July 4, 2006

Revised September 20, 2007

by John Koraska

 

 

For Social Security updates please visit my new website US Public Policy

 

On the ethical side, all taxation should develop from two moral maxims. First, it is the duty of every government to develop a just and sound revenue system - just in the way taxes are assessed and collected, and sound in the way public revenues are administered and spent. Second, it is the duty of every person to pay his (or her) fair share of the costs to maintain the government that serves and protects him. This moral maxim for taxpayers cannot operate if governments fail to develop a fair and just tax system. A taxpayer cannot be expected to pay his share if the laws do not obligate him to do so. Nor should the government be surprised when taxpayers attempt to avoid and/or evade taxes that exceed his justifiable share or ability to pay. While these maxims are important, other valuable principals should not be ignored. For example:

 

 1. A tax should be easy to explain with regard to its purpose and the means of collection.

 

2. A taxpayer should expect taxes be transparent and equal to others of similar wealth, income, and ability to pay. 

 

3. Exemptions and deductions should apply equally to like incomes without regard to dissimilar situations or circumstances. A renter for example should not be more heavily taxed than a homeowner nor should a single person be told to subsidize his married co-worker receiving an identical income. Social Engineering via the Tax Code should be avoided.

 

4. Nature does not bestow wealth equitably. A minority of citizens will inevitably acquire great wealth, which by natural justice they should share with the community. This sharing should be enforced by moral persuasion and a strong public opinion, not by force and confiscation.

 

5.  All citizens, from recruits in the military to the chief leaders of society, should serve the state unselfishly, motivated more by a love of community and country than by power, pay, and the perks of office. The obligation to serve should be instilled at home during a child’s formative years and during the educational processes. Besides pay, a key reward should be the good feeling aroused within themselves and the praise they may receive from others for a job well done.

 

6. Consent is required for all lawful taxation, either by longstanding custom or by the common consent of all the taxpayers. Without viable consent civil disobedience and evasion should not be unexpected. As taxes increase, evasion increases. Regardless of the meritorious purposes or reasonableness of a tax, if it is not universally accepted as being essentially fair and just, fair-minded people will to attempt to avoid it.

 

7.  "Soak the Rich" tax schemes do not work. Excessive taxation of the wealthy often causes great wealth to magically disappear since the rich generally have the means to escape heavy taxation. The income tax (including the Payroll Tax) as practiced in the United States is a bastardized form of wealth redistribution and transfer payments that resembles a Communist/Socialist State than one based on Capitalism and Free Enterprise. In this quasi-quagmire of tax injustice, the more wealth a taxpayer possesses, the easier it is for him to secure professional advice to avoid taxable income. A person's wealth and ability to pay often bears little relation to the amount of taxes required by law and even less relation to combined FIT & FICA income taxes required of working middle class American citizens.

 

Any similarity between the characteristics of a fair tax system and the outrageous tax and welfare policies administered by the multiple taxing authorities/jurisdictions in the USA is purely accidental.

 

US Tax and Welfare Laws Create Social

and Economic Abuses

  

An income tax is a tax levied on financial income (wages, salaries or fees) of persons, corporations, and other legal entities. Other types or names of taxes are excise, sales, profit or capital gain, inheritance or death (estate), property or real estate (City, County, Public School, Colleges, or Roads), Payroll (including FIT and FICA contributions), etc. Money to pay these taxes generally derives from two sources – Income & Wealth.

 

The cumulative rates and amounts of taxes extracted on family incomes vary widely between the needs and options of the taxing jurisdictions and the differing types and levels of individual income and wealth to be taxed. By using a bottom line approach of total taxes payable and total benefits received by families, general assessments can be made to determine if tax burdens are fairly shared among individual members of the aggregate tax base and to determine if tax-supported (means & non-means tested) welfare is disbursed to only those in need of charity. 

 

The difference between the characteristics of a fair tax structure and one that is unfair may be evaluated by approximating the impact of taxes and welfare on individual/household wealth and income from the extremes of poverty and wealth. By examining the cumulative effects of multiple tax and welfare jurisdictions on individual or household tax payers and welfare recipients, a better understanding of wealth redistribution may emerge.

 

 The power of government to redistribute income or wealth by force of law is subject to large scale abuse and unintended consequences.  The history of Social Security, the most popular retirement program in the US, provides overwhelming evidence that “Good (?) Intentions” often result in ill-conceived policies that produce undesirable results.  

Phony Money Corrupts Political Process   

 

As a practical matter sensible tax and welfare policies cannot be developed until a sound currency denomination can be created that represents a time tested, sustainable store of value.  

 

The questionable quality of fiat currency introduces a variable into policy decisions that is not measurable. The inflation created by free money is a hidden tax on wealth and income that distorts the results of policy-making; however, well intended.

 

Absent sound money that represents a reliable store of value, the difficulty in developing transparent, fair and equitable public policies at any level of government is formidable. However; by examining the total of all taxes (federal, state & local) paid by a wide range of households against the background of differing types of income, it becomes clearer that the poor pay little or no taxes (millions of households that "are counted" as taxpayers get Child Tax Credits and Earned Income Tax Credits that provide "tax free" government subsidies that exceed ALL federal tax liabilities);  and (based on the ability to pay) the working middle class share a much larger tax burden (eg. combined FIT & FICA, income taxes)  than the specious (e.g. capital gains and dividend tax rates of 15%) taxes extracted from the ruling elite, because the latter group is not subject to the FICA income tax and the EFFECTIVE tax RATE is significantly below the combined FIT & FICA income tax rate of middle class workers.  Note: This is just one of numerous examples of unfair/inequitable tax and welfare laws that are both unjust and unjustifiable.

 

Another example that is a virtual "Time Bomb" for today's workers whose retirement is based on "defined contribution" plans, that when funds are withdrawn from these and other tax-deferred plans, i.e. 401k, IRA, etc.) the income is taxed as "ordinary income" and is not eligible for  the 15% Capital Gains rate enjoyed by millions of current retirees.

 

The bottom line is today's working class support all current Social Security beneficiaries, the rest of the welfare state by paying two income taxes while many wealthy beneficiaries are subsidized (Social Security and Medicare) by the federal government .

 And they will eventually be rewarded by paying income taxes on the future benefits that they have already paid for again and again. The only reason there has not been a WORKING CLASS REVOLT is because too damn few understand how it works.

Doing Your Part to Improve America

 

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Getting Ready for Hard Times