Monthly Archives: June 2017

The Inconvenient Truth…About Taxes

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This may not be the most exciting of my posts but it is one of the most important because it addresses misconceptions about American taxes.

I think it is probably no surprise that I’m not a fan of the healthcare reform plan proposed by the Republicans, but I’m also not a fan of “Obamacare”. I’ll tackle those in a future post, but the debate over one aspect of the Republican plan made me wonder who is telling the truth. Democrats are vehemently arguing that the plan will favor the rich while taking money out of the pockets of the poor and middle class. While at first glance that argument does appear somewhat legitimate I assumed the truth was not quite so simple. That led me to this post.

Who pays taxes? Well…we all do in one way or the other, but again the answer is much more complex. It is easier to begin by reviewing the sources of revenue for the various governments in The United States.

(FYI: I’m about to offer a lot of statistics and other supportive info, so if you get bored you can skip to my conclusion)

NATIONAL GOVERNMENT REVENUE SOURCES

As you can imagine, funding for our national government comes from a variety of sources. In fiscal year 2016 the federal government spent $3.85 trillion while bringing in $3.27 trillion in revenue, meaning it ran a deficit of more than $500 billon. I will not address the consequences of that deficit in this post, but you should be alarmed by the national government’s annual deficit and the current $19.5 trillion debt (too bad my wife and I can’t find a way to pull off spending more than we earn!). Here is where the fed gets its money:

  • 56% from income taxes
  • 34% from “social insurance” revenue (Social Security, unemployment, and Medicare)
  • 10% from taxes on business, fees for using parks, and a variety of other sources.

So the lion’s share of Uncle Sam’s money comes from personal income tax and a large portion also comes from payroll taxes.

STATE AND LOCAL GOVERNMENT REVENUE SOURCES

State governments take in about $1.7 trillion each year, most coming from so called “ad valorem” taxes such as sales tax, property taxes, and taxes on things like alcohol and gasoline.

Local governments bring in approximately $1.35 trillon in revenue .  Interestingly, the largest source of local revenue is money they get from the federal and state governments (called “transfers”) with property taxes following close behind. Sales taxes, fees, parking meter fees, etc. make up the rest.

Now the real question and the one raising controversy these days: Who pays the most taxes?

WHO PAYS THE MOST FEDERAL INCOME TAX

The rich pay an unbalanced portion of federal income tax and the middle class also pays a significant portion. This chart from the reputable Pew Research Center paints a pretty clear picture:

Wealthy pay more in taxes than poor

Those with the higher incomes pay a much larger percentage of income taxes than those with low incomes. Less than 3% of the population paid more than 51% of the income taxes and their average tax rate was 25.7%. People earning less than $50,000 comprise about 62% of the taxpayers, but they contribute less than 6% of the total revenue from income tax and have an average income tax rate of 4.3%.

Bottom line? The wealthy pay by far the largest portion of income tax, and income tax is more than half of all federal revenue. And according to some calculations, more than 45% of all American households pay no income tax at all.

WHO PAYS THE MOST PAYROLL TAXES

Social Security and Medicaid are the two largest payroll taxes. Our incomes are taxed at 12.4% which is shared by worker and employer. This tax currently applies to the first $118,000 of income, so no income above that amount is taxed.

That means that payroll taxes are “regressive”, meaning they have a greater impact on the lower and moderate income workers. Because of the $118,000 cap the top 1% of workers pay a much smaller percentage of their income than do workers with lower incomes. However, at retirement the workers with lower incomes tend to rely more heavily on social insurance than those with higher incomes, so the benefits are progressive, not regressive.

WHO PAYS THE MOST STATE AND LOCAL TAXES

This one is more difficult to address because it varies by state. Some states have income taxes, others don’t. Some states have higher property tax rates than others, some have natural resources such as oil and coal that they can tax (called a severance tax), some have toll roads, etc. In general the wealthy pay more tax on the state and local level because they own more property that is taxed, buy more luxury items thus paying larger sales taxes, pay more state income tax (in states with such a tax) because they have higher salaries, and pay severance taxes because they own the coal mines, oil wells, and stands of timber.

WHO PAYS THE MOST IN TAXES OVERALL?

When all local, state, and federal taxes are combined one may conclude that the higher a person’s income the higher is her/his tax burden.

  • The bottom 20% of income earners pay about 19% of their income in taxes.
  • The top 20% of income earners pay about 32% of their income in taxes.

SO, DAVE, CAN YOU JUST REACH A CONCLUSION ALREADY!?

Well yes. Sort of.  I can actually reach several.

  • The wealthy contribute the lion’s share of income taxes and about half of all Americans do not pay any. So the current argument being made by Democrats that the Republican healthcare plan offers tax breaks for the wealthy is accurate because it would not be possible to offer a tax break for those folks who are not paying income tax at all. Any tax break thus necessarily applies to the wealthy. However, I’m not sure I believe reducing taxes on the top 1% so dramatically is a great idea. In the current Republican plan the top 1% would have their taxes reduced by 44% while the bottom 20% would see only a 2% tax reduction.
  • The wealthy also pay a larger portion of most other taxes at all levels of government.
  • Payroll taxes (Social Security, Medicaid, Unemployment) favor workers with higher incomes because no income over $118,000 is taxed, but the workers with lower incomes benefit most from these programs in the end because the higher income workers are more likely to have personal retirement or pension benefits.
  • The statement from the right (that I’ve heard often in recent days) that the bottom 50% of wage earners pay no taxes is false and only applies to income tax. Everyone, regardless of income, pays sales taxes on purchases, tolls on roads, tax on any owned property (and indirectly on rented property since landlords calculate property taxes into rents), fees for parking meters, excise taxes (gas, alcohol, and tobacco), and usage fees for things like landfills and parks.

Are America’s taxes fair? That is up to you to decide and objectivity on this topic is a challenge.

The problem is that there has been no broad discussion of American taxes since 1913 when the income tax was added to the Constitution. Neither party has been willing to examine our tax codes and the taxes themselves to determine whether they make sense. They don’t. I believe all Americans should pay taxes because we all benefit from the governments supported by those taxes, and all Americans DO pay taxes. We just need a national discussion addressing the tax structure and that isn’t happening any time soon. The Republicans promised such a discussion during the 2016 campaign and I hoped it would take place, but that issue and other issues of substance have been pushed aside because of the constant tweets and other distractions made by the Republican Party’s leader making it virtually impossible for his party to focus on issues of substance.

 

 

 

Wall-to-Wall Sycophants

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Sycophant:  a servile self-seeking flatterer.

Niccolo Machiavelli is often associated with a style of politics called Machiavellianism  which Merriam-Webster defines as “the view that politics is amoral and that any means however unscrupulous can justifiably be used in achieving political power”.  People often refer to Richard Nixon’s actions as “Machiavellian”, for example. Politicians are often accused of “Machiavellian” behavior when they do or say anything necessary to be elected. I’ll address this type of politics in a later post, but today I actually want to use Machiavelli to discuss President Trump’s cabinet.

As an aside, when people refer to “Machiavellian behavior” they only refer to ideas expressed in one of the author’s books, The Prince, and ignore his other works that address republics rather than tyranny. Machiavelli wrote to his audience and The Prince was an attempt to gain favor with a monarch from whom Niccolo wanted a job. In other places he actually argued in favor of republics.

OK. Sorry. That history lesson was probably unnecessary but it is one if my many pet peeves.

I’m sure you are wondering what Machiavelli has to do with this post.

Since Donald Trump appeared on the political scene several years ago I’ve read both conservative and liberal sources that refer to his brand of politics as “Machiavellian”.  It is true that many of President Trump’s decisions and actions take on the autocratic flavor promoted in The Prince, but it is pretty apparent that the President is not at all familiar with other of Machiavelli’s prescriptions for political success.

Here’s what I mean.

Chapter 23 of The Prince (Wooton’s translation) is entitled “How Sycophants are to be Avoided”. Machiavelli wrote:

“My subject is sycophants, who pullulate* at court. For men are so easily flattered and are easily taken in by praise, that is it difficult for them to defend themselves against this plague, and in defending themselves they run the risk of making themselves despicable. For there is no way of protecting oneself against flattery other than making it clear you do not mind being told the truth…. So a wise ruler ought to find an alternative to flattery…”      *Pullulate means to breed or produce freely (I Googled it for you).

Machiavelli thus warned political leaders, even tyrants, not to surround themselves with sycophants or flatterers who offer only praise when honesty is needed. If you have paid attention to the news in recent days you know where I’m headed with this.

As far back as 1992 Donald Trump stated that he requires absolute loyalty and that he “gets even” with anyone who is disloyal. I’m pretty certain this is a fairly outdated approach to management in the private sector because most modern management models favor more democratic and inclusive decision-making. And in the public sector I am absolutely certain that a president (or any other governing official) surrounding him or herself with sycophants or flatterers is an indescribably bad idea. Yet it appears that is precisely what the current resident of the White House has done.

You can choose whether to believe President Trump or James Comey regarding Comey’s claim that President Trump asked him to pledge loyalty, but if true such a demand or request was way out of order because the head of the FBI must be totally independent and absolutely should not pledge loyalty to anyone.

The Comey claims aside, however, we now have videotaped evidence that President Trump surrounds himself only with sycophants. During his first Cabinet meeting on June 12 every single one of his cabinet members pledged unwavering support and allegiance to the President. This after the President opened by stating that “Never has there been a president….with few exceptions…who’s passed more legislation, who’s done more things than I have.” Any advisers not playing the roll of sycophant would have corrected this blatantly false statement. Not a single piece of important legislation has been passed since President Trump took office; almost everything passing Congress up to this point is minor and has no significant impact. Healthcare reform, tax reform, immigration reform, and all other legislation promised during the presidential campaign have made it nowhere although the entire national government is controlled by the President’s party. Rather than correcting President Trump’s false statement, however, each member of the Cabinet obsequiously heaped praise on the him.

Before you begin attacking me for disrespecting the President, remember that I am non-partisan and am independent and have not been a real fan of any American president in a long time. In my opinion, however, the mess that is the current White House is frighteningly dangerous to our republic and our future.

If President Trump surrounds himself with advisers and administrators who are afraid to offer views contrary to his own, the President lives in a protective bubble and believes all his ideas are good. The most successful presidents of recent decades such as Reagan and Clinton (just because they were successful doesn’t mean you must agree with their policies, decisions, or outcomes) surrounded themselves with intelligent advisers who felt comfortable giving their boss truthful information. It is painfully obvious that President Trump takes a different approach and is, consequently, separated from the truth on numerous issues.

To be honest, the behavior of President Trump’s cabinet members would be more understandable in Russian President Putin’s cabinet or maybe in the leadership circle for North Korea’s supreme leader. We would expect it there. But we should be terribly worried about such syncophantic fawning by public servants whose first responsibility is to the American public. Pledging allegiance to the President and an unwillingness (or inability) to offer ideas contradictory to his means his ideas will always win, and at this point I don’t think most of his ideas are well considered or researched. And if anyone with access to the President does miraculously grow a spine I sincerely hope his or her first bit of advice will be to delete his Twitter account because that one thing explains a great deal of his current 36% approval rating and his inability to get things done.

 

Life is not “Unfair”

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I apologize in advance because I may ramble a little. This is unlike my normal political/social posts.

A common 21st century theme is that “life just isn’t fair”.  When someone dies at an early age, when children go without food, when a referee makes an incorrect call, if a lazy co-worker earns a higher salary, or when someone we dislike advances in society we often say “well…life just isn’t fair”. In my mind that is a silly conclusion and in some ways it relieves us of personal responsibility because if things do not go according to our wishes we can blame it on an unfair universe. As my good friend Lara recently said, “As adults, the world is far too complicated to be broken down into fair or unfair”. She argues that the word “fair” is only appropriate for children who do not grasp the world’s complexity.

The platitude is even more problematic when used by those with strong religious convictions who believe a deity is taking an active role in society and in people’s lives. When they say “life isn’t fair” they are directly challenging their deity’s decisions and the role that deity plays in their lives. Would God make “unfair” decisions?

And those without religious convictions accusing life of being unfair are indirectly concluding that there is some universal moral agent making decisions about our daily lives. “Fair” assumes there are some universal rules that equally apply to everyone, and life is “unfair” if I don’t get my fair share. Those rules of fairness must have been established by some power higher than are we.

So it is a silly statement regardless of how it is used or who uses it. Life isn’t fair or unfair. Life is life. As much as people dislike the phrase, “it is what it is”. Life is often random and treats many of our fellow citizens better than others, but that doesn’t mean it is “unfair”.  A significant portion of our living standards or success in life can be attributed to the random nature of our birth; some of us are born into better families, better living conditions, and with better economic opportunities than others. Those are the issues we should be addressing. How can we ensure greater opportunities for everyone?

And don’t tell me that all it takes is hard work. I’m a reasonably smart guy but there are not enough hours in the day or days in the week to make it possible for me to pass a class in physics or tensor calculus. I’m also pretty certain I could have practiced tennis ten hours per day as a youngster and still would not have made it to Wimbledon (curse you, slow-twitch muscle fibers!!). I am and will always be controlled by my physical and intellectual limits.

Also, don’t tell a kid who grew up in the ghetto that all she has to do is work hard to be successful because sometimes that works and other times it doesn’t. Circumstances are random. The presence of mentors or other responsible adults in children’s lives is often random. Some kids have the opportunity to have that one person step in to their lives who makes a difference, others do not.

The truth is that the world has always been random and we don’t like it. We want to assume there are universal rules that apply equally to all.  There are no such rules and that makes us unhappy because more than anything else we want order and “logical” explanations, and we spend our lives trying to create them. So when life throws inconvenient or painful events our way we want to explain  those events away as “unfair”, as something that doesn’t fit with our sense of and need for order.

So:

  • The Paris Climate Accords were not “unfair” to the United States. If they treated us unequally (and they didn’t) it is because we negotiated poorly.
  • It is not unfair that children starve to death every day. We choose to live on a planet that does not distribute an abundant supply of food equitably.
  • It is not unfair that bankers and CEO’s earn much more than lower-level workers. We choose to live in a capitalistic society that treats people unequally without addressing that inequity.
  • It is not unfair if our spouses have affairs or otherwise find comfort with others. The random nature of our relationships or our personal unwillingness to address relationship problems lead some partners to that place. It still isn’t right, but it is not unfair.
  • It is not unfair when people criticize Kathy Griffin for holding a fake severed and bloody head of President Trump when they were silent over lynching videos and photographs of President Obama. Both are deplorable and unacceptable and resulted from poor choices and poor character traits. The difference is that Kathy Griffin  is a celebrity, so her actions drew immediate attention (remember the media attention when Clint Eastwood talked to an empty chair pretending it was Barack Obama?). But it wasn’t unfair.
  • Racism and sexism are not unfair. They are personal characteristics of some portion of society that, thank goodness, most of us deplore.  And institutional sexism and racism are shameful social attributes that society chooses not to address.
  • Global warming is not unfair but it is wrong for my generation to ignore the possibility that our actions may be limiting options for our children and all future generations. Yes, it is a possibility and even if there is only a slight chance we are adversely affecting the environment we should seek alternatives to fossil fuel. But it is not unfair that we aren’t doing so. It’s  just narrow minded.
  • It is not unfair if I study twenty hours for an exam but earn a lower score than someone who studied only ten hours. That student probably has more natural understanding of the subject than do I.

You get the idea. The notion that “life isn’t fair” allows us to blame problems on something other than ourselves.

After all, if life was fair I would have millions of readers!