Fairness in the Tax Code
http://thedianerehmshow.org/shows/2011-05-10/fairness-tax-code
Upper income taxpayers have been shouldering an increasingly larger share of the federal tax burden, and last week the Joint Committee on Taxation reported that 51% of Americans did not pay any federal income taxes in 2009, a fact that does not sit well with those already wary of deficit reducing plans that include tax hikes. Low wage earners, students, and the elderly are among the most likely to have no federal taxes due, but the 2009 figures are raising new questions about fairness in our federal tax system. Join us for a conversation about the federal tax burden.
Guests
John McKinnon
reporter, Wall Street Journal
Chris Edwards
Director, Tax Policy Studies, Cato Institute
Howard Gleckman
resident fellow and editor of TaxVox a fiscal policy blog,
Urban-Brookings Tax Policy Center
Program Highlights
Who Pays What in Federal Income Taxes
In 2009, slightly more than half of all Americans paid no federal income tax, which raises questions about fairness in the tax system. Who's carrying most of the burden?
The Wall Street Journal's John McKinnon reports that high-earning households are paying a growing share of federal taxes. "By one measure, it's gotten to 45.1 percent of the federal tax burden for the top 10 percent of earners, and these are folks making over about $175,000," McKinnon said.
There are many reasons why 51 percent of Americans don't pay income tax. Among them are retirees or low-income individuals and families who simply don't make enough money. But McKinnon says there are also a lot of people making up to as much as $50,000 per year who have no federal income tax liabilities - mainly because of various tax credits and deductions.
Tax Reform "Has nothing to do with the People at the Bottom
But Howard Gleckman, a resident fellow at the Urban-Brookings Tax Policy Center, says it's the wrong question to simply ask who does and does not pay federal income tax. "Another way to look at it is who gets the most benefit from all of the tax preferences that litter the tax code," Gleckman said. Viewed this way, it turns out that high-income people get far more benefit than poor people do, he says.
People at all income levels get tax benefits, but it's the people at the very top of the income tax bracket that get the most, for things like capital gains and dividends, Gleckman said.
Chris Edwards, director of the Cato Institute's Tax Policy Studies program, agreed that many of the current breaks in the tax code are geared towards people at the high end of the spectrum. "One way to think about tax reform is that tax reform really has nothing to do with the people at the bottom," Edwards said.
Taxes and the Deficit
"I think we need to start at the point where we all recognize we're going to need more tax revenue if we're going to deal with the deficit issue," Gleckman said. The question is, where should it come from? Gleckman suggests that one of the places to start is to scale back or eliminate some of the tax preferences currently in the code.
McKinnon added that the top 400 earners in the U.S. currently pay an average income tax rate of about 14 percent. "And that, I think, is maybe the big injustice at the upper end right now.
Comments
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If anything, this show simply demonstrates how incredibly complex the subject is, far more complex than the simplistic solutions the guests propose.
Many callers have ably pointed out issues these "experts" did not voluntarily discuss on their own: the difference between the income tax and the flat payroll taxes (FICA and Medicare, etc.), the way the system is skewed against single people and renters, Americans' mistaken idea of what truly constitutes the "Middle Class", and much more. Let me add another.
Recently articles have appeared claiming we are actually undertaxed. Federal revenue is currently 14.4% of the GDP - the lowest since 1950 (the post-World War II historical average is about 18%).
- See, for example: Americans shouldering rather light tax burden (http://www.azcentral.com/arizonarepublic/news/articles/2011/05/08/201105...).
By the way, the same article claims that federal spending soared this year to 25.3% of the GDP, the highest since 1945.
The 10.9% difference (25.3 - 14.4) is a main reason for the deficit.
Now, I'm not saying we can (or should) tax our way back to a balanced budget. All I am saying is the subject is far more complex than even today's discussion indicates. I'd love to hear a show that discusses all aspects of the problem.
However, what about a policy that includes both increased taxes and cuts in spending? Put crudely (since simplistic solutions seem to be the rage), can't we increase the one and decrease the other by the same 5.45 percentage points?
More tax cuts for the rich?? Didn't we try that already? I can't believe we still have to argue these brain-dead conservative talking points, as if the last 10 years didn't even happen.
Good show Diane Thanks for taking on this controversial issue.
I expect, soon, to hear you doing a show on possible alternatives to Income Tax.
Your guests used several buzzwords like Flat Tax, Progressive Tax and Regressive Tax.
Much of the discussion was on, modifying the current system and calling it "Tax Reform".
We really do need "Tax Reform", but the currently offered alternatives have not been comparitively explored.
I would like to hear you and your guests discuss the relative feasability of all of them.
Please include
http://thomas.loc.gov/cgi-bin/bdquery/z?d112:H.R.1125:
I take offense to the idea that those of us who pay into the system and take no dollars out of it(in regards to Social Programs) are somehow more responsible to pay for those same programs that are used exclusively(or nearly so) by the segment of society that adds nothing in the way of income tax dollars to the equation. I do not come from money, I do not have a lot of money but I did put myself through college, no help from the government I might add(My parents made too much, not I but my parents). And now the government picks my pocket so that other people can take advantage of these programs. You want to tax people that make more than you. Great, stop refusing anyone any sort of program benefit, and then you can stop referring to us as a democracy and Socialism can reign supreme.
As an intelligent woman and a champion of communication, why do you allow that loud music to be played behind the words of your Intro?
For many listeners both words and music are compromised, and the message is lost in the cacophony.
If someone is making $1 million dollars and pays 25% in federal income taxes, they have $750,000 left for spending and savings. If you're single, earn $50,000 a year, and pay 15% in federal taxes, you have $42,500 a year for spending and saving. The $1 million dollar earner has much more money to spend after taxes, whereas, the single person earning $50,000 has significantly less for spending and saving. And, the lower earner probably pays more for their health care insurance (if they are lucky enough to even have health insurance) and they have little chance to ever own a home if they live on either coasts.
A big difference between Canadians and Europeans is their social safety net. They don't pay high premiums for health care insurance like Americans and there is less income inequality in their countries. Americans are working longer and longer hours for less pay and even less benefits.
Poor people pay payroll tax. People making $105,000 a year pay the same amount of Social Security tax as a millionaire. A minimal wage owner pays Social Security taxes, unemployment tax, medicare tax, and the other payroll taxes. Let's not pretend that they don't pay any taxes. When you look at disposable income the rich are making out like bandits because they are not only paying less due to tax loopholes but because they are paying their employees less and less. And, remember the rich and corporations could not conduct business without our national infrastructure that has been paid by local, state, and federal taxes. Corporations should have to pay through taxes for the use of our national infrastructure. I think the rich are getting off cheap to pay only 14% to 25% of their income in federal taxes and they should see it as their patriotic duty and responsibility.
I disagree with the guest who proposes that the Federal income tax apply to municipal bonds.
Taxation weighed quite heavily on the minds of the Nation’s founders, and the Principle of Dual Sovereignty (between the Federal government and the States’ governments), which is imbedded in U.S. Constitutional law, I believe precludes the ability of the U.S. government from taxing income derived from municipal bonds. Furthermore, each state government cannot tax income received from Federal securities.
Chris from the CATO institute was simply trying to frame the debate in such a way that vastly favors the wealthy. This "Simplifying the tax code" is a way for them to avoid paying any tax on wealth whatsoever. I don't know that they are actually "studying" anything at his think tank other than ways to promote right-wing propaganda.
It would have been nice to hear an equally ideological voice from the Left.
Nobel economist Joseph Stiglitz points out in his recent Vanity Fair article on the top 1 percent that even the wealthy will come to regret such inequality. I hope he will be invited to the program to continue the conversation.
"Of the 1%, by the 1%, for the 1%"
http://www.vanityfair.com/society/features/2011/05/top-one-percent-20110...
"Some people look at income inequality and shrug their shoulders. So what if this person gains and that person loses? What matters, they argue, is not how the pie is divided but the size of the pie. That argument is fundamentally wrong. An economy in which most citizens are doing worse year after year -- an economy like America's -- is NOT likely to do well over the long haul. One big part of the reason we have so much inequality is that the top 1 percent want it that way. The most obvious example involves tax policy. Lowering tax rates on capital gains, which is how the rich receive a large portion of their income, has given the wealthiest Americans close to a FREE RIDE.
"Alexis de Tocqueville once described what he saw as a chief part of the peculiar genius of American society -- something he called 'self-interest properly understood.' The last two words were the key. Everyone possesses self-interest in a narrow sense: I want what's good for me right now! Self-interest 'properly understood' is different. It means appreciating that paying attention to everyone else's self-interest -- in other words, the common welfare -- is in fact a precondition for one's own ultimate well-being. Tocqueville was not suggesting that there was anything noble or idealistic about this outlook -- in fact, he was suggesting the opposite. It was a mark of American pragmatism. Those canny Americans understood a basic fact: looking out for the other guy isn't just good for the soul -- it's GOOD FOR BUSINESS."
Too bad that the DR show chose to use an obvious conservative talking point as the premise for an entire show!
OF COURSE “upper income taxpayers have been shouldering an increasingly larger share of the federal tax burden”. Why on earth not, given that they are collecting a MUCH larger share of the national income?
Progressive income tax was designed to place a lesser burden on those at the bottom of the income scale who could least afford to pay. Many taxpayers have seen their places of work shuttered and their jobs exported, and their earning have been pushed to low or zero levels. They have been forced into the 51% that don’t pay income tax, though they surely wish they were earning enough to pay income tax on.
Two words describe how the wealthy complain about THEIR share of the income tax: chutzpah and greed. They are paying far less than they should relative to how much better off they have become – especially among the executive class, which has seen grotesque rewards for closing American factories and destroying American jobs, just so companies can make a penny or two more on the dollar.
I actually thought the show was well balanced and had very intelligent, thoughtful panelists.
I found the show excellent and thoughtful-as always, Diane!
I did find this amusing though....
One of your panelists suggested that our rich don't inherit their position but create it, and then mentioned Bill Gates.
Bill Gates' father was a Harvard educated lawyer who could afford to pay for his grown son to sit in his garage puttering with his computer until the stars aligned.
If that had been me, who knows what I could have done as a young man. But my parents were writers and I had to earn a living from the day I turned 18.
The assertion that being born into privilege (or poverty) doesn't matter in this country is totally absurd.
The most important comment on this show came from your caller who was a business auditor, and your panelist really side-stepped it.
Her point was that when you talk bout the rich's income, you are talking only about a small part of their money. The rich have most of their money in corporations they control which is not considered personal income, long term investments that are capital gains and not income, and off-shore holdings. NONE of these are figured as "income" when calculating what % of their income is taxxed.
The real tax rate on their wealth and the growth of their wealth is far, far, far less.
accountant wrote:
'I think that one should look at the % of people who paid income tax when it was first adopted in 1913. I think you'll find that the percentage paying tax now is much higher than when the income tax was originally adopted.
Also, if you want to complain about people not paying income tax, then you should do something about the medium income staying stagnant for more than a decuade, thus losing purchasing power at about 3% a year while the upper 10% has seen it's income go up much faster than inflation''
But accountant.
You have not stated that total taxes over the years have increased more for the middle. The poor do not pay taxes.
Also you have not mentioned how inflation has hurt the middle class. Just look rightnow with all the paper money that is being printed up. It is hurting us that we at this time are printing up worthless money. This effects our pay checks.
accountant wrote:
'I think that one should look at the % of people who paid income tax when it was first adopted in 1913. I think you'll find that the percentage paying tax now is much higher than when the income tax was originally adopted.
Also, if you want to complain about people not paying income tax, then you should do something about the medium income staying stagnant for more than a decuade, thus losing purchasing power at about 3% a year while the upper 10% has seen it's income go up much faster than inflation''
But accountant.
You have not stated that total taxes over the years have increased more for the middle. The poor do not pay taxes.
Also you have not mentioned how inflation has hurt the middle class. Just look rightnow with all the paper money that is being printed up. It is hurting us that we at this time are printing up worthless money. This effects our pay checks.
'dhr75 wrote:
Mortgage interest tax deduction is a valuable, necessary benefit for the middle middle class.
The REAL rich have fungible asset investment which they will sell (take out of investments) to pay cash = ZERO mortgage, ZERO INTEREST'
Thats baloney dhr75
There are many middle class individual person like myself that saved put it into investment and then took it out to purchase that dream house. No Zero mortgage, zero mortgage, zero interest.
What a distorted statements. At one time people would pay all cash for houses. They were much cheaper, smaller,and in working class neighborhoods.
B Mitch wrote:
Before we decide on a tax system, we as a nation need to decide what kind of country we want. Do we want to be producers or consumers? We as a nation have spent far too much time as consumers, resulting in massive debt and a dependence on countries like China to produce everything for us.
If we want to go in the direction of Germany and become producers, rather than consumers, then we need to shift our tax system from taxing income from those that are producing, to taxing the sale of goods (be it a VAT or sales tax) and discouraging so much consumption.
Mitch:
You sound like a Socialist.
lChurch wrote:
Here are some stats people should be aware of. The Institute on Taxation and Economic Policy analyzed what people pay in 2008 and found that the middle 20% of Americans earned 11% of total income and paid 9% of taxes. However, the top 1% earned 22.4% of total income yet paid 23.6% of taxes. (The above includes federal income and payroll taxes.) How is this even remotely progressive?
Phil:
For one thing The Institute on Taxation and Economic Policy is a left leaning think tank. But other than that we have heard that the top 1% pays 38% of all taxes. The top 10% pay 90% of all taxes. But my question is when you include state income tax and local tax how much more does this add to the upper income group?
Would hate to live in a New York City, or NE State and pay 60% of my pay check to the government.
GE paid no income tax and yet created far more jobs overseas than in the US. Could you provide an example of a company that created single job because the tax rate was lower? In fact, corporations deduct the cost of labor and equipment and depreciation allowances effectively put the cost of corporate hiring and development on the taxpayer anyway. I would love to hear of a verifiable example (verifiable by a mainstream outlet and not from Andrew Brietbart or Fox) of one example because there are numerous examples to contradict your assertion.
camko:
True GE did not pay taxes in the US. They did in other countries around the world. GE has their Corp Headquarters in a very Democratic State in Connecticate. They pay high wages to their employees which helps that state's coffers.
I can give you a couple of examples where tax breaks create jobs. Drilling is very expensive and not every hole they drill in produces carbons. It is a tax write off if the field does not produce. If you don't know, drilling is a labor intensive business which pays great wages. See how much tax is paid from producer to consumer.
Another example, I am offered a tax incentive to build my factory in a disadvantage area. If I get my fiancing and start that factory, I am hiring people in that area. In turn these workers buy goods and services in this community which includes tax receipts. Happens all the time.
Does that answer your question and I don't need a media source to prove my point. Have you ever work in the private sector before?
If GE and other corporation paid all of their employees fairly instead of paying outrageous salaries and compensation packages (taxed at 15% when they actually cash in their stock options, etc.) and if they didn't use our national and international infrastructure, I might look upon their 'tax breaks' differently. And, if they hired more people instead of funneling personnel monies into paying huge salaries and compensation packages to their top executives, it might not be so upsetting to hear of them paying no to little taxes. They campaigned for tax breaks to 'CREATE JOBS'. But, they haven't created the jobs just given the top folks more money. And, they use our highways, bridges, ports, national parks & forests for a nominal fee, police, firefighters, public health system, military basically want them for free.
The top 0.01% are looking out for their own short-term interest not the good of the USA or the world. If their salaries and compensation packages were deferred and based upon the long-term health of their business like the quickly disappearing American pensions, the top business executives and shareholders would better manage their businesses. As long as they receive rich rewards for short-term gains, their only motivation is their own short-term interest. Can you imagine how much differently the financial industry would have functioned if their compensation package was deferred for 20 or 30 years? They would have behaved very, very differently.
B Mitch wrote:
Before we decide on a tax system, we as a nation need to decide what kind of country we want. Do we want to be producers or consumers? We as a nation have spent far too much time as consumers, resulting in massive debt and a dependence on countries like China to produce everything for us.
If we want to go in the direction of Germany and become producers, rather than consumers, then we need to shift our tax system from taxing income from those that are producing, to taxing the sale of goods (be it a VAT or sales tax) and discouraging so much consumption.
meangreen wrote:
Mitch:
You sound like a Socialist.
meangreen:
You sound like someone that should go back to your school and ask for a refund. Shifting the tax base away from an income tax and towards some form of consumption tax is the complete opposite any Socialists agenda that I know of. Every tax system in existence discourages some action, the question is whether we want to discourage people from working or discourage them from spending. If you look at our current savings rates, I think the latter would be a better option.
I agree with the earlier commenter who called for a moratorium on think tank commenters. Equally, with the comments noting the rightwing ideological skew of the panel and thus the conversation. A really surprisingly misinforming show by Diane.
Mitch
Much of our massive debt is the result of borrowing for social programs. The trillion dollars we borrowed from the Chinese to fund the Recovery Act has nothing to do with consumption but social programs. The building of road, funding school, etc are geared to groups like unions and other special interest. How can you say that consumerism is the result of China owning us? I would say it is small stuff, TV's, cloths, not houses or may make some car parts but their national car company is not in the US.
At this time the present tax system and government policy discourages individuals from working and spending.
Why work if you can get unemployment for 99 week along with getting food stamps and other taxpayer benefits. We are seeing more people than ever before on tax payer help.
Why spend if there is so much uncertainity in the future. Printing money that is causing inflation and a 14 trillion dollar debt. You can feel it going to the store.
We are heading to a European Socialism by the two above examples.
Don't need to be an "Egg Head" with a Master or Phd to figure this out.
Very disappointing discussion. Although some of the changes discussed for the tax code seem reasonable, the conversation was so slanted towards the right and so void of depth that I find it difficult to trust anything I heard.
Absent from the conversation was the fact that wages have been stagnant for years and health care costs have doubled over the last decade as we're facing inflation on basic necessities, food and energy in particular. Middle class jobs have been disappearing for years as the very top income bracket continues to profit from outsourcing jobs, lower wages, deteriorating benefits, union busting, etc. Of course the number of people paying no income taxes has increased, we have a growing class of working poor as the very wealthy continue to monopolize the country's wealth and they're not creating jobs. This isn't a sign that the tax burden is shifting unfairly to the top, it's a sign that America is in deep trouble.
Changes to the tax code should be designed to give incentives for job creation and better pay and benefits for employees. One person on the panel mentioned that corporate taxes become irrelevant when most corporate profits are reflected in personal income. We give tax breaks to people for closing down companies and moving offshore.
.
@Mitch
You mention $1 trillion for stimulus spending, where do you think the rest of that $14 trillion in debt came from when Clinton left office with a budget surplus and a clear plan to be debt free by 2008? Unfunded social programs are the problem but it's not liberals who bankrupted the country by giving us two unfunded wars, an unfunded Medicare prescription drug program and unfunded tax cuts.
This is a conservative pattern, create a crisis by mismanaging the government and use the crisis to push an agenda even further to an ideological extreme. We're not becoming European socialists, we're becoming Brazil.
One of the reasons why wages have been stagnant is because we live in a global economy along with a high tax rate that causes everything to go up.
Technology has caused many jobs to disappear. The computer elimanated many clerical and middle man positions resulting in millions of jobs disappearing.
Yes there are many more people not paying income tax. Something like 50% of the US population does not pay income tax and they receive a refund even though they never paid into the system. Union membership has been going down for years and many time these unions are not realistic in the demands they put on companies and the taxpayer when it comes to government entities.
We have continued spending trillions of dollars on government programs that have made people more dependant and yet the poverty rate has continued to go up.
I think about the Asians that come here, many do not know the language and have limited education but just have a desire to make it in any way they can. And they do. Many do not use government assistance other than using government schools and they save.
Job creation start by allowing people who have money to continue to start businesses and keep the tax breaks. If I am an independant building contractor I would make a better living working for a rich person than I would a poor person.
@meangreen
You're using very broad generalizations. Our debt has come from conservative governing, a belief in trickle down economics that's been proven false. A belief that we can borrow money to pay for war and tax cuts and somehow even more tax revenue will be generated when the wealthy use that money to create jobs.
The bulk of our debt is from health care and SS entitlements, Pentagon spending and tax cuts. Welfare makes up around 1% of federal spending. If you believe that our problems exist because retired workers are dependent on SS and Medicare, you're very out of touch with the beliefs of the majority, just ask the Republicans in the House.
Kyzipster:
Defense spending is only 4% of the 14 trillion dollar deficit. The debt from SS entitlements would not have been so if it was never borrowed against starting in 1966 from you guessed it, Lyndon B Johnson, a Democratic president and the Great Society. Is that specific enough? We would not have had a deficit in SS trust if it was left alone.
Trickle down economics created 5 million jobs during Reagan's Administration. One of the reasons Clinton axed the 1% wealth tax in 1993 was because many high ticket items like the yachts business in the liberal NE dryed up along with other products bought by the rich resulting in high unemployment in those areas.
The so call money we " do not have" like the trillion dollar cost under the The 2009 "Recovery Act" is a dud. Where are the jobs? The economy is anemic. That trillion dollar was a pay off to the unions for Obama's support.
Retired people who do not have a pension or other investments ( stocks, real estate, a rich Uncle) are relying soley on SS. I see what lower income people are going thru. Even private pensions are not quanteed. Have you looked around ?
This guy in office has no idea how a country's wealth is created because he has never created it on his own unless you consider all the paper money being printed.