Taxes: McCain or Obama

Taxes: that seems to be among the most powerful issues in this presidential election. The two candidates have both attacked each other's position on taxes. McCain's ads tell American's that Obama will raise their taxes.

For a few Americans, McCain's telling the truth - President Obama would raise their taxes. But for most Americas, the McCain statement about how President Obama will raise their taxes... that statement is a LIE. Not an interpretation of Obama's tax plan that I just disagree with, but the kind of lie that makes kids at an elementary school yell pants on fire!.

Is McCain lying to you (or your working age child)? I know Congress has to approve changes in the tax law. I know there are cynics out there who don't think any politician ever plans to keep any promise. But let's just talk about the tax plans the candidates have put forward.

I came across a short article at the Washington Post that has a simple little chart to help you tell. And in case you're not good with charts, I'll help you a little...

If you make under $18,981 a year, President Obama would lower your income taxes by 5.5% - an average of about $567 per year for people in this category. John McCain, if he became president, would lower your taxes, too - but only by two-tenths of one percent, or an average of nineteen bucks for people in this category. ($18,981 per year is about $9 an hour, 40 hours per week, 52 weeks a year.) If you're in this category, not only is McCain lying to you, but you'd be better off personally under the Obama plan than under the McCain plan.

If you make between $18,981 and $37,595 a year, President Obama would lower your income taxes by 3.6% - an average of $892 per year for people in this category. John McCain, if he became president, would lower your taxes, too - but only by about half of one percent, or an average of $113 for people in this category. ($37,595 per year is about $18 an hour, 40 hours per week, 52 weeks a year.) If you're in this category, not only is McCain lying to you, but you'd be better off personally under the Obama plan than under the McCain plan.

If you make between $37,596 and $66,354 a year, President Obama would lower your income taxes by 2.4% - an average of about $1,042 per year for people in this category. John McCain, if he became president, would lower your taxes, too - but only by about seven-tenths of one percent, or an average of $319 per year. ($66,354 per year is a salary of about $5,529 a month, or a paycheck every two weeks of $2,552.) If you're in this category, not only is McCain lying to you, but you'd be better off personally under the Obama plan than under the McCain plan.

These first three categories include 60% of all tax payers

If you make between $66,355 and $111,645 a year, President Obama would lower your income taxes by 1.8% - an average of about $1,290 per year for people in this category. John McCain, if he became president, would lower your taxes, too - but only by about 1.4%, or an average of $1,009 per year. ($111,645 per year is a salary of about $9,304 a month, or a paycheck every two weeks of $4,294.) If you're in this category, not only is McCain lying to you, but you'd be better off personally under the Obama plan than under the McCain plan.

If you make between $111,646 and $160,972 a year, President Obama would lower your income taxes by 2.1% - an average of about $2,204 per year for people in this category. John McCain, if he became president, would lower your taxes more - by about 2.5%, or an average of $2,614 per year. ($160,972 per year is a salary of about $13,411 a month, or a paycheck every two weeks of $6,191.) If you're in this category, McCain is lying to you about whether President Obama would raise your taxes; personally, you'd do better (on income taxes, at least) under McCain, but not by much.

If you make between $160,973 and $226,981 a year, President Obama would lower your income taxes by 1.9% - an average of about $2,789 per year for people in this category. John McCain, if he became president, would lower your taxes more - by about 3%, or an average of $4,380 per year. ($226,981 per year is a salary of about $18,915 a month.) If you're in this category, McCain is lying to you about whether President Obama would raise your taxes; personally, you'd do better (on income taxes, at least) under McCain.

If you make between $226,982 and $603,402 a year, President Obama would lower your income taxes, but not by much - an average of about $12 per year for people in this category. John McCain, if he became president, would lower your taxes much more - by about 3.1%, or an average of $7,871 per year. ($603,402 per year is a salary of about $50,203 a month - which is more than I make as an elementary school teacher in a year.) If you're in this category, your taxes could possibly go up under President Obama, but not by much.

If you are in the top one percent of wage earners in America and make between $603,403 and $2.87 million a year, President Obama would raise your income taxes by about 8.7% - an average of about $115,974 per year for people in this category. John McCain, if he became president, would lower your taxes a bunch - by about 3.4%, or an average of $45,361 per year. ($2.87 million per year is a salary of about $239,166 a month.)

If you are in the top one-tenth of one percent of wage earners in America and make over $2.87 million a year, President Obama would raise your income taxes by about 11.5% - an average of about $701,885 per year for people in this category. John McCain, if he became president, would lower your taxes considerably - by about 4.4%, or an average of $269,364 per year.

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So...

Is McCain lying to you? The simple answer is yes. McCain wants you to believe that as president, Barack Obama would raise everyone's taxes. The truth is that he would attempt to lower taxes for 98% or more of the population. When McCain's ads tell you that Obama wants to raise your taxes, it's not just a lie, it's a damn lie. That makes McCain a damn liar.

If you're bringing home more than $240,000 a month McCain's your guy. Otherwise, he just wants you to help out his guys by voting for tax cuts for the obscenely rich...

Read my article on what the Wall Street Journal thinks of McCain's and Obama's tax plans.

Compare and Contrast: Obama & McCain on Taxes

I generally forego the pleasure of reading the Wall Street Journal because, frankly, it's not in my budget. But this week I've obtained it for free a couple of times while staying at Embassy Suites in Charleston, WV during a workshop my wife is attending.

Today's WSJ has an editorial on the Obama tax plan on A13. It was interesting.

I have two quotes:

The McCain plan would lead to deficits the like of which we have never seen in this country. It would take money from the middle class and from future generations so that the wealthy can live better today

And then there's this...

The Obama plan would dramatically simplify taxes by consolidating existing credits, eliminating the need for millions of senior citizens to file tax forms, and enabling as many as 40 million middle-class filers to do their own taxes in less than five minutes and not have to hire an accountant.

The paper goes on to say that Obama's tax plan would be good for small business, and that while it would raise taxes on the top 1% of household, those richest tax filers would still pay less than they did in the 1990's.

Conservatives have cried and whined about one aspect of the Obama tax plan in particular. Obama's plan would not raise taxes on single individuals making up to $200,000 a year or on couples making up to $250,000. Conservatives see this as a marriage penalty for single individuals making more than $250,000 in joint income. Those individuals would be better off under the Obama plan, from a tax standpoint, to avoid marriage. Some among the Religious Right argue that the Obama plan would aggravate the break down of marriage as an institution in America.

I laughed when I read that. Anybody man that can look at a woman and say, "Honey, you know we'd be better off if we just lived together... we'd save on our taxes!" can't view marriage as being particularly important to his religion - especially when together they'd be making a quarter of a million a year as a household. Give me a break...

Comments on Metaphors about Grades (and the Bush Tax Cuts)

Note: I blogged back in November about an email that was making the rounds. The email compared grades to income in a lame attempt to make GOP economics look more moral. The comments I've been getting are now longer than the original post and have strayed far from the original topic - the validity of the parable contained in the email. So I decided to bring it up to the front of my blog to make it easier to find...

This is in response to the comment here on April 11 by thecarlsoncrew...

Keeping in mind that this discussion is about whether the parable/fable above is flawed or not…

• The parable makes it sound as though people make money because they work hard. But you agree with me that while financial success is tied to hard work, it is not directly tied (there are other factors, and that those other factors – like education - may in fact be more important than hard word itself).
  
• The parable makes it sound like people are poor because they’re somehow immoral (lazy, stupid, or maybe both). But you agree with me that laziness and stupidity are not the only reasons (or even the main reasons) for poverty and that each individual’s situation is unique.

My question about whether you knew anyone in the $1 million+ a year category was a question about perspective. It usually comes as revelation to people when they realize that they don’t really know anyone that we’re talking about. Most people don’t.

You dispute my numbers. You’re allowed. The Heritage Foundation numbers that you gave show that the family right in the middle of the third quintile saw their income go up by $356 in 2006. My numbers had that family’s income going up by $400 in 2004. Are things getting worse?

You mention poverty rates; I haven’t looked closely at those. You compare poverty at one point in Bush’s term with poverty at another point in Bush’s term, and I’m not sure what the point is. While poverty was down, the change didn’t seem significant to me and it’s not clear either that the change reflects a trend or that poverty is still down two years later (we’ll see, when those numbers get released).

You’ve mentioned unemployment numbers. Unemployment is a slippery concept, but it is basically the percentage of the workforce that does not have a job. Unemployment is a slippery concept for a number of reasons. It doesn’t measure under-employment. But more importantly, the number doesn’t take into account individuals who have been without a job for more than a certain period of time (two years, I think). So, for example, in the county where I teach, the unemployment rate is at about 8%. But about 50% of working aged adults (18-65) are without a job. It takes a national depression for this to happen on the national level, but in a micro-economic setting low OFFICIAL unemployment numbers can be a sign of despair because it means that people have given up and stopped looking for a job. For that reason you will sometimes see a distinction made between real unemployment and official unemployment.

I’m not sure how my numbers are “suspect” – what exactly that means. Maybe you think those numbers are just plain made up. I’ll freely admit that numbers can be juggled. To readers without much background in statistics, using percentages will make the top numbers look smaller than they are and the bottom numbers look bigger than they are; using real dollar amounts for disaggregated groups will make the bottom look smaller and the top look bigger (even given the same data). And neither will actually be inaccurate. If the data doesn’t make your point clearly enough, disaggregate it differently. Looking at tenths of the population instead of quintiles would make the poorest people look even poorer. Examining the top 1% makes the rich look richer (or helps more clearly define just what “rich” is).

We’ve talked about so much that it’s hard to keep track of what we’re talking about.

• This thread began with the worth of the parable; I think you’ve agreed with me that the parable has flaws.
  
• I was taken to task for my view that most wealth is inherited (and that was the point at which you entered the discussion). We’ve agreed that wealth is difficult to quantify and that there aren’t many statistical sources on it. My contention, I suppose, is based on my minor in sociology years (decades) ago as an undergraduate. I’m not prepared to forsake it at the moment, but neither can I support it with data. I’ll have to look around more. It is clear that the number of self-made gajillionaires in the Forbes 400 is increasing; but I’m talking about the richest million or so people in society, not the richest 400. The people on the Forbes 400 list are interesting precisely because they are statistical anomalies…

Now we’re discussing the Bush tax cuts and the fairness (however that’s defined) of taxes today. Presumably we’re having the discussion because we were talking about the relationship between income (and, debatably, by implication wealth) and hard work. Maybe we got to the Bush tax cuts because it’s hard to resist the temptation to talk about taxes whenever we talk about income. Maybe we got to the Bush tax cuts because I think the parable is misleading and I think there’s a lot of similarly misleading propaganda out there about the Bush tax cuts (which would make it my fault) – although I think you brought up the numbers on who pays what percentage of taxes.

So let’s start by talking about the nature of taxes. I like quoting Oliver Wendall Holmes (a Republican, by the way): “Taxes are the price you pay for living in a civilized society.”

I teach elementary school. I specialize in disabilities. I’m never heard an adequate definition of “fair” – one that everyone agrees on in all its details when applied to real life. That said… If we accept the idea of a tax on income (which includes FICA, various capital gains taxes, and all the other things that go onto a 1040 and the forms that accompany it) I would think that “fair” means that if you make 10% of the income you pay 10% of the income taxes and if you make 25% of the income you pay 25% of the income taxes. In other words, we tax income (not people). If we go beyond that as a society, if we decide that we want to be progressive and shift the tax burden so that those who can least afford it pay a smaller relative chunk of taxes than those with the most resources, our current system begins to come into focus. Not that our current system is perfect in its details. But the concept of a tiered system with people at the top paying more (a higher rate) than people at the bottom is the conceptual result. In that context, let’s talk about some of what you’ve said…

You said: …the facts of Bush's tax cuts are that he targeted the middle class more than any other group. The 'rich' still got more money back (dollar-wise), but the percentage was much smaller. I don't understand how this can be construed as unfair, unless you're talking about it being unfair to the 'rich'...

Bush threw everyone a bone. That’s how he got it passed. There are more middle class people than any other economic group in the country (depending on your definition, of course) so it’s easy to say that more people in the middle class benefit from the tax cut than any other group. Easy, but misleading.

I’m going to quote from the NY Times, from a couple of pieces that report on Congressional Budget Office (CBO) reports. I suspect that you’ll say that the NY Times is “left-leaning.” Editorially, I’d agree. But I’d hope that they can’t go too far astray in a news report on a CBO document.
“Families earning more than $1 million a year saw their federal tax rates drop more sharply than any group in the country as a result of President Bush’s tax cuts, according to a new Congressional study” cited in the NY Times on Jan. 7, 2008. “Tax rates for middle-income earners edged up in 2004, the most recent year for which data was available, while rates for people at the very top continued to decline.” The article goes on to say that, “Economists and tax analysts have long known that the biggest dollar value of Mr. Bush’s tax cuts goes to people at the very top income levels. One reason is that two of his signature measures, tax cuts on investment income and a steady reduction of estate taxes, overwhelmingly benefit the wealthiest households.” The article goes on to say that in 2004, middle quintile income earners saved $1,180 on their taxes on average over what they would have paid without the Bush tax cuts. The key here is that they paid less than they would have without the Bush cuts, but according to the article their rates actually went up slightly, so that they still paid more than they did the previous year. By way of contrast, households in the top one percent saw their actual tax rates go down (not just increase less) by about 4.5%. They paid an average of $58,000 less under the Bush tax cuts than they would have without it. In other words, I still paid more in taxes after the Bush tax cuts, while the top 1% paid less. And for every dollar they got out of it, I got two cents.

That’s the Congressional Budget Office (though it’s filtered through the NY Times). Where did your “facts” come from? (Not my college sociology professor, I hope…)

Another NY Times article I found interesting was a December 15, 2007 report on a CBO document that looked at income growth from 2003 to 2005 (right after the Bush tax cuts too effect). The increase alone in the income of the top 1% of taxpayers was more than the entire income of the bottom quintile. While the entire bottom quintile made about $383 billion in 2005, the top 1% made $1.8 trillion. That’s 18.1% of all income earned. And it means that for every dollar a household in the bottom quintile got, a household in the top 1% brought in about $93. I don’t think that either hard work or intelligence are the largest factors in a discrepancy that size.

The NY Times piece said that CBO documents “showed that in 2005 the top 10 percent, top 1 percent and fractions of the top 1 percent enjoyed their greatest share of income since 1928 and 1929.” It added that “On average, incomes for the top 1 percent of households rose by $465,700 each, or 42.6 percent after adjusting for inflation. The incomes of the poorest fifth rose by $200, or 1.3 percent, and the middle fifth increased by $2,400 or 4.3 percent.”

And look at that! There’s my $200 for the bottom quintile, listed in both a real dollar amount and a percentage.

Finally, according to the Times, “The top 1 percent paid 27.6 percent of all federal taxes in 2005…” In the context of the progressive system I’ve described, with the biggest income disparities since before the Great Depression, and in light of the fact that they made over 18% of all income, I don’t think I feel badly about that…

You want to argue that having rich people around benefits the rest of the society and you say it in a way that reminds me of Reagan’s “trickle down” theories. And yet wealth is gradually becoming more concentrated in the hands of a few, not more widely disbursed. I think the rich might pay less than they ought to for their yachts, and there is only one active commercial diamond mine in the U.S. I don’t think many in our middle class make their living off of gem mining here in America.

You said: And, of course, the principle is the same for the middle class as it is for the wealthy - the more money they lose to taxes, the less they have to spend. That means that the more the wealthy are taxed, the less they spend…. Hogwash! They made more than they did last year, after taxes – despite carrying 27% of the income tax burden. The people in the class I’m talking about, that top 1%, are not going to deprive themselves of anything because of the amount they’re paying in taxes. (And I suspect that you have nothing in the way of consumer data to show otherwise.)


Carlson, I’m touched by your invitation to join the wealthy with you, and with your concern for my financial status. I’m doing okay. Like many people, I worry a little about the future, about retirement. No one has a crystal ball. But I’m standing here in the fourth quintile with my three college degrees and, well, life is better this year than it was last year. It’s not hard to predict that it will be better still next year. I live in a moderately nice house that I actually own, have broadband Internet access at home, drive a good SUV without much rust on it, eat fairly well, vacation in the summer, have decent health insurance and even a dental plan, - and I live in one of the most beautiful places on earth (despite the poverty of the region), Central Appalachia. My concern for public policy on this issue is not rooted in some deep seated wealth-envy. I think the current economic environment stacks the deck against economic success for the communities I serve. Personally, I wouldn’t object to being obscenely rich; but I think modest comfort is a more reasonable goal since both my wife and I have chosen careers in public service. But who knows; perhaps I’ll write a book…

The L-Curve

In light of the most recent comments at my previous blog on the email about grades and income ("Welcome to the Republican Party..."), I thought this video was fascinating.

Enjoy...

The Issues: Taxation

It occurred to me recently to try and articulate what I think the major issues are in the current Presidential election., Over the next few weeks I hope to write short pieces on what the issues are (for me) and how I feel about those issues. At the moment I can think of four. They are (in no particular order): taxation, the war, education, and health care.

American stand, I think, at a crossroads in terms of the nature and philosophy of taxation. It's not a very sexy issue. It is an issue primarily because a group on the far right of the political spectrum wants to do away with income tax and replace it with a "fair tax" that would charge everyone a flat rate in the form of a sales tax at the cash register.

The "Fair Tax." Genius. That's a better name than No Child Left Behind. Someplace along the way, Conservatives have learned that if you give an idea a really good name you're more likely to be able to make it a law. But I digress...

There are a bunch of things wrong with the "fair tax," as I see it. The most important is that it is a ploy, a disguised effort to control government spending by reducing revenue. I say that because the analysts that I've looked at all seem to agree that the proposal in Congress now would drastically reduce federal revenue. The result of that would be either a) a world in which Congress cut existing programs willy-nilly because it simply could no longer pay for them or b) the Reagan deficit, multiplied several fold. I would bet on "b," but neither is a pretty choice.

I'm not going to dignify this proposal by calling it a "fair tax" again; for several reasons, it's not fair. So we'll refer to it from here on as the sales tax proposal.

The reason the sales tax people have gotten as much traction as they have is simple: the tax system in America is complicated, convoluted, and seems to facilitate tax avoidance for the rich. Ron Paul is in favor of this proposal; Ron Paul is a fruitcake from outer space. But Mike Huckabee is also in favor of it; he uses it ironically to promote his image as a populist.

I found this definition of populism at Answers.com: "A political philosophy supporting the rights and power of the people in their struggle against the privileged elite." Call it part of being an enigma for candidate Huckabee: a Baptist preacher in a rock & roll band, the Republican populist...

The sales tax proposal is a bad idea because it makes taxation voluntary to the extent and degree that you can live on less than you make. Those in then upper class who make obscene amounts of money and squirrel much of it away for a rainy day (or a trip to the Italian Riviera) don't pay taxes on much of it - they get away with not paying their fair share. It also means that middle class Americans who live beyond their means by making purchase on credit cards can conceivably make pay more than their fair share in a give year; if they make $70,000 and spend $85,000 they pay taxes on the $85,000 they spent.

In addition to reducing the flow of revenue into the federal government (the real agenda for the sales tax, in my view), the result of the above situation will be that the burden for paying for government will be shift more onto the middle class. That makes the use of this tax to promote an image of populism truly ironic.

Of course, rejecting the sales tax proposal doesn't solve the problem. The truth is that taxation in America is broken and does need to be fixed. And spending in America really is a problem. The question is one of who can come up with proposals to fix the current system. John Edwards (a populist and a Democrat) and a few others have suggested closing loopholes and addressing some specific aspects of the tax code. Why should someone who makes their money in the stock market pay a lower rate in capital gains tax on their 1040 than a teacher, nurse or secretary pays on their salary? Why should the average Joe pay the payroll tax on almost every penny he makes while the CEO of some company pays it only on the first $62,700 and is off the hook for the rest of his $400,000 annual salary?

Fix the loopholes and the system produces more revenue and seems more fair. If the system produced more revenue, the actual rates might could be reasonably reduced.

The purpose for taxation and the manner in which Americans are taxed - these are among the most important issues on the table this election. And I don't think most Americans realize that...

How Metaphors Make for Oversimplification (and Bad Propaganda)

I got an entertaining email the other day. It was a political story, a metaphor that was intended to give me a new way to think about why Republicans are right in their approach to taxes and money and why Democrats are wrong about those things.

Father/Daughter Talk A young woman was about to finish her first year of college. Like so many others her age, she considered herself to be a very liberal Democrat, and was very much in favor of 'the redistribution of wealth.' She was deeply ashamed that her father was a rather staunch Republican, a feeling she openly expressed. Based on the lectures that she had participated in, and the occasional chat with a professor, she felt that her father had for years harbored an evil, selfish desire to keep what he thought should be his. One day she was challenging her father on his opposition to higher taxes on the rich and the addition of more government welfare programs. The self-professed objectivity proclaimed by her professors had to be the truth and she indicated so to her father. He responded by asking how she was doing in school. Taken aback, she answered rather haughtily that she had a 4.0 GPA, and let him know that it was tough to maintain, insisting that she was taking a very difficult course load and was constantly studying, which left her no time to go out and party like other people she knew. She didn't even have time for a boyfriend, and didn't really have many college friends because she spent all her time studying. Her father listened and then asked, 'How is your friend Audrey doing?' She replied, 'Audrey is barely getting by. All she takes are easy classes, she never studies, and she barely has a 2.0 GPA. She is so popular on campus; college for her is a blast. She's always invited to all the parties, and lots of times she doesn't even show up for classes because she's too hung over.' Her wise father asked his daughter, 'Why don't you go to the Dean's office and ask him to deduct a 1.0 off your GPA and give it to your friend who only has a 2.0. That way you will both have a 3.0 GPA and certainly that would be a fair and equal distribution of GPA.' The daughter, visibly shocked by her father's suggestion, angrily fired back, 'That wouldn't be fair! I have worked really hard for my grades! I've invested a lot of time, and a lot of hard work! Audrey has done next to nothing toward her degree. She played while I worked my tail off!' The father slowly smiled, winked and said gently, 'Welcome to the Republican party.'

In the box to the right is a copy of an email. It's making the rounds, posted on a few blogs. And there are problems with it...

The story equates academic achievement at college with people's financial place in life. You have the daughter who has a 4.0 GPA because she works hard; and you have Audrey, who is on the verge of flunking out because she "played" instead of working.

If the message was about college I'd have no problem saying that at the college level you should get the grades you earn. I'd have no problem agreeing that you have to work for your grades. I have three degrees and what amounts to about 11 years of college. But the message isn't about college; it's about wealth...

The idea that all wealth is the result of hard work on the part of the wealthy is ludicrous. The majority of truly wealthy people are born wealthy. I remember a quote from the era of the senior president Bush; someone said that George Bush thought he'd hit a triple when in fact he was born on third base. Wealth is largely inherited.

The corollary assumption of this little email tidbit is also flawed. If grades in the story are supposed to make us think of money in real life, we're suppose to draw the conclusion that people are poor because they "play" too much. Poverty comes from being lazy and immoral. But I teach at a school where more than nine out of ten kids qualify, technically, as "poor." And in kindergarten, I don't think it's their fault. I work in a county where 56% of the adults between 18 and 65 don't have jobs. Maybe a few dozen of them could run out and get jobs tomorrow; they haven't because, well, they're lazy and immoral. But there's no way that all of them could find jobs this week, or this year, without leaving the place where generations of their family has lived. And because they don't have jobs, they don't really have the resources to just up and move, anyway.

The truth is that poverty, like wealth, is more or less heredity. Grades in college might have to be earned, but poverty is something you get free from your mom and dad...

There are additional flaws in the story. It talks about redistribution of wealth as though that is an end in itself in the Democratic Party. I'm a pretty active Democrat. And I don't think redistribution of wealth is really the goal any more. I'm not sure it has been for a long while now. I think the goal now is redistribution of opportunity. Heck, it's probably not even a case of redistributing opportunities. We don't want to take anyone's opportunities away, no matter how rich they are; we want to expand the opportunities that are out there and make them more available to people who haven't had opportunities in the past.

There's some misdirection in the story, as well. I have daughters. Sometimes they believe things that are wrong - and think I'm stupid. I know how that feels. This story wants you to think of that feeling (it happens to all parents), and to feel something about Democrats instead of thinking about the arguments.

The email talks about "fairness." I've never heard that term adequately defined. But I pay seven and some odd percent of every penny I make to the payroll tax. Many rich people don't. How is that fair? I'd like to make life fair by having people who make several million dollars a year pay that same seven and some odd percent of their income to payroll tax to help support the social security system. If I pay seven percent or so, why shouldn't they? But Republicans scream and moan and call me a communist when I talk about it.

Since we're talking about fairness, let me ask this question. My wife and I pay 28 percent or so in taxes on our relatively piddly income as educators. My sister and my sister-in-law, both registered nurses, pay about the same I suspect. And yet someone who makes most of their income by trusting a stockbroker to invest their money for them pays a lower rate and calls it capital gains tax. How is that fair? I get up and leave the house at 7am, spend the day trying to figure out new ways to get fourth and fifth graders who live in poverty to actually understand what they read, go home a worry about lesson plans and such, and pay 28% while the guy who writes his stockbroker a check and then goes home to watch TV pays a lowewr rate. I can't see how that's fair. I've heard people argue about how it's somehow "good" for society. But it's still not fair.

I'd like to live in a society where kids don't go hungry, even if their parents as drug addicts. I'd like to live in a society where kids can go to college even if their parents can't read. I'd like to live in a society where military veterans with PTSD don't end up homeless. And (call me a communist) I'd like to live in a society where anyone can afford to see a doctor (and take their kids to the doctor) whether they have a job or not.

So anyway, spliting your grades with someone isn't the same thing as paying your taxes. And it was a Republican named Oliver Wendall Homes who said that taxes are the price we pay for a civilized society.

Rudy Giuliani Gets Booed on Taxes

On Saturday, GOP Presidential hopefully Rudy Giuliani was in Florida where we served as Grand Marshall for NASCAR's Pepsi 400 in Daytona. Before the race he attended a town hall meeting in Jacksonville, Florida, where about 500 people listened to him answer questions for half and hour or so. One of his answers brought jeers and boos from some people in the crowd. Giuliani was asked if he would support a flat tax proposal (proponents are using the euphemism "fair tax").

Giuliani said "no." People in the crowd (a couple of dozen or so of them, at least) made those same nasty noises in response to Giuliani's answer that many race fans make during driver introductions when Jeff Gordon gets introduced.

I found it interesting that, in a crowd of 500 people, only 25 to 50 of them vocalized negative feelings about his answer. That means that only five or ten percent of the people there felt strongly about the "flat tax" question. I also found it interesting that the Associated Press headlined a story based on the incident; but they did. Go figure...

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If you're looking for something to think about that will make your head hurt, try taxes. The issue is complicated beyond words. There's no sense discussing it much with someone unless you have at least a vague level of agreement with them about what governments should do -- by which I mean the sorts of things a governments should dabble in more than exactly which course of action governments should take on something. After all, taxation is how government pays for what it does.

Most people don't have a firm grip on the number of different governments and taxes there are that have some effect on their daily lives. If you live in a town in Virginia you almost definitely pay taxes to the town (even if you don't own property), taxes to the county the town is in, taxes to the Commonwealth of Virginia, and taxes to the Federal government. Among my favorites is the prepared food tax that most Virginia local governments charge when you buy cooked food; that tax adds an additional five or six percent to the price of your hamburger at a Wendy's or Shoney's and that money stays with the locality where the restaurant is located.

If you live in some other state, there's a good chance your county taxes you twice - once through your county commission and once through your school board. In Virginia school boards don't have that power.

I looked up the term "flat tax" online and found that not everyone agrees what a flat tax even is. On the one hand, a flat tax is technically a tax where everyone pays the same amount - like the $10 tax I pay to put a county sticker on the windshield of my car. Poor or rich, whether it's for your 30 year old Pinto or your Dodge Viper, ten bucks is what it costs. But most people mean a flat rate or percentage when they talk about a flat tax - everyone would pay something different because they earned (or spent) a different amount.

Of course, we haven't talked about what to tax yet. Some flat taxers want to tax income, some want to tax only earned income, and some what to tax spending (instead of income). That last proposal is what people mean most of the time what they talk about the so-called "fair tax." They want a national sales tax of some sort to replace income tax in America.

I've always struggled with the definition of the word "fair." I can't give you a definition of that term that satisfies me. Most people think of everyone being treated the same.

We don't treat all kids the same at the school where I work:

• Some of them we make pay for their lunch; others we give lunch to for free.
  
• Most have to take their math tests in silence and have half an hour; a few, though, get 45 minutes and some help reading the test.
  
• Some students at my school we make read their books without any sort of devices to help them; others we let wear glasses.

What's "fair" mean?

The "fair tax" proposal is attributed in large part to radio personality Neal Boortz, promoted by the organization Americans for Fair Taxation, and embodied in a bill in committee in the U.S. House of Representatives called H.R. 25.

Common question number one is how a flat tax is fair to the poor (since they have less of an ability to pay)? Not to worry; the poor will go into the grocery store and pay the new 23% sales tax on milk and bread (just like everyone else), but then they'll get a check from the government called a "prebate" to compensate them for money they spend on basic necessities (just like everyone else).

Like the old (current) tax system, there's no effort to allow for the fact that the cost of basic necessities is different in Los Angeles than it is in, say, Newberry, South Carolina. Still, proponents say the "fair tax" is "progressive." I don't know how that's "fair," but I'm not sure what they mean by the word.

One minor detail that bothers me some about the proposal that Americans for Fair Taxation has online is simple. Right now poor people don't have to do any paperwork to escape income tax. If their income is less than the amount of their deduction and exemptions, they don't have to file. Under the proposal I looked at online, poor people would have to file paperwork to get their tax rebate - they'd have to fill out a new form to get back money the government shouldn't have taken. The amount of paperwork rich people have to do would decline sharply and the amount of paperwork poor people (who generally have less education) have to do would go up. That strikes me as being less than progressive; my experience with poor people leads me to suspect that many would miss out because they wouldn’t do the paperwork.

I do know this: poor people (and many in the lower half of the middle class) generally spend every penny they get just to make it from month to month. Rich people don't have that problem. So under the new "fair tax," a couple in their thirties raising two point four children in the burbs will pay taxes on almost every penny they make just because they spend it while the doctors and lawyers in more affluent neighborhoods, even if they pay more in actually taxes, could get by with paying tax on half or less of their income. Then when you look at the government's money and you talk about what portion of it came from the wealthy and what part of it came from the average American who's just try to make ends meet while they raise their kids, you'd find that the "fair tax" reduced the percentage of the Federal budget that was paid for by the more well to do. Rich people will be happy about that.

I'll ask rhetorically, "how is that fair?" And I expect that someone will explain it to me whether the question is intended to be rhetorical or not...