I haven’t had a significant federal income tax liability since I moved into my house 13 years ago, because I bought via a program that allows me a 20% Federal Income Tax credit on the mortgage interest I pay. I have a son so I get a child tax credit, my wife spent 5 years in graduate school so she got an education tax credit, this year we got a making work pay tax credit, and I also itemize. I spent more than 7.5% of my AGI on unreimbursed medical expenses, I gave away several bags of clothing to a thrift store, I have my mortgage interest that’s not subject to the writeoff, basically I’m getting more back than I paid in. And hey, I also didn’t have any earned income myself in 2009 because my company shut down early in 2009 and I have yet to find employment. So in fact, my income was primarily from unemployment insurance. All but the first 26 weeks of that unemployment were from Federal extension dollars. Now my wife had a half time job, but basically health insurance pretty much ate up the majority of her income, and without these benefits, I wouldn’t have been able to stay in my home much less pay my bills. Yet 14 months later, because I had a safety net and didn’t have a Federal tax liability to burden me even more, I have not missed or been late on a single payment of any kind. Yes, I’ve borrowed a significant amount of money on credit cards and from my parents and it’s going to take me a while to dig myself out of that hole when I find a job, but somehow if given the financial pressures I have right now, when I filed my taxes I’d actually had to pay the Federal government, that simply would have seemed wrong and unjust.
Do I feel guilty?
Hell no.
Why?
Because I DO pay taxes. Like others have pointed out, they are talking about one specific tax, Federal Income Taxes. But every dollar I’ve earned or my wife has earned has seen 7.65% taken off the top. And hey, if I were making 20,000, 40,000, 60,000, 80,000 or 100,000 a year, I’d still have 7.65% taken off the top. But once I reached 106,800 in income, that withholding would stop, so whether I was making 110,000 or 10,000,000 a year, only 7.65% of the FIRST 106,800 would be taxed at that rate.
Now, when I file my state taxes, pretty much everything I was able to write off on my Federal taxes was excluded. My wife had money withheld by the state and we STILL owed money, like $500, which thankfully was more than offset by my Federal refund otherwise I don’t know how I’d have paid it. So, states, which really don’t have as “progressive” of a wittholding structure as the Federal government, really pretty much charge you on most of your income, and tax most income at the same rate. But the idea behind Federal taxes is that taxes really shouldn’t hurt you, they should be collected on disposable income, not money that you need to put food on your table. So they have personal exemptions to account for the family you’re taking care of, and standard deductions to account for each individuals extra living cost. Then they say that’s for your family with no extraoridnary expenses, but what about if you’re raising a child, or paying education, or daycare, or medical expenses, or you were robbed or you gave to charity, or this or that…well these things are things that really we should as a society WANT you to do, and therefore, we say that income as well is not really something we should tax, so we give it back in the form of deductions and credits. It’s not a perfect system, but the point is not to make life harder for that 47% who in 2009 really barely made enough money to get by.
Because if I’m pushed into bankruptcy because there are 6 people looking for every job that exists, even though I’ve spent 20 years between college and my career building my skills and experience, not only does that really suck for me and my family and comes at a human cost, but then I become a drain on the system…I have to use the court system to declare bankruptcy, I put another house on the market that the bank will lose money on which will further drive down property values, causing more people to go underwater on their mortgages, and when I run out of unemployment, I go on welfare, because you gotta eat. I could literally lose everything I’ve ever worked for, and have to rely on the government far more than I do now by getting a few grand a year in tax savings because of my specific living expenses and circumstances in any given year.
But problem is, it doesn’t stop there. Even though I have to pay the state taxes at the same rate a rich person would on all my income for all intents and purposes, I still have 2 grand a year I pay to the county in property taxes, I’ve personally lost 100,000 in equity in my home that I had no control over, I’m paying hundreds of dollars a year in interest now that I didn’t have to pay before to make ends meet, and I’m still paying the same sales tax rate as a rich person would on every single thing I buy. I’m still paying $2.75 a gallon for gas, the same as a rich person, which includes something likd 60 cents of taxes. There are taxes on my garbgage collection, my water service, my electricity, my phone bill, my internet bill, my TV bill, if I go out to eat I pay taxees on that, if I buy something for my household, I pay taxes on that, when I renew my drivers license or my auto tabs, I pay taxes on that. If I do anything outside the house, I pay taxes, and even if I just sit home I pay taxes.
And the real problem is, no matter HOW much money I made, all these other taxes can only go up so much, based on my consumption. Yes, if I make 50,000 a year vs. 5,000,000 a year, I’m probably going to use more gas, buy more things, use more electricity, have a bigger house and pay moree property taxes. But 100 times as much? Nowhere NEAR. Simple fact is, when people decry that some are not paying enough in Federal taxes while others get slaughtered, it ignores some very important facts.
First, it ignores the fact that the whole REASON we have a progressive tax structure (between 10% and 38% marginal rates, not a HUGE spread by any means, considering once we had a tax of 95% on incomes ver 1 million), the whole reason we say that every dollar you earn up to x dollars is taxed at this rate, every dollar between x and y at that rate and every dollar between y and z at the other rate is because a) that “marginal” income is less of a necessity and more of a luxury afforded to a slect few, and b) it is meant to compensate for the fact that virtually every other tax we pay, and there are dozens of these taxes, hit those with less money disproportionately, and are in fact “regressive”, that is the more you make, the less you pay as a percentage of your income.
Second, it ignores that earned income, that is, income you’ve actually worked for, is far more heavily taxed than is investment income. And when you look at where the real money is made in this country, it’s not made in the form of salary, it’s made int eh form of stock grants to key people. And your gain on the stock is what is taxed, and that’s only after you sell it, and then only at a rate of 15%, inested of the 38% you’d have paid if the company had paid you in the form of a paycheck like you or I would get.
Another thing it always ignores, is it will say that the top x% of wage earners pay y% of the taxes, but that is a meaningless and misleading statistic. Essentially, by looking at the number of people vs. the total tax paid, you’re diluting the picture, really you should look at how much money is made. A more accurate way to look at it is what is a person’s overall Federal tax rate on average by income level. Or that this y% of taxes is collected on z% of all income made. In other words, let’s just make some numbers up to illustrate. Say the stat was the wealthiest 5% pay 80% of the taxes. Well, what if the wealthiest 5% also make 90% of the income. That’s what this whole thing obscures int he first place, it actually reverses the perspective on that one, and that’s even before we consider all the other regressive taxes that are supposed to be balanced out by a progressive Federal tax.
As for the whole idea of trickle down economics, it’s a conservative myth that has been firmly disproven by the latest financial collapse. It’s a simple as this:
Theory – If you let the rich keep more of their money, they will invest it in job creation and more jobs will mean more people have more money.
Fact – the more money the wealthy have been able to keep, the more powerful they’ve been able to become, the more influence they’ve had in our government and the more they’ve stacked the deck to give themselves an even bigger tax break, and breaks for regulations to protect the little guy. In the end, even if more jobs were created due to higher investmment, when the bubble bursts, it takes the lowest floating boats down first.
Alternate theory, aka reality – if you let the people who will spend every dime they earned on living expenses keep more of THEIR money, they will buy things with that money, instead of finding a way to shelter it from tax where it really doesn’t do anything because it’s just money on paper and not in anyone’s hands, it’s just another zero on someone’s balance sheet, not money someone’s going to use to buy bread. When this happens, companies will have to raise supply to meet higher demand levels, this will create jobs, which will put more money in the pockets of those who will spend it, and you have a trickle up effect.
Bottom line, trickle down is like a funnel, where someone is scooping handfuls of money out of the top of the funnel before it even gets to the part where it can shower over the masses. Bottom up servers moer people and still creates vast wealth at the top, but in a sustainable way that doesn’t create a bubble
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