As you may or may not know, tax is a big political topic right now. It’s been pretty big for a while. In fact, the entire fate of our economic prosperity apparently depends on extending tax cuts to Americans, which congress wants to make as suspenseful as possible by not passing just yet. Romney is using the impeccable record of trickle-down economics by proposing large tax breaks on high earners, GOP is slamming Obama and other democrats on the passing of the Affordable Care Act, claiming it raises taxes on the middle class. Angola is all like, “you ONLY pay as much as 35% income tax (they pay up to 60% on personal income, 35% corporate and 10% sales tax nationally) wtf are you all complaining about?” It’s an all out tax warfare, with little tax soldiers lobbing tax grenades and stabbing each other with tax bayonets. I think a lot of Americans have been pretty selfish and greedy about pouncing on any mention of increasing taxes, and this post explains why.
Obama has pushed this nation past an historical milestone by getting the Affordable Care Act signed into law and blessed by the Supreme Court. There are 33 developed nations in the world. The United States was the last nation to implement national health care. The first nation to implement health care was Norway back in 1912; the last was Israel in 1995.
Norway is doing pretty good economically, so it’s safe to say their health care system hasn’t destroyed the country yet. The whole deal with the Supreme Court was ruling that the insurance mandate was not unconstitutional, but was in fact a tax. Hearing this word put a lot of people into a frenzy. No one wants to hear about more taxes. Many Americans oppose the ACA simply because they hear their taxes will go up, and they really need to just calm the frank down. Here’s a breakdown of how universal health care worked before the ACA:
· You have insurance, you get sick, you go to the doctor, the doctor bills your insurance, the doctor gets paid, you or your employer continues to pay health insurance premiums, the insurance company gets paid, everyone is happy.
· You don’t have insurance, you can’t go to the doctor because they require insurance. The emergency room does not require insurance so you go there. You are treated and the hospital sends you a bill. You can’t pay the bill so it goes into collections. The bill is either dramatically reduced or dropped. The hospital gets little to no money so they use government subsidies to recoup these losses. Who pays for these government subsidies? The government. Who pays the government? The taxpayers! So, in the past, the burden of the uninsured fell on all taxpayers.
This is what the ACA brings to the table:
· Everyone is required to purchase health insurance. If you are too poor to buy health insurance, you are exempt from a penalty, and receive medical services from Medicaid, which has been part of government assisted healthcare for quite some time. If you would have trouble affording insurance, then you are eligible for subsidies from the government. The government also creates insurance exchanges to create a competitive market for insurance, which reduces insurance premiums so more people can afford insurance. Also – the number of insurance policies increase, which is an increase in demand for insurance policies, which reduces premiums. If you are otherwise financially able to purchase health insurance, but choose not to, then you are subject to a tax up to 2.5% of your income – This s the tax that everyone is talking about. The burden of the uninsured now falls more on the uninsured, rather than everyone.
· There are other taxes too. Medicare tax on the wealthy increase by 0.9%. A 3.9% tax is imposed on unearned income for the wealthy – this is income from investments, not from salaries. A tax is imposed on “luxury insurance plans”. Plans that have premiums in excess of $10,200 per year, and include ridiculous coverage that no one needs, like eyeball massages or some crap. Taxes on MSA’s go up – these are Medical Savings Account where instead of health insurance, you pay into an account that you use when you see the doctor – essentially a personally funded and managed health insurance plan. If you withdraw money from an MSA for non medical reasons, you are taxed on it. This tax went up from 10% to 20% (this prevents a loophole where people say they are electing for an MSA instead of health insurance, getting around the 2.5% maximum tax for not having insurance).
These are the major taxes of the ACA. I can’t remember if I wrote an article on the ACA outlining the major changes and how they affect citizens or not. Maybe I’ll do that next. The point of this whole outline is that the ACA expands coverage to all Americans, prevents insurers from denying health insurance to individuals with existing conditions, and shifts the burden of the uninsured from all taxpayers to just the uninsured, and the highest earners of our country. Good for 95% of the country, bad for the rest – and not really all that bad. In a little bit, I’ll explain why the wealthy sounds ridiculous when they adamantly refuse to pay higher taxes, such as the ones imposed by the ACA, even if it radically transforms the health care industry for the better of the nation.
Then there’s the Bush Era tax breaks set to expire this year. If they expire, tax rates go up for pretty much all earners. The bottom tax rate of 10% goes up to 15% and all brackets above that increase anywhere from 3% to 4.6%. Obama and his team want to extend the tax cuts to the middle class, but not the wealthy. This would only increase tax rates in the top two tax brackets. Republicans are pissed about this, but I’m not sure why. Obama wants to eliminate tax cuts for the rich, which is presented by Republicans as a tax increase… tomato, tomato. Wait, that only works if you actually say tomato. Okay, phonetically then: TomAYto, TomAHto. What is the benefit of keeping tax cuts for the wealthiest tax brackets? The GOP (that’s The Grand ‘Ole Party, or Republicans) says it will hurt small business. Well, that’s kind of a moot point because taxes are only increased on individual income of $200,000 for a single person or $250,000 for a family. The small business owner earns as much as $105,757 per year – and this is for someone with about 10 years experience in the industry. By region this goes up to $125,185 per year, and skilled small business owners earn as much as $104,762. These are high end figures, not average ones. So the definition of a small business does not include salaries of more than $125k a year. Their business income is different. No increases are expected by either candidate for the corporate tax. So saving the small businesses can’t be it, they don’t earn enough to be affected by the tax increases. Then it’s about jobs – if you make companies pay more in tax, they won’t be able to hire workers. I might be misunderstanding something here, but the tax increases apply to personal income, not corporate income. The corporate income tax rate has been about 35% for the last 25 years. It only seems that wealthy people just don’t want to pay extra taxes.
Now in comes Romney with his economic plan. His plan has not only proven that it gives extreme tax cuts to the wealthy, but it has also proven to be impossible to implement. Furthermore, the tax cuts to the wealthy are paid for by eliminating tax cuts to the middle class. Under his plan, earners of $1 million or more get tax breaks – an average tax cut of $175,000. These tax cuts are paid for by effectively increasing tax on 95% of earners by 1.2%, or about $500 a year. This should work, of course, because the average American simply makes too much. In all, the shift in tax burden is to the tune of $86 billion from people earning $200,000 or more, to people making less than that. How his team came up with this plan without knowing the burden they are placing on the middle and poor class is impossible.
Romney is implementing the time tested strategy of trickle-down economics. I HATE trickle-down economics. Not only do I believe it doesn’t work, at all, but I also believe it has contributed to the extreme income inequality we have today. Trickle-Down Economics, or ass-backwards stupid talk as I like to call it, has been around for awhile, but really took off under Reagan and his whole Reaganomics thingy. Now, here’s the thing about Reaganomics and why people thought the trickle-down theory worked. We had a period of prosperity under Reagan, but we also significantly increased government discretionary spending. There is another instance of economic prosperity associated with an increase in discretionary spending – and that was when we came out of the Great Depression. Another problem I have with trickle-down economics is that it tries to manipulate the supply side of economics to create jobs. The theory is that we give corporations and high earners tax breaks. The wealthy will now use this extra income to invest in companies, and the companies will use the combination of investments, increased income after taxes and looser regulations to increase production. The only problem is you actually need demand in order to justify production. No company produces as much of a product simply because they have the means. Trickle-down economics may have worked for a few years, when the middle class, lower class and upper class weren’t too far apart, and the consumers were able to buy luxury and commodity goods. TDE (I’ve decided to shorten trickle-down economics to TDE) destroyed itself by giving the wealthy more money, increasing the middle class and lower class, reducing the upper class, increasing income inequality and eventually disabling the consumers’ ability to purchase goods. Now we want to continue TDE – we will give more money to the wealthy to invest, but they don’t want to invest in a company that can’t grow. Companies will be given more money to create jobs and grow, but they can’t because there isn’t sufficient consumer demand. So what happens if the wealthy and large corporations are given more money but don’t use it to create jobs? That money certainly doesn’t go back to the general population.
All of this jargon comes down to the fact that the wealthy just don’t want to pay more taxes. I’ve researched the tax rates for the last 100 years – my conclusion is if a wealthy person travelled from 1945 and heard a wealthy person today whine about his tax rate going from 35% to 39.6%, he would open hand slap him across the face and ask him what his privileged ass was complaining about. The average tax rate for the top income tax bracket in the last 100 years is 59%. We had our highest tax rate on the wealthy appear in 1945 – 94%. The average tax rate between 1945 and 1965 was 88%. I remember watching an episode of the twilight zone where a couple finds a magic lamp and is granted 4 wishes. One of their wishes is for $1 million, which they started to give away to their friends. Then an agent from the IRS walked into their store and told them they owed income tax on that $1 million to the tune of about $920,000. I was like “what, no way, that’s way too much, our tax rate is only 35%”. The discovery I made is we pay the lowest taxes we have ever had in the better part of 80 years. With the exception of five years under Reagan and Bush Sr., the last time the wealthy had tax rates lower than they do now was back in 1931, coincidently just before the stock market crash. This goes the same for corporate taxes too. We had a period of economic prosperity from 1961 to 1968, in which corporate taxes and taxes on the wealthy were at their highest (average of 50% corporate and 79% top tax bracket), payroll tax was at its lowest and income tax for the lowest bracket was fairly modest at an average of 17% over that time frame. How was it that we had high taxes on the wealthy and corporations, low taxes on the consumers, yet still managed a period of economic prosperity, in which our GDP grew at an average rate of 7.7%? According to TDE, this is impossible, or at least not the way to do things at all.
I am not suggesting we raise taxes on the wealthy to astronomical rates again, or on corporations. We have been reducing tax rates on the wealthy, while increasing the amount of national income the wealthy controls over the last 30 years. This has eventually led to extreme budget deficits – the government has mandatory spending, which is money they must spend by law, and then there’s discretionary spending, which neither democrat or republican wants to reduce. Since we have significantly reduced the tax liability of the wealthy, which happens to control most of the nation’s income, the government has less money to spend, yet needs to maintain a level of spending, which is why we sell debt to China and other countries, and create a deficit in the trillions. Why do democrats want to “spend our way out of debt”? Because increasing discretionary spending in the past worked, but it worked because we still had a larger amount of tax income from the wealthiest individuals, and the middle class had more money as well.
In closing, the main argument I hear from the rich is that they shouldn’t have to pay more because they work harder and were more successful. What they don’t realize is that people aren’t successful because they don’t try; they aren’t successful because they don’t have the chance. Taxes MUST be raised on the wealthy because they own more and more of the nation’s income each year. It’s time for them to take responsibility for the power they have over the middle and lower class, and to take a cue from history.
TL;DR
Wealthy people need to stop whining about paying more in taxes. They have more of the national income than ever before, and they have the lowest tax rate in the last 80 years. Also, trickle-down economics is stupid and doesn't work.
Other Sources on tax rates and GDP:
http://www.taxpolicycenter.org/taxfacts
http://www.measuringworth.com/usgdp/
