Taxes and more taxes.

Governments – from city through state to Federal – all must have revenue to pay for services. I get that; I think we all get that. How they get that money, how much they take, and what we are paying for is where everything collides in a giant, confusing, wasteful wreck. Jesus said, “Give unto Caesar what is Caesar’s” in response to a question on whether the commoner should pay taxes or not . . . but how much is really “caesar’s”?

The problem stems from the fact that government bureaucracies are in the business of staying in business and growing. To do so they so “graciously” offer more and more services to more and more people – WITH OUR MONEY.

Though what services are provided by our governments is a great topic for discussion, I’ll save that one for another day. HOW we are taxed is my annoyance of the day.

What is the logic behind taking tax dollars from what a person makes instead of what he consumes? Answer: so you don’t notice it as much. The Federal government and many states skim our paychecks even before we see them. Interestingly, to have the authority to tax our incomes directly, our representatives in D.C. had to slap together an amendment to the Constitution almost 150 years after it was written. Obviously our founding fathers didn’t intend for this to happen but that’s “water under the bridge” now.

- taxes; then and now -

In the first year of the Federal income tax – 1913 (married couples, filing jointly) – the top rate was 7% on income over $500,000. That sure wasn’t much in light of what we’ve had to pay since that time.

Being in the business of “staying in business and growing”, our crooks . . . uh, representatives . . . in Washington, D.C have grown this top tax rate to as high as 92% (incomes over $400k) in 1952/53. Imagine that you are very successful business man in the decade following your honorable service in WWII and you earn $400,001 in 1952. That year and the following, your actual net (take home) earnings – after the D.C vultures take their cut – is a grand total of $32,000. How’s that for incentive to make more money?

Though much lower now, these taxes still generate a staggering amount of money for our D.C. friends. During the Carter administration if you did very well for yourself and earned $200,000 a year you ended up with $60,000. President Reagan ended his 8 years at a 38.5% on a top income bracket of only $90,000. President G.W.Bush has done even more to drop our income taxes – now around 35% for the top earners ($350k and up).

What very few of our current crop of presidential candidates mention is that these most recent tax breaks will expire in a couple of years if they aren’t made permanent. Whatever your political leanings, you and I both know that a Democrat controlled House will NOT help continue those tax breaks and will probably actively work for the opposite – a hefty increase. Couple that with a new President (of either party) with a tax-and-spend mentality (for the good of the people of course!) and the tax pain will undoubtably increase.

- a solution -

Some administrations have raised the income tax rates, others have lowered them but none have done what really needs to be done – abolish income taxes and fund the Fed with a consumption tax. If we purchase a good or service we pay taxes on it. The exception would be for subsistence food items as they shouldn’t be taxed.

Why not let the American taxpayer determine how much they pay in taxes by what they decide to buy? It makes all the sense in the world for you and I the taxpayer but that would put the power back into our hands and take it away from Washington. I doubt a majority of our elected officials will support this change but pressure from you and me could sway a few.

A national consumption tax would be a great solution to our income tax mess. It would would have a positive impact on savings and investment (not taxed), ease the tax compliance nightmare, increase economic growth, provide more incentives for international business to locate in the U.S., and return to us an incentive to earn more instead of avoiding the next tax bracket. It might also make our elected officials more responsive to our input – input by way of our spending.

I don’t claim to be an economics expert (though I did pass a few Econ courses in my time) but how could getting rid of federal income taxes and the IRS be a BAD thing???