My husband, Bob U., wrote a series of articles, which I think are really insightful. This is Part 16. I invite your comments.You can visit Bob at http://bobuhlar.gather.com/
What is a fair level of taxation? How much is it worth to you to live in the United States?
When I was in ministerial school, one of my classmates was a medical doctor from Romania. Now an ordained minister, he still works as a doctor during the week serving several clinics in his region as a family practice physician. In 2006, his annual salary was $720. The median salary for a family practice physician in the United States was $156,000.[i]
As you can imagine, there are similar income disparities between our countries regardless of the profession.
The United States, and other wealthy countries, offer opportunities through infrastructure. We offer more roads, electricity, water, sewer, police and fire protection. The government also provides an economy and a currency we exchange for goods and services. We have laws, rules, regulations and a legal system that enforces contracts.
Herbert Simon, a Nobel Prize-winning economist, has estimated the proportion of income in wealthy countries that is the result of "social capital" rather than "individual effort." Given the enormous differences between average incomes in rich and poor countries (that cannot be explained by differences in effort), he estimates that social capital is responsible for at least 90 percent of income in wealthy societies like the United States.[ii] Suddenly, that 91 percent top tax bracket doesn't seem so outrageous. (See Part 14)
While I would not advocate a 91 percent marginal tax rate, our economy thrived during the 1960s with a 70 percent marginal tax rate and during the 1990s with a 39 percent marginal tax rate.
Oliver Wendell Holmes put it best when he wrote, "Taxes are the price we pay for civilization."
The Forgotten Tax
Another problem for the majority of American taxpayers is that the discussion of income tax rates ignores the FICA deductions they also pay. These deductions fund both Medicare and the Social Security Insurance Program.
Three-fourths of taxpayers pay more in these payroll taxes than they do in income taxes.[iii] Employees pay 7.65 percent of their income in FICA taxes. Self-employed individuals pay 15.3 percent of gross income.
Wealthy Americans avoid much of this tax. Any earnings above $97,500, for all of 2007,[iv] are not subject to the FICA deduction. And the tax is not imposed on investment income (such as interest and dividends).[v] If we were to subject all income and capital gains to FICA deductions, we would solve any funding problems for Medicare and the Social Security.
Tomorrow - Part 17: Our National Public Debt
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[i] http://hotjobs.yahoo.com
[ii] Peter Singer, The President of Good & Evil: The Ethics of George W. Bush; pp. 16-17 in which he quotes Phillipe Van Parijs, What's Wrong With A Free Lunch, Beacon Press, Boston, 2001, pp.35-36.
[iii] See Studies Shed New Light on Effects of Administration's Tax Cuts by David Kamin and Isaac Shapiro, Center on Budget and Policy Priorities, Revised September 13, 2004.
[iv] The income cutoff is adjusted yearly for inflation and other factors.
[v] See http://en.wikipedia.org/wiki/Federal_Insurance_Contributions_Act_tax#_note-0.
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Comments: 17
opps had to repost
I found Herbert Simon's study an eye-opener. We are very lucky to be Americans. Now, if we can just educate enough people to have the compassion to become a "we are all in this together" society rather than a "I've got mine" society
Instead you propose to make it mandatory with higher tax rates. Do you have so little confidence in the society at large? Especially with the ones who make the laws donating far less on a percentage basis than the population as a rule.
As soon as every single taxpayer understands this clearly, they can see how unfair this practice is. Only the graduated tax rates save us in any way from this unfair inconsistancy.
All those in that tax bracket do is whine about how much they pay. I once shut my boss up by offering to take his tax bill if he would trade me incomes. He didn't want to play, I can't figure why. LOL
We should all be marching on Washington DC because of the unfair taxation of the working poor and middle classes while the wealthy who do not work for most or all of their income get huge tax breaks and protection from any tax on much of their income. They also use tax breaks given for those who make one time profit on the sale of a first home (will that ever happen again) to shelter their capital gains income.
It's high time these inequities in the tax law were seen as the unfair class distinction that they are. I had never heard of the concept of social income and found it very interesting. Thanks for this excellent series of articles, Bob.
YES, I have no confidence in the compassion of rich people. Most of them buy one more villa, one more yaught, one more closet full of shoes. They do not compassionately share their excess because they never believe they have excess.
Besides, the rest of us are not charity cases, we have dignity and self-worth and deserve to keep more of our income for which we worked. I worked 50 hours a week most of my life to care for and support my three children and later some of my grandchildren. I should not have to rely on charity of the priveleged few.
The government I have supported, should now pay up on its promise to me. It's not fair for the retirement insurance fund to go bankrupt and not be there to give me my turn to collect. And as hard as I have worked I should not have to be afraid to go to the dentist, or wonder how I will meet the steadily rising share I pay for my health care, while the government gives away tax money to the wealthy boards and executives of pharmacutical and insurance megacorporations and then adds insult to injury by relieving their fair tax burden.
Hello? Trickle-down does NOT work. Look at English work houses and all that abuse. That's what happens when the poor are forced to rely on the charity of the wealthy.
Want proof? How many of these magnanamous wealthy people have contributed to the fund to pay off the national debt. If I were rich and my country which had provided the climate in which I could get rich was in trouble with debt, I would step up and share some of my excess to help lower that debt. Anyone can contribute to the national debt at any time. If anyone had, it would be in all the papers. The explanation is greed and excess.
It's very easy to spend all you can make and then some being comfortable. Few ever understand when they reach excess.
Be sure to check part 18 on Wednesday.
If you look at the ingredient list for a cup of Liberal Kool-aid you'd see demogoguery right near the top.
All the government owes me is the freedom to work as I will and for them to defend the nation/Constitution. Like you I have worked throughout my life (about 35 years straight) and raised a family, paid my bills/taxes. But unlike you , I do not feel the government owes me. SS is and always has been a ponzi scheme, the same thing Madoff just pleaded guilty to but unlike Congress's theft, he'll go to jail for. The private sector cannot do what the government does, the government simply hates the competition.
You aren't guaranteed any particular rate of funds from SS. What you get will be decided based on what's available. Since every penny is spent the minute it enters the empty government coffers. I learned from the minute I started working as a teenager that the government lies and anyone depending on them for a non contractual funding, is a fool. SS is non contractual, you do not own anything but hope they will pay when the time comes.
Proof of the rich being charitable is that they give anything at all beyond taxes. Your attitude that you (from the government) should get something from them is blind. The rich chiefly work their butts off to get what they have and it seldom stays with a family for more than a generation or two before wild spending, bad econ moves, or government takes it away. Progressive taxation that so many of you admire, does nothing for either the economy or in "leveling" the economic playing field. The higher the tax rate, the less in economic activity. Taking it retroactively as you propose is worse, that is confiscation-not taxation and things like that lead to bloodshed.
LOL, your proposals on taxing dividends/interest income AGAIN at the similar rate of earned income would do a few things. First it would kill the Kennedys and other political families like the Gores. That's not a bad result from a non Dem partisan viewpoint but economically its brain dead. Second, that would result in a virtual collapse of savings/investment. FDR tried it until even his Treasury Sec, Harry Morganthou begged him to repeal it.
Its great you would willingly share what you have with others. Many of us do including the accursed rich. What makes you different from any others of course, is that you are willing to have force used to take from others what you feel is "fair".
None of your ideas are original Sandy, they have been tried here or overseas several times and all resulted simply in more misery for all after a short flush of revenue for the Treasury. They stem more from jealousy than thought but unfortunately seem the norm for politics today.
As far as the accursed rich that you speak of--no one is cursing the rich. We are talking about fair share in taxes. There are many rich people that feel that higher taxes are fair--including Warren Buffet and Lee Iacocca. Even John McCain said at one time that the rich should pay higher taxes.