The Progressive Income Tax

[Gunner]

The National Review


The Progressive Income Tax
September 19, 2011 3:47 P.M.
By Veronique de Rugy
I have posted this chart before, but I think it might be useful to revisit it in the wake of the president’s speech about how rich Americans aren’t paying their fair share of taxes.

As you can see, the top 1 percent of earners (a household income above $380,000) shoulder 38 percent of personal federal income taxes and make only 20 percent of income. The top 5 percent of income earners pay almost 60 percent of income taxes and make under 35 percent of all personal income.

One important reason why the bottom 50 percent doesn’t pay much income tax is because lawmakers have decided to pay for social programs though the tax code and most of these people are either relatively poor or really poor.

Here is another relevant chart, showing the effective federal tax rate (individual income taxes, social insurance (payroll) taxes, corporate income taxes, and excise taxes) by income quintile:

As you can see, the tax system is progressive. Does it mean that the rich pay their fair share? I guess it depends on how one defines fairness. But if the progressivity of the income tax doesn’t signal fairness, what does it signal?

That being said, it’s important to remember that, fairness aside, raising the marginal tax rates on any group, especially those already paying the highest rates, could reduce GDP and income across the board, not just for the people paying the initial tax bill. Why? Because the burden of higher taxes on capital formation falls largely on labor in the form of lower wages and hours worked.

The same is likely true of an increase in the capital-gains tax, which is what the president seems to have in mind with the Buffett tax. This move would increase the double taxation of corporate income and would seriously reduce capital formation and wages. And for these reasons, it is unlikely to raise much revenue.

 

[ballscout1]

They are pledging to this asshole instead of to the people who voted for them.

 

[SPECTRE1]

This is misleading, the wealthy (trust fund babies, inheritance - didn't do shit to get their money) have so much of the income that taxing 2 percent would represent 40 percent. This chart actually shows how bad the income disparity is, in other countries where wealth is equally distributed, the difference is much less.


If I am paying 40 percent in taxes, than the rich need to pay that amount. I don't care if you call it capital gains, dividend income, or whatever, it is income and it needs to be taxed the same as everybody.

 

[thoughtone]

America's 10 Poorest States: Keep Voting Republican. At Least They Aren’t Socialist

This thread is Kryptonite against Gunner!

 

[Lamarr]

If we take $1.5 trillion from the rich, they'll have to take it out of their investments to pay the government. So what happens to the companies that are currently using those investments? That's right! They lay people off, raise prices, put off buying new equipment, or close. Taking more money out of the economy to give to government is the worst thing you can do - regardless of who they take the money from.

capital investment + production = economic growth

 

[Upgrade Dave]

If we take $1.5 trillion from the rich, they'll have to take it out of their investments to pay the government. So what happens to the companies that are currently using those investments? That's right! They lay people off, raise prices, put off buying new equipment, or close. Taking more money out of the economy to give to government is the worst thing you can do - regardless of who they take the money from.

capital investment + production = economic growth

So they weren't investing before the Bush tax cuts?

Either you're for cutting spending or you're not.

 

[thoughtone]

So they weren't investing before the Bush tax cuts?

Either you're for cutting spending or you're not.

So they weren't investing before the Bush tax cuts?

That's just the point, the taxes forced them to invest more. Thus the state of the economy pre tax cuts verse post tax cuts. Lamarr suffers from selective amnesia.

 

[Lamarr]

Taking more money out of the economy to give to government is the worst thing you can do - regardless of who they take the money from. What is the govt spending this $$$ on anyway........Solyndra, Chevy Volts, Wars, everything unproductive!

<iframe width="560" height="315" src="http://www.youtube.com/embed/aufAtuTwKlE" frameborder="0" allowfullscreen></iframe>

 

[Upgrade Dave]

Taking more money out of the economy to give to government is the worst thing you can do - regardless of who they take the money from. What is the govt spending this $$$ on anyway........Solyndra, Chevy Volts, Wars, everything unproductive!

<iframe width="560" height="315" src="http://www.youtube.com/embed/aufAtuTwKlE" frameborder="0" allowfullscreen></iframe>

He was right. The recession is and has been over for months. He didn't say "You don't raise taxes in a recovery."

 

[Lamarr]

The recession is and has been over for months.

thanx, I needed a good laugh this morning!

muhfuckaz picketing Wall Street
CBC claims to march on the White House if Obama wasn't Pres
Credit Downgrades
The ever-widening gap beyween the wealthy & everyone else
QE-1 & QE-2

Bernanke......Is that You?

 

[Greed]

100th anniversary of the 16th Amendment

Many Unhappy Returns—Millions of Them
It's the 100th anniversary of the 16th Amendment. Don't forget to file your taxes.
Updated February 1, 2013, 7:33 p.m. ET

By JAY STARKMAN

A century ago, on Feb. 3, 1913, the 16th Amendment to the Constitution authorizing a federal income tax was ratified. But the amendment's adoption was more an accident than an act of political will, and tinkering with the Constitution was not even required for the federal government to tax Americans' earnings.

The country's first income tax was implemented to raise money during the Civil War. The tax was repealed in 1872 because the revenues were no longer needed. The idea was resurrected in 1894 as a populist measure to tax the rich when William Jennings Bryan successfully championed passage of a 2% income tax on annual income over $4,000. The rich denounced it as communistic and predicted that many would flee the country rather than pay the tax.

They didn't have to flee. The following year, a tax case reached the Supreme Court, which ruled that an income tax on wages, professions and trades would be constitutional. But the court determined that the tax's application to rental income amounted to a tax on real property, violating the Constitution's "direct tax" clause. For that reason, the income tax was declared unconstitutional.

Initially, the decision was tied 4-4 with Justice Howell Jackson too ill to participate. So the dying Jackson was carried to court for a rehearing. He voted to uphold the tax. But another justice changed his vote, ultimately leading to a 5-4 decision declaring the income tax unconstitutional. It is believed that Justice David Brewer was swayed by his uncle, Justice Stephen Field, to switch. (Yes, an uncle-nephew team sat on the Supreme Court from 1889 until 1897.) Pollock v. Farmers' Loan remains one of the court's most controversial decisions.

But the federal government still wanted another revenue source for the Treasury, which had relied mainly on tariffs and excise taxes for its revenues. The House passed legislation in 1909 imposing an income tax and the Senate seemed likely to concur. The law would tax wages, professions and trades while excluding rents, which would meet the Supreme Court's 1895 test.

The Senate boss, Finance Committee Chairman Nelson Aldrich, together with President William Howard Taft concocted a compromise to stop the income tax bill that the House had passed. Congress would immediately pass a 1% "excise" tax on corporate income over $5,000—in effect the rich were being taxed. As a further sop to income-tax advocates, Aldrich would sponsor an income-tax constitutional amendment.

Aldrich was quite candid about his scheme to block the House bill that had been passed, declaring to the Senate: "I shall vote for the corporation tax as a means to defeat the income tax."

The compromise passed unanimously in the Senate and by a vote of 318 to 14 in the House. The corporate excise tax would be levied, and the income-tax constitutional amendment would be sent out to the states for ratification—which Taft and Aldrich thought was impossible. After all, the Constitution had not been amended in 40 years. Of the 15 amendments that had been adopted, 10 were included in the Bill of Rights. The 11th and 12th were adopted in 1789 and 1804, and three had resulted from the Civil War.

The plan went awry. After 1909, the U.S. underwent a major political transformation. Democrats and progressive (Teddy) Roosevelt Republicans swept many state elections. Woodrow Wilson won the 1912 presidential election. Democrats controlled both houses of Congress. On Feb. 3, 1913, the legislatures in Delaware, New Mexico and Wyoming voted for the amendment, pushing the total to the required 36 states. The 16th Amendment was officially adopted on Feb. 25. Three and a half years had passed since the Taft-Aldrich compromise supposedly relegated the income tax to the dust bin.

Congress quickly heeded President Wilson's call to dramatically lower tariffs and impose an income tax in 1913. The tax was supposed to be a flat 4%, but Ways and Means members John Nance Garner (later Franklin Roosevelt's vice president) and Dorsey Shackleford turned it into a graduated tax of 1% to 7%, attuned to "capacity to pay."

After the tax law was passed, judges embraced it—for everyone else, just not themselves. Judges across the land proclaimed that the Constitution prohibited diminishing their salaries (and those of the president and state employees) through taxation. They emphasized the point by issuing court rulings in their own favor, excusing themselves from the tax. This lasted until the Depression, when the force of public opinion essentially shamed them into relenting. Under a law passed in 1932, Franklin Roosevelt became the first president subject to the income tax, but he refused to pay an increased rate that he helped enact in 1934. FDR insisted on paying the lower 1932 rates.

Before World War II, only one-third of the population earned enough to be subject to the income tax. After the war, the tax still affected only half the population. As late as 1947, farmers paid little or no income tax even when crops were good—it was generally accepted that they kept no books and were not expected to do much paperwork.

Over the years, the personal exemption and standard deduction have not kept pace with inflation, so today 70% of the population is subject to income taxes. Almost 60 million returns, mostly under $20,000 in gross income, pay no income tax, largely the result of the earned-income and child tax credits. The individual income tax today raises $950 billion annually through 144 million tax returns. Of this, the top 40 million returns pay about $856 billion and the bottom 104 million returns only about $94 billion.

The U.S. could easily reduce the tax-filing population to pre-World War II levels by dropping two-thirds of taxpayers from the drudgery of filing annual returns. For instance, a nonrefundable 3.4% withholding tax on $2.8 trillion gross income of those in the lower two-thirds. But nothing is so simple when it comes to the tax code.

The constitutionality of the 16th Amendment was challenged from the beginning, and it is still assailed by tax protesters. A frustrated Tax Court, in addition to reliably ruling in favor of the IRS when such cases come before it, adds a penalty of up to $25,000 against anyone raising the frivolous constitutional argument in court. The protesters don't seem to realize that repeal of the 16th Amendment would not mean abolition of the income tax. Alas, tax relief must come from Congress.

Mr. Starkman, a certified public accountant in Atlanta, is the author of "The Sex of a Hippopotamus: A Unique History of Taxes and Accounting" (Twinset, 2008).

http://online.wsj.com/article/SB100...10776108672.html?mod=WSJ_hpp_sections_opinion