Tax Myths

There is a fantastic post by Robert Reich over at TPM explaining some of the misleading "truths" about taxes that get bandied about in public discussion. Here is a taste:

3. "The bottom 60 percent pay only 3.3 percent of the taxes!" Misleading again. Most Americans are paying more in sales taxes than they ever have. Property taxes have also been rising at a steady clip. And Social Security taxes have also risen (thanks to the Greenspan Commission), while earnings over about $100,000 aren't subject to Social Security taxes. So-called "sin" taxes (mostly beer and cigarettes) have also skyrocketed. All of these taxes take a bigger bite out of the paychecks of people with lower incomes than they do people with higher incomes. - Robert Reich

This is a critically important point to understand if you are to understand the idea behind a progressive tax system. Because every dollar of income is more valuable the less total income you have (because there is an absolute minimum to income - the "living wage" level of being able to pay for essentials like food and housing), taxes on sales and property disproportionately impact those at the lower end of the income scale, relative to those at the higher end. (Especially when property that is not taxed, like intellectual property, is largely held by the rich.) Thus, taxes are less affordable to low-income citizens, relative to high-income citizens. Therefore, taxes can (and ought to) be higher the higher in income you go, because you can better afford it.

The reason high-income people are high-income people is because of the benefits that accrue from good government, be it a stable currency, or the economic dominance of America that came from our government's actions over the past 100 years, or the fact that contracts are both enforceable and honored, or the simple ease with which employers can hire and fire people. All of these critical factors to increasing incomes come from the power and policies of our government. The wealthier you are, the more you benefit from government-derived freedoms and opportunities. It's only appropriate that wealth be held accountable through taxation.

If this sounds "unfair" to you, consider this - gas is priced by income and no one says a peep. There's a reason that gas costs more in Middleburg than Ashburn.

Robert Reich gets the last word.

6. "We have a patriotic duty to stand up against Washington taxes!" Just the opposite. We have a patriotic duty to pay taxes. As multi-billionaire Warren Buffett put it, "If you stick me down in the middle of Bangladesh or Peru or someplace, you'll find out how much this talent is going to produce in the wrong kind of soil. I will be struggling thirty years later." President Teddy Roosevelt made the case in 1906 when he argued in favor of continuing the inheritance tax. "The man of great wealth owes a particular obligation to the state because he derives special advantages from the mere existence of government."

An acquaintance from law school, now a partner in one of Washington's biggest and wealthiest law firms, explained to me one day over lunch how he and his partners use tax rules to create offsetting taxable gains and losses, and then allocate the gains to the firm's foreign partners who don't pay taxes in the United States. That way, they keep the losses here and shelter their income abroad. I noticed he had an American flag lapel pin. "You're supporting our troops," I said, referring to his pin. "Yup," he replied, entirely missing my point.

True patriotism isn't cheap. It's about taking on a fair share of the burden of keeping America going. - Robert Reich

(With a tip-o-the-hat to DailyKos.)