29 October 2011

Imagine I Am Running for Congress - 7

Back to Taxes.  SInce the dueling tubas of the Republican Party (Cain and Perry) are making much noise about taxes again – reviving the flat tax notion (does this make it a zombie tax?  And does this mean their taxes will eat all the other taxes?  I am thinking yes to both) it seems I must once again inject some reason into the system.  Beware, though.  As someone who finds neither ideological camps to be wholly wise, even my progressive/liberal friends may find this strange.

Start with this conversation between two very young pundits.  Bloggingheads: Tax the Poor! - Video Library - The New York Times  Forget that I am jealous of their precocious fame (even if I can’t) and ask whether or not so many people in the country should not be paying income tax. 

I believe this is a bad state of affairs, that half the country is not paying income taxes.  For two reasons. 

One, is that it means too many people are making too little.  A recent study reported that half the wage earners in the country make $26k or less.  When the federal poverty level for 1-3 people is between $10k - $18K (allowing for a single wager earner who has up to two dependents) that means the median income is about twice the poverty level.  I take this to mean that half the wage earners in the country live just barely above poverty wages.  Ok, that’s a bit strong, but it helps explain why so few are paying income taxes.  They simply do not have a lot of income to tax. 

Two, is that so many not paying income taxes means those who do pay income taxes can rationally feel they are ‘carrying’ the rest of the country, paying more than their share.  Perversely, forgiving income tax altogether at the bottom actually preserves income inequality by

- relieving our guilt over poverty by forgiving their tax burden (how charitable of us!)

- and allowing those with more to feel they are supporting them by paying more taxes.

The best policy would be to have everyone pay in, even if those at the bottom (meaning those ‘technically’ above the poverty line) pay a very small amount. 

Conservative politicians always talk about making taxes fairer and flatter, but I say make them fairer but not flatter.  That would mean, using information from UC Santa Cruz, that the top 1% should pay 21.3% of the income taxes, the next 19% would pay 40.1% and the the remaining 80% would pay 38.6%. 

Now, spread that 38.6% of taxes proportionally over the 80%, and I think those at the bottom would not pay very much.  And no one could claim they were not paying their share. 

Yes, everyone can and should pay income tax, and we should pay as pay as we reap, to turn a phrase. 

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