This is part one of a multi-part post as my conversation with Tea Party member Robin Rohr. Our first topic covers the Tea Party and taxes. This is my initial side of the conversation, I will post Robin's response. Feel free to weigh in on the comments section.
Much of the Tea Party’s notion is that American’s and especially rich Americans and Business are over taxed. And that many American’s get off scott free from paying taxes. The implication is that they are living off the hard working Americans who are paying all the taxes. The other notion is that raising taxes on businesses and the rich is a re-distribution of wealth back to these “lazy” citizens who don’t deserve it. For the point of this discussion I will refer back to several of the statements you made.
You said: “If the wealthy are heavily taxed it takes away the incentive to produce and all of society suffers… the missing statistic is that the top 5% pay almost 40% of federal taxes. 46% of our population pay no federal tax, yet receive ‘refunds’ of money they did not pay through the Earned Income Credit.”
Let me add there is also a variation that says 46% of taxpayers filed pay no federal tax. I have heard both quotes used. Now there is a quite a bit of difference between a percentage of taxpayers and a percentage of the population.. But let just take at face your comment, 46% of the population. Does that mean all people as counted by the census? Or 46% of our adult population? Well according to the US Census, 26% of our population is under the age of 18, so its unlikely that they pay much in taxes, 12% of our population is over the age of 65, so again, very little earned income there. Now those two add up to 38%, So how many of the population do not work due to disability or infirmity; are incarcerated; don’t need to work or chose not to work (as in stay at home Moms)? Does that mean they are lazy, unproductive leaches? (okay I will give you the incarcerated).
The Tax Foundation (a favorite think tank of the right) like to give us the statistics that 41% of the US population is outside of the federal income tax system. They base it on the fact 43.3 million tax returns will have a zero or negative tax liability. And who are the worst? According to the Tax Foundation it is the ones that get that refund of taxes they “don’t pay” as Earned Income Credit. The Tax Foundation say that single fliers have the least tax liability, 42% is their figure. The second highest none-taxpaying segment is those singles that file as head of households. Of course that fact is again that single filers are often young people with part time jobs that don’t make enough to qualify for taxes. As for the single, head of household, those are single parents with one or more children who thereby qualify (as every parent of every taxpayer) for the child tax credit. So do we do away with that to keep the poor single mom from getting a refund? If you do, that will impact a lot of hard working middle and even upper tax paying citizens. And of course there is that family values thing that conservatives like to throw around. Shouldn’t having additional money to raise your children with be considered a necessary responsibility?
Now that brings us to the Earned Income Credit. You call it “a refund of money they did not pay”. Well to qualify for Earned Income Tax Credit, you do have to actually earn some money. Which means you are employed either part time or full time. Now here in my neck of the woods, $8.00 an hour is considered a great wage for a woman. So unless a single mom works a couple of jobs, she qualifies for the Earned Income Tax Credit because her wages fall well under $20,000 a year. We have women in clerical positions, nursing homes, etc making that “top” wage here in Western South Dakota. And believe me, they are pretty hard working people. Of course there are also a lot who work for much less per hour. Many of our seasonal tourism places pay around $6.50 to $7.00 and you are lucky if you get 40 hours a week and hardly ever that in the winter. But back to that “refund of money they didn’t pay”. Now there are several instances in which you get your refund. Your employer can chose to give you the estimated tax credit in your paycheck and you file the paperwork ahead of time. In other words, no withholding. Or after the withholding is made, you file your taxes and get a refund back for the money that was withheld. But non the less, the money is what you earned, like every other taxpayer. Now again, if you have minor children, like every household with children, you qualify now for the child tax credit and that may actually add a little more to your “refund” depending on how much you made. Oh, and of course the income tax doesn’t mean no federal taxes are withheld, because everyone with a reportable salary also pay FICA. Working hard doesn’t always mean that your earnings are great, and in checking out the Dept of Labors website, more single women are still paid far less than men and are more likely to hold two or more jobs. And you want them to pay as much as a percentage of their paycheck as you do as a (I assume) middle class or higher income earner? Or because they don’t make as good a wages to qualify for a higher tax bracket it is because they are lazy or unproductive or should have planned better? Sadly in our society, we will always have the “unskilled” worker, but I believe we owe our janitors, maids, dishwashers, etc a living wage and if it takes the tax code to see to a little justice, I don’t have a problem with that.
That takes us to your next point, “the top 5% pay 40% of federal taxes.” That’s really as simple as it sounds. The top 5% earn a disproportionate share of pretax income. In 2006 the top tax bracket earned 55.7 percent of pretax income and paid 69.3 percent of federal taxes. The top 1% of households earned 18.8 percent of income and paid 28.3 percent of taxes! And of course there are some in the top 1% that may not even pay income taxes either. If you are Paris Hilton and you have inherited your wealth and invest it, you still only pay 15% on the capital gains, much less than the single woman who may qualify for an earned income tax credit. But since she doesn’t collect a paycheck, Paris gets to keep her money too.
Which brings up the old canard about the “highest taxes”. Once more there is a little bit of truth, but not the entire picture. When you talk about taxes you need to address effective taxes paid vs statutory tax rate. Because deductions allowed the highest earners to still only the effective rate of 25% of their income in federal taxes. So while on paper the highest earners are considered in the top bracket, they still aren’t being hit at the highest allowable statutory rate. (And if they are, they need some new tax accountants. By the way, the annual income level to be in the top 5% is over $560,000 and $1.7 million to qualify for the top 1%.
Finally lets talk corporate and business taxes. The same applies. While rightly true, the US has the highest statutory tax rates for corporate taxes. But again, the effective tax rate is actually much lower due to allowable deductions, government subsidies back to companies and rules for investments, etc. So in reality the 35% statutory rate for corporations actually is much closer to 1.2 to 5.4 percent for the top two brackets. In fact according to , the Congressional Budget Office corporate taxes have been between 1.5 and 2.5 percent of GDP, compared to 3.5 % amount the top economic countries in the world. Of course, now we see many state Republican governors like Walker cutting corporate taxes even further in their states, all the while crying about budget deficits, that now must be filled by increasing costs on the middle class.
That brings me to your last comment about taxes, you wrote: “Who is considered wealthy? The business person who ‘makes’ $300,000 a year, who out of that has to pay rent, employee salaries, inventory, taxes and set aside money for future investment?” This again is one of those arguments I heard numerous times on Fox Business and from other talkers on the right, that the small business person who “makes” $250,000 isn’t wealthy. But let’s talk income in the case of a small business person. You need to qualify gross income versus net income. If a small business person actually has a taxable income of over $300,00 as you said, that puts him in that top 5% of income earners, but his taxable rate is falling in the 17% effective rate. And of course all of the things you mentioned also are business deductions that lower his corporate tax too as well as lowering his income tax rate. So in your case, you are assuming then his $300,000 income is a gross, so his effective rate may be closer to $150,000 or even less. Now you can argue that he should be able to keep more of his money, but that’s the nature of small business. Very few small business owners end up in the top 5%, except the “small business owners” that Fox Business and Wall Street like. Those are the ones that control millions of dollars worth of investments such as Warren Buffet who has a handful of employees and thus qualifies as a small business. Of course the real main street small business owners are the ones too that will be most helped by the new Health Care Law, which I would like to get into later.
All of my citations are from the Dept of Labor, the CBO and the Dept of Revenue. And as the former manager of a local non-profit I also am well aware of Earned Income Credits and health care costs for small businesses. And now of course I have had my own personal small business for a year and a half (still in the non-profit stage). In addition I worked for nearly 19 years with many struggling low and middle income women who were trying desperately to add to their incomes to better provide for their families. I personally would say, of the many hundreds of poor families I met in those years, only a handful might qualify as lazy, or taking the path of less resistance. Many were on food stamps and in section 8 housing and if you thinks that’s a simple handout, I would challenge you to spend a few days around some of them. All I have ever seen is a desire to see their kids do better than they, the wish to have a few nice things, and very few bitter attitudes about their lot in life. On the other hand I have worked with corporate types who are as lazy as anyone, who hide at their desks, lie and cheat to make themselves look better and who usually manage to keep a low enough profile to get by doing just about anything but their job. And a lot of those were managers and supervisors! Yet, they made twice as much for their “skills” as the workers they managed.
