Saturday, October 23, 2010

Tax History and Future Taxation

As the 2010 Elections come to a close you are very likely to hear a great deal about taxes.

Some facts to balance the rhetoric…

In 2008, the US Federal Government took from its people about $2,500,000,000,000 in taxes.

Of that tax money:
The top 1% of wage earners paid 38.02% of taxes.
The top 5% of wage earners paid 58.72% of taxes.
The top 10% of wage earners paid 69.94% of taxes.
The top 25% of wage earners paid 86.34% of taxes.
The top 50% of wage earners paid 97.30% of taxes.
The bottom 50% of wage earners paid just 2.7% of taxes.

Now, if you listen to the Liberals, they will make it seem like until you get to the bottom 50%, these are all fat cats that live on cigars, scotch, and caviar.

Here are some other facts from 2008:

The top 1% that paid 38% of the taxes earned over $380,354 a year
The top 5% that paid 59% of the taxes earned over $159,619 a year
The top 10% that paid 70% of taxes earned over $113,799 a year
The top 25% that paid 86% of taxes earned over $67,280
The top 50% that paid 97% of taxes earned over $33,048
The bottom 50% that paid 3% of taxes earned under $33,048

Oh, and about 36% paid no taxes at all in 2008.

How did we get here, particularly considering the Constitution limits (the way the Constitution was written, if a tax could not be apportioned among the states or based on the census information for each state, it was unconstitutional) direct taxation? Simple, the politicians amended it with the 16th Amendment.

As with any amendment, in order to amend the Constitution, a super majority of ¾ of the states (36 of the 48 states at the time of passage of this amendment) would be required to ratify an amendment. Pennsylvania was not one of the states to ratify the 16th Amendment. Pennsylvania’s legislature didn’t even consider it.

Go Pennsylvania!

Anyway, the original proposed tax in 1913 had a sliding scale from 1% to 7% for taxpayers that made in excess of $500,000. As it originally stood, less than 1% of all wage earners paid income taxes.

With the passage of the 1916 Revenue Act just three years later, it was more than doubled with a sliding scale from 2% to 15% making the threshold for the 15% bracket a person having $1,500,000 in income to qualify. The 1916 Revenue Act also brought in an estate tax and “excess” business profits tax.

As a side note, isn’t it reassuring to know that the Federal Government has the discretion to decide how much profit you can make before it is “excess” profit?

In 1917, a taxpayer earning $40,000 in income faced a 16% tax rate and an individual with $1,500,000 in income faced a 67% tax rate.

In 1918 yet another expansion of taxes was passed moving the bottom rate to 6% and the top rate to 77%.

In five short years, the top rate went from 7% to 77%.

Does that inspire trust in you?

Didn’t think so.

If nothing else, it is a perfect example of the lunacy of United States tax policy and the inability of the few to manage effectively what they take from the many. 7% to 77% in five years and now they directly take from you over $2.5 trillion dollars a year…well, from 64% of you anyway.

Our situation is worse today as demonstrated above and looks to get worse in the future as demonstrated below with the expiration of the Bush tax cuts.

The expiration of the Bush tax cuts translates into a very large tax increase in the very near future…next year to be exact. Because of the failure of this Democrat-controlled government to renew the 2001 and 2003 tax cuts, taxes will be raised on virtually all Americans.

Based on the tax tables freely available on the IRS website for form 1040s, if we return to the 2000 levels:

A single person, making $50,000 a year will see a $1,350 tax increase.
A married couple, making $50,000 a year filing jointly will see a $1,512 tax increase.
A single person, making $75,000 a year will see a $2,303 tax increase.
A married couple, making $75,000 a year filing jointly will see a $3,074 tax increase.
A single person, making $100,000 a year will see a $3,053 tax increase.
A married couple, making $100,000 a year filing jointly will see a $3,824 tax increase.

So, when a politician says they are against the “Bush Tax Cuts” understand that what they are saying is that they are in favor of raising most of your taxes by hundreds or thousands of dollars a year – even if you are a family making $25,000 a year (taxes will rise by $715 annually.) They are using the boogey man of Bush to invoke your distaste for the name and hoping that it will spread to contaminate the policy.

Many of you against the Bush tax cuts are objecting to it because you now have developed an acute sensitivity to the debt and deficit.

Curiously, this has occurred while simultaneously supporting President Obama as he raised it by $1.4 trillion last year and $1.29 trillion this year.

We are certainly glad that you are now concerned with these items but suggest to you that instead of raising taxes on all of us, how about you step up in support of the wasteful, tax and spend politicians that you vote for and pay for it yourself?

You support the government control of our healthcare. You actually believe that it can somehow cost less to give healthcare to 30,000,000 Americans that don’t already have it. Worse, you believe that the inept, inefficient, bureaucratic nightmare known as the Federal Government can someone manage delivering babies when they cannot even manage delivering the mail.

You support the taxpayer funded bailouts for private companies and looked the other way while they paid us back with our own money.

You support the $787 billion taxpayer funded epic failure that goes by the aliases “stimulus” and “crap sandwich” with its $160,000 per job price tag.

And now you worry about the deficit? Good!

The Bureau of Public Debt’s website states that if you would like to pay more to the government to reduce the debt, you can do so. They are even nice enough to tell you how to make out the check and where to send it to. You can find it by clicking here and going to the bottom of the page.

May we suggest that you harness your newfound sensitivity to our economic future and start paying for the policies of your favorite politicians yourself and leave the rest of us alone – we are taxed enough already!

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