Thursday, September 6, 2012

The Ever Changing Source of Federal Revenue

Other is the government's money tree 

Over the last 50 years the percentage of national revenue derived from individual income taxes stayed stable; corporate income taxes shrived; excise taxes decreased; and payroll taxes were left to pick up the slack.  It's not because payroll taxes increased in the last 30 years, either. Americans today pay a lower tax rate than they have in a long, long time. 

At the same time though, I am uncomfortable with payroll taxes taking up this much of our total tax burden. Truth be told, I rave against payroll taxes because they are the single most regressive form of taxation. Those who earn $8 an hour are taxed at the same rate as those taxed at $80 an hour. Or at least they would be if payroll taxes on income were not capped at $106,800 on annual income. Everything after that, the more  you make then the less you pay in taxes as a percentage of income. Don't even get me started about how capital gains don't get taxed under payroll, but wages do - therefore creating a tax preference for machines over people to supply labor.

On top of that, payroll taxes on businesses are a tax on jobs. Cutting this tax means more jobs. It's not as if we have so many jobs right now that the market can take this tax without thinking twice about it. 

I want to take a communication's class from Toby

Excise taxes decreasing also makes perfect sense. Free trade creates peace and prosperity. It also creates inequality, ask every country in the world about their increasing inequality in the last 30 years and their will point you to the same culprit. This issue can and needs to be addressed. But not the tax code alone. Overall, the United States has one of the most progressive taxation systems in the world, but also one of the most regressive benefit systems. You get what you pay for.

Economists are opposed to corporate income tax - for good reason and its not because they are a bunch of rightwing freshwater fundamentalists. Rather it is because it is really hard to tell where the burden of the tax falls. What would the company do if the had more revenue? Would they hire more workers? Pay higher salaries? Invest more in plants, property, and equipment? Give their executives giant bonuses? The answer is any and all of the above. Corporate income taxes have a better probability of hitting the middle income worker then they do the top executive - contrary to popular belief. Despite this, there is a very logical reason that we tax them at the exorbitant 35% rate: 1) The government need the money obviously, but also 2) to give them tax breaks for doing what we want them to do. 

Carrots and sticks aren't just for rabbits anymore.

The 35% rate is the sticker price: like at a car dealership or university tuition. Discounts are given out to just about everybody for a whole host of different things. For cars, it is to buy at a certain time or to be negotiated down properly. For a university education, it is to give out scholarships and supply financial aid to those in need. For Corporations, it is to offer incentives to do more research, hire more workers, be environmentally friendly, etc. The government can not force companies to do anything in a free market economy, but they can change the incentives in the market in order to get others to fulfill socially desirable goals - whatever those goals may be.
"You know, the Research and Development Loophole"

People will rant that it is just a giant giveaway to companies, especially when they make record profits - often not realizing the beneficiaries of such programs. Take oil companies for example. Should we eliminate a tax break to oil companies that giveaway heating oil to those below the poverty line in the dead of winter? Yes, the oil company does benefit - but so do the poor. We would have a lot more winter deaths because of bad snowstorms otherwise.

That leaves the individual tax rates, which is a discussion for another time.

No comments:

Post a Comment