in the economy? Stop taking my damn money!

[jku]

In Japan, each year they announce the person who has paid the highest taxes - its an honor in a sense, because they are saying this person was the most successful this year, and they are true Japanese patriots earning money and giving it back to the country that helped them earn their wealth.

If everyone in America paid taxes in equal/fair amounts it would be interesting for us to do the same as Japan. However, our tax code is so intricate (do you think that's by accident?), and some are able to get away maximizing their earnings and paying little in taxes - that specific truth would outrage the public. Some people belive paying taxes is their patriotic duty and their contribution to society, other's look at it as subsidizing the weak and lost. If tax money wasn't wasted like it is so many areas (the DEFENSE budget - $1000 BILLION [1 trillion] unaccounted for!) - while fingers are pointed at "single mothers on welfare," I'd be in a better mood everytime I looked at my paycheck stub.

It's death and taxes - we live in the greatest country and pay a price to do so.

[jku]

John Balzar:
The IRS Isn't the Enemy -- You Tax
Cheaters Are
The agency expresses new spunk in pursuing fraud, and that's good news.

Cheat on your taxes this year? Millions of Americans
did, and I'm sorry to report they'll probably get away
with it too.

How widespread is tax evasion in the United States?
We have only guesses, but the IRS estimates that tax
swindlers make off with $1,000 for every man, woman
and child in the U.S. That's enough money -- $280
billion -- to reduce the federal deficit by more than half,
maybe as much as 75%. That's also enough cash to
pay for national health insurance.

Put another way, the underreporting of income,
falsification of deductions, inflation of credits and the
refusal to file tax returns mean that between 15% and
17% of taxes owed go unpaid, according to
independent researchers and the IRS. Thus, if you
played it straight with your country this time, up to two
months of your annual tax bill compensates for other people's fraud.

Behind this dirty state of affairs, there's at least one note of good news on the tax
collection front this year.

You can hear it in Nancy Jardini's voice. She is deputy chief of criminal
investigations for the IRS. "We're refocused," she told me. "We're going after the
high-profile cases, the important cases.... Look at the numbers."

By the agency's count, freshly opened criminal investigations are up 38% since
2000. Among the targets are notable corporate schemers as well as flamboyant
anti-tax charlatans.

If this new spunk expressed by the IRS is a welcome turn, it's also way, way
overdue. The uptick in criminal investigations follows a decade in which anti-tax,
anti-government zealots and bandwagon politicians in Congress incrementally
defanged the IRS, one of the worst fads ever to sweep the Capitol. A study by
Syracuse University found that "criminal enforcement of the nation's tax laws by
the IRS has plummeted to an all-time low." Prosecutions were down by half in
just the decade from 1992 to 2002. IRS civil suits against less-egregious
offenders dropped even more steeply.

Need we remind ourselves that this was the decade of greed, a decade when tax
avoidance -- either by aggressive use of loopholes or by outright tax fraud --
became an essential part of many corporate profit strategies and, of course, key
to many executive "compensation" schemes? For those with money to burn, this
was the decade of the offshore charge card and the blue-chip tax shelter. And
why not? Last year, the chance of being audited fell to a minuscule 58 out of
10,000 tax returns, transforming the tax system into an inviting "lottery" for
anyone of a mind to cheat, as University of Michigan economist Joel Slemrod put
it.

In a report last autumn, outgoing IRS Commissioner Charles O. Rossotti said the
IRS had recovered from its darkest days and was successfully modernizing. But
for a nation that depends on trust and honesty to maintain the social order, he
foresaw a "dangerous" future.

The complexities of the tax laws and of global finances have created many more
opportunities for tax larceny. Plus, working Americans, no doubt influenced by
the example of rapacious tycoons, have grown resigned about dishonesty. In an
IRS survey two years ago, one of four people said it was OK to cheat on taxes.
This year, a Gallup Poll found that Americans, on average, believe that every
third household actually did.

Perhaps worst of all for the integrity of the tax system, the traditional
law-and-order message of conservatives has faded, replaced by strident attacks
on government. The IRS thus became an easy target for those who hammered
wedges between citizens and their country, as if government was a "they" and not
an "us."

The consequence, Rossotti said, "has been to create a huge gap between the
number of taxpayers who the IRS knows are not filing, not reporting or not
paying what they owe and our capacity to require them to comply." It's a gap
that leaves many honest taxpayers feeling that April Fools' isn't just a day of the
year.

[coll214]

I'd have to agree with Benwa- it's not paying the taxes that I hate (I don't exactly love it either), but the fact that my hard-earned money isn't going to what it should.

jku- that is one depressing article, but i'd believe it. I bet everyone on here knows of at least one person who has cheated on their taxes and gotten away with it.:twisted:

[Benwa]

I've recently read an article about paying taxes and war protest. Activist's ideas are, even if you are out there protesting your butt off, your taxes are still going to fund our glutted military budget. So what they propose is a fund where you can select to place your tax dollars into. This fund would be protected from being used on military budgets. It would still go to gov't funded projects. You would still pay your takes except it would go to something positive.

I think this is an amazing idea. But anyone whose lived under our gov't long enough knows its having serious trouble coming to fruition. The Rulers don't like it when you tell them how to spend your money. Why spend that money on education when you can spend it developing a missile that uses thermal imaging and satellite chromotagophy to locate a person by analysing there flatuence (based on what spy satelltes determine they had for lunch) and launching the missile to go directly up there rectum and explode once it gets into there chest. Education Smeducation! We need better ways of causing massive destruction. Why give that money to the poor, they will only squander it on something useless like... food or clothing. You gotta watch those poor people because they'll take you to the cleaners, with their silly basic needs for survival. All we need is a few more bombs. I know! We need to develop a way to turn the poor people into bombs! Another trillion dollars should cover that weapons development program. Ah, two problems solved and I haven't even eaten lunch yet! I think I'll go to camp David and take a month off.

But seriously, the idea of a special fund is great and a good step to giving us more power of how our taxes are spent. Imagine how great it would be to divy up your own dollars on your tax form! This percentage goes to helping local wildlife, this percentage goes to the city to fix all those damn potholes I hit on the way to work, and this percentage goes to healthcare and education. All your tax dollars may not be able to be done that way because there are gov't things that don't occur to us that need funding. But say 50% was up to us. Paying taxes would almost be a joy.

[jku]

That's a great idea in theory, but one issue to consider is that not ALL defense spending is bad. We need a strong military and weapons aresenal to protect against attack. If people picked where their money went, we might get very little money going in that direction.

That said, there is BIG difference between a strong healthy military, and a bloated, over-budgeted one. Like the difference between a healthy vs. obese man.

When you have a defense budget that is bigger than the next 15 countries combined, that's OBESE!
When you can't account for 1000 BILLION DOLLARS/1 TRILLION, that's obese!

Don't you think some of that money went to men who will funnel it back to politicians so they get elected and wage more WAR to keep the cycle spinning?

How much more are we paying in taxes to cover this blatant system of corruption?

This is the abstract for an article in the Times yesterday about what happened to a guy who tried to blow the whistle on corruption in the military Industrial complex:

Last week, he became one of the nation's wealthiest whistle- blowers when Northrop Grumman Corp. agreed to settle a case he and the Justice Department brought against TRW Inc., and the department awarded him $27.2 million. In all, Los Angeles-based Northrop Grumman, which recently acquired TRW, agreed to pay $111.2 million to resolve claims that TRW padded bills for defense work done...

[mnbulldawg]

NO more taxes, haha Bush 2004 got to love it!!


Finally MN Is a republican State, is the why the weathers been nice, I like to think so!!! HAHAHAHAH

[Benwa]

The trust plan won't put our military out of business. It isn't as if the trust fund appears and suddenly the military is bankrupt and has to fire everyone and some boogie man country comes in to take us over. Apparently alot of americans really think its good to have a huge military and to fight wars. I don't, so I think I should be able to withdraw my financial funding from programs I vehemently disagree with. I never said to do away with military spending. I just said I don't want my hard earned dollar to be used to send my fellow young americans over seas to kill and be killed by people that I have no problem with. If others want to fund a war, fine then don't put your taxes in the fund. And if we end up getting very little money for the military, doesn't that mean the majority has spoken. Isn't that the hog wash all these people with american flags on their cars keep jabbering about, how wonderful democracy is. Where a big enough group of citizens can make a difference. Or is all that just a myth, a sort of marketing ploy to sell the american brand name. Make your whites whiter, your brights brighter and the leaders are concerned with your and others well being and not the expansion of america. With starbucks and 99 cent burgers for all.

[lostindc]

Beenwa,

Though interesting the idea of a tax trust would throw everything into chaos. Some programs would be devestated -resulting in massive layoffs while others would be overfunded to the point where they would have to throw away money just to spend it all.

Second taxing income is not a bad thing as it helps perserve a balance in the economy. Without it we'd be back in the 19th century where a few people could amass huge fortunes leaving little for everyone else (including government services). A pure consumptions tax could be devestating as people would buy much less and therefore grind the economy to a halt (again resulting in more layoffs). Such a tax would have similar effects as massive inflation.

Third strong national defense is always an important national concern. You can't stop funding the military in peace times and expect to magically create a strong defence when the need arises. Also drastically cutting defence would result in a great number of both military and civillian layoffs resulting in much higher unemployment. Lastly there are many nonmilitary benefits to defence spending such as GPS navagation, accurate weather forecasting, velcro, scientific research, and even the internet which allows this forum to take place.

That all being said there are some crazy things in our tax code:

- when taking into account payroll taxes the marginal tax rate for someone making $50K is higher than someone making $1M, this is because the payroll tax is regressive.

- income from working is taxed at a much higher rate than dividend or investment income which is passively earned.

[tipsy88]

lost,

To address the "crazy" tax code

"when taking into account payroll taxes the marginal tax rate for someone making $50K is higher than someone making $1M, this is because the payroll tax is regressive."

I believe i might have an explaination. I currently am taking a microeconomics class, very very interesting subject, i highly recommend everyone to learn about economics since everyone actively takes a part in it.

I dunno if you are verse in ecomonics so i apologize if i insult your intelligence on this matter (i've just started to study this subject)

Anyway the reason you may see this discrepancy of lower marginal tax rate with higher incomes is due to the reasons why we see wage differences caused by mainly incentive.

microeconomic theory says that there are 4 basic ways why we see wage differences among jobs.

1.) natual ability
2.) human capital
3.) occupational differentials (hazards, perference, risks)
4.) discrimination

Natual ability is pretty evident is jobs such as performing arts, sports, or any sort of job that has "talent" associated with it. If i could play basketball like MJ i too would be making this salary.

Human capital is also pretty evident. by obtaining more training, specialization, more education you have investing capitial in yourself. All that time and work put in to your investment should bring some greater reward otherwise why would anyone do it? therefore it is only fitting for a engineer to make more than a clerk or receiptionist.

Occupational differentials are a variety of things that make certain jobs less desirable than others. Submarines get more pay than other often refered to "hazard pay" because of the conditions. Simlarity, police officers generally recieve more than firefighters because people often associate police work as thankless. So these differentials are attributed to anything which makes the job undesirable, wehter real or percieved.

Dicrimination is a special case and can be hard to trace and for the purpose of my explanation not too revelant, but i included in here for completeness.

Now i think the reason why we see the income tax the way it is, is due to the real affect of higher wages creates incentive for people to do the jobs that product output that consumers demand. Given that incentive if we add income tax to the picture and structure it in such a fashion that places higher marginal taxes on those who make more, those people would not have the incentive to go into those "harder" jobs when it is easier for them to make less and feel the penalities for doing so less. Stated another way, why put forth more effort to produce more only to be tax more for your hard work than those who did "less".



Below is something i found on a site that talks about economics

http://www.econlib.org/library/Enc/MarginalTaxRates.html

An except from this article sums up more elegantly than i may have tried to convey

"The marginal tax on added earnings matters because it is easier to earn less than to earn more. To increase income, people have to study more, accept added risks and responsibilities, relocate, work late or take work home, tackle the dangers of starting a new business or investing in one, and so on. People earn more by producing more and better goods and services. If the tax system punishes added income, it must also punish added output—that is, economic growth.

Some economists used to argue that the incentive effect of lower marginal tax rates is ambiguous. Perhaps, they said, people will simply use the "tax cut" to enjoy more leisure, living just as well by working less. This argument again confuses average with marginal tax rates. With a "revenue neutral" cut in marginal tax rates, taxpayers do not automatically receive the increase in after-tax income that is alleged to make them work less. Since average tax rates remain unchanged, the only way to get this added income is to work harder and produce more."

[lostindc]

Tipsy,

If you took your argument to its logical conclusion then the government should just get rid of income taxes altogether (since income taxes "punish" added income and economic growth -by your argument). As apealing as this may sound the government still need to fund itself and it does that through taxes. So the question comes who shall bear what burden of funding the government. It seems logical that those who gain greater benefits from the ecomony should bear the greater taxd burden of funding the government. (btw this is idea is reflected in the income tax code (excluding payroll taxes) as it is a progressive structure.)

I also find it ironic that the last federal tax cut could result in tax increases for some people. Since the tax cut cuts into local aid, local taxes (including sales, income property, car etc) will rise to compesate. Given the some people will see almost no federal tax, but increased local taxes their overall tax burden will actually rise. (This is logical as if you cut taxes for one person you must increase taxes for someone else either now in the future to maintain the necessary tax revenue to run the government.

[jku]

Exactly LINDC - It doesn't make sense that we could cut and cut - but there's a WAR, inevitable SOC SECURITY, state bankruptcy, energy crisis, a country to REBUILD -

To me its like looking at a friend go on a self-destructive spending binge - BUT one day the credit card bill will come in the mail!

[tipsy88]

. It seems logical that those who gain greater benefits from the ecomony should bear the greater taxd burden of funding the government.

Ths sounds pretty logical, although it assumes that there is an incentive for the person that recieves the greater benefits pay more tax to the government so that the government can return strengthen the economy in such a way which provides a greater economic return for the person who pays more tax.

Those who recieve greater monetary benefits in the first place do so because of the wage differences i metioned in the previous post

This means that the economic policy of the government should not act in public interest, but rather towards the interests over a particular group. While although this does happens (the wealthy are certainly influential!), i'd would be more incline to think that a majority of government policy aims to spread its effect amongst the general public for the greater good and not for a particular group. (although perhaps i being too optomistic :) )

In fact all of this leads to very interesting topic. The idea of tax itself serves for a number of functions. In my study of economics taxes are called transfers. They take a portion of Consumer Surplus and a portion of Producer Surplus and use that value to apply it to some other area of the economy. One fo the major reasons for transfer is the fact that there are certain "products" that benefit everyone regardless who was the actually payee of the "product". Because of the universal benefit, unless all people pay for the "product" no one will, because there is no incentive to since those who don't pay are "freeloading". This is very apparent in form such as national defense and public roads systems.

For programs such as these which help create industries and fuel growth, who benefits the greatest from the tax revenue, what is the fair amount to tax people who unverisally enjoy the windfall from the "product" being produced?

[tipsy88]

Just as an after though, assume that this statement i made is overwhelmingly true :

This means that the economic policy of the government should not act in public interest, but rather towards the interests over a particular group.

And if the this arguement becomes true :

Those wealthy who stand to benefit from policies that further generate them money/benefit for their group should pay more than those who don't benefit


Then isn't logical to say,

Those poor who stand to benefit from policies that further generate them money/benefity for their group should pay more than those who don't


Strictly speaking froma money POV, herein lies the catch-22
wealthly people to create benefits (one of them being reduce taxes) put more money into getting these policies in, thus the very solution to the problem cuases the problem.

conversely

poor people to receive the greater monatery benefit/relief from the economy through government policy should pay more so that their policies can create an ecnomy more favorable for them. (but they must get the money first to pay for the policy, and even if they do get the money to pay for the policy, they are now richer without the policy than with it)

yeah yeah i know, i'm being simple again, but it's easier. okay now that i have sufficently wasted my time here at work, and in need to go and study for my final.