Sunday, November 2, 2008

Socialism in the US and US income taxes

We already have Socialism in the US.

In order for business to succeed in this country:
  • Roads so the work force and customers can get to locations
  • Police to reduce theft at those locations
  • Firemen to put out the fires at locations
  • Schools to provide an educated work force
  • etc.

All of these are provided by the government and paid for by taxes. Taxes have been around forever. Federal income tax was adopted by Congress in 1861 and 1862 to pay for the Civil War. Even in 1862 the income tax was progressive (higher percentage on higher income).

So, here's the reason most everyday Americans don't understand taxes:
As of 2007, there are about 138 million taxpayers in the United States.[8] The Treasury Department in 2006 reported, based on Internal Revenue Service (IRS) data, the share of federal income taxes paid by taxpayers of various income levels. The data shows the progressive tax structure of the U.S. federal income tax system on individuals that reduces the tax incidence of people with smaller incomes, as they shift the incidence disproportionately to those with higher incomes - the top 0.1% of taxpayers by income pay 17.4% of federal income taxes (earning 9.1% of the income), the top 1% with gross income of $328,049 or more pay 36.9% (earning 19%), the top 5% with gross income of $137,056 or more pay 57.1% (earning 33.4%), and the bottom 50% with gross income of $30,122 or less pay 3.3% (earning 13.4%).[9][10] If the federal taxation rate is compared with the wealth distribution rate, the net wealth (not only income but also including real estate, cars, house, stocks, etc) distribution of the United States does almost coincide with the share of income tax - the top 1% pay 36.9% of federal tax (wealth 32.7%), the top 5% pay 57.1% (wealth 57.2%), top 10% pay 68% (wealth 69.8%), and the bottom 50% pay 3.3% (wealth 2.8%).[11]
Other taxes in the United States with a less progressive structure or a regressive structure, and legal tax avoidance loopholes change the overall tax burden distribution. For example, the payroll tax system (FICA), a 12.4% Social Security tax on wages up to $97,500 and a 2.9% Medicare tax (a 15.3% total tax that is often split between employee and employer) is a regressive tax on income with no standard deduction or personal exemptions. The Center on Budget and Policy Priorities states that three-fourths of U.S. taxpayers pay more in payroll taxes than they do in income taxes.[12] The Tax Foundation has stated that the burden of the corporate income tax (a 15-39% tax) falls on customers and workers of the corporations, who are often not rich.[13] (Source Wikipeida - really it is less dry than the other sources)
Did you understand it all? I certainly didn't fully understand it, but whatever way you look at it Socialism is already here.

Here's the thing ~ when they talk about raising (or lowering) you taxes, you need to keep in mind that our taxes are progressive.
Progressivity in the income tax is accomplished mainly by establishing tax "brackets" - branches of income that are taxed at progressively higher rates. For example, for tax year 2006 an unmarried person with no dependents will pay 10% tax on the first $7,550 of taxable income. The next $23,100 (i.e. taxable income over $7,550, up to $30,650) is taxed at 15%. The next $43,550 of income is taxed at 25%. Additional brackets of 28%, 33%, and 35% apply to higher levels of income. So, if a person has $50,000 of taxable income, his next dollar of income earned will be taxed at 25% - this is referred to as "being in the 25% tax bracket," or more formally as having a marginal rate of 25%. However, the tax on $50,000 of taxable income figures to $9,058. This being 18% of $50,000, the taxpayer is referred to as having an effective tax rate of 18%.
Essentially, if person A makes $10,000 a year, and person B makes $50,000 a year, and person C makes $100,000 a year, all three of them pay the same amount of taxes on the first $10,000. Person B will be taxed on his remaining $40,000 at the next appropriate bracket. Person C will be taxed on his next $40,000 at the same rate as person B was, and now will be taxed on the remaining $50,000 at the next appropriate tax bracket.

With that being said, when the candidates talk about raising or lowering your taxes, you need to look at what tax brackets are being affected. It may impact you differently than you had first thought.

Here's an interesting article on both McCain's and Obama's tax cutting plans:

"In the simplest terms, McCain is going to cut everybody's taxes, but cut the very richest people's taxes most. Obama is going to cut everybody's taxes except the really rich. As the Tax Policy Center points out, both plans are lousy for the federal debt: Obama's would raise the debt by $2.9 trillion, McCain's by $4.2 trillion."

Shouldn't we consider how to get out of the National Debt before we talk about lowering taxes?

Corporate taxes are another thing entirely. The majority of corporations PAY NO INCOME TAX in the US.

In the United States, the federal corporate income rate for the year 2006 varies between 15 and 39% depending on taxable income. But since 1999, when Treasury announced the "check the box" system many corporations can elect to be treated as a pass-through entity, thereby skipping the entity level 35% tax and having all income pass through to the shareholders. This is the tax treatment that the much discussed "S" corporations receive; but now many more types of state-law corporations may avoid double taxation by "checking the box". Dividends are also subject to a lower rate of income tax in the United States. The U.S. corporate tax rate is ranked as the second highest statutory rate among the OECD countries (the U.S. average rate of 39.3 ranks just behind Japan's 39.5 and well above the OECD average of 28.7).[27] However, the U.S also has the greatest number of corporate tax loopholes of any OECD member,[28] allowing many corporations to achieve a lower effective tax rate than the published rates.

So, that doesn't prove the statement I made necessarily that corporations don't pay income taxes, does it? Guess who pays those taxes - YOU do! That's right Companies charge you, the consumer/customer/client, higher prices for the goods and services to pay those costs. So then would it be fair to say you are, essentially, being double taxed? And is this also Socialism?

Anyways, there is far too much about taxes to get too in depth. We'll leave that one to the economists. My main points are:
  • Socialism is already here, like it or not.
  • We should not be increasing the deficit even more to cut taxes - anyone's taxes
  • If taxes are cut on the Federal level, that burden gets shifted down to your state, county, and local levels anyways.
  • It is our responsibility as law abiding Americans to pay taxes - it is also our responsibility to keep our elected officials honest about how our taxes are being spent. You do this by paying attention, voting, and writing and calling your officials.


  1. You rock, girl! -Dana

  2. Progressive taxation helps offset the tremendous economic advantage of the owning class.

    Without progressive taxation the owning class ends up with most of the money, and the working class no longer has the money to buy the goods and services it produces. When this happens the system no longer supplies people's basic needs, and they will reject the system.

    Many wealthy people understand this, and don't mind paying more taxes, but some short sighted wealthy people have come to power, and have destroyed our economy with their greed.