Larry Bradley's Weekly Ezine #9
1. The Truth about Taxes
Several friends sent me an email recently about taxes and tax rates. You may have gotten the same one. I went to one of my expert sources to be able to inquire about the accuracy of the email. In a moment, I’ll show you the body of one of the original emails and my reply. The bottom line is this.
We are asking ourselves the wrong questions. We should not be asking if a candidate will raise or lower our taxes. We should be asking what their plan is to reduce both annual deficits in the Federal Budget and the National Debt overall.
One of the emails I got had the following link to it.
The Tax Foundation - Comparing Income Taxes under Bill Clinton and George Bush
When you go to the link, you end up at the Tax Foundation’s Policy Blog. The blog entry has links to several emails comparing tax rates between the Clinton and Bush administrations. Based on the feedback I got from my expert source, here is my reply to the email. The original question I was asked was, “Is this for real?”
Thanks so much for sending this to me. I really appreciate it. The answer to your question is yes and no.
What you see here is a sleight of hand like a magician or a pickpocket might use. Income taxes represent only a third of the federal taxes you pay, but they are the ones most people focus on because they are not sophisticated enough financially to do the other calculations needed to show the impact of the other taxes on their finances.
I consider my book to something of an executive summary of our ills and I recommend other books to provide the details. Among those is Free Lunch, as well as Perfectly Legal, both by David Cay Johnston. I brought the “Internet table” referred to by the Tax Foundation to David’s attention. Among the points in David’s reply was that no one got a tax cut. The money everyone got was borrowed money and added to the national debt.
I find amusing these discussions of which party is going to raise your taxes vs. which one will cut them. Both ignore the reality of the national debt. I knew a couple in Virginia once where the wife (happened to be the wife, could just as easily been the husband) was the one who ran the finances. The man had a good job and thought things were going well. Then the wife dropped the bomb one night and let him know she had run up $30,000 in credit card debt buying things for the house and the kids. Same thing was recently revealed about one of the Springfield, MO city councilmen. He’s divorcing his wife.
Same thing applies to us nationally. The national debt is $9 Trillion. That’s $30,000 each for every man, woman and child in this country. A family of four owes (by that measure) $120,000. The median income after taxes is about $3200-3500 a month. If that family started trying to pay for the debt over 20 years they would pay (not counting interest) $500 a month out of their budget. What kind of impact do you think that would have on our economy?
So, the question for all of us is this. Are we going to continue to concern ourselves with who’s going to be the next American Idol, or any of the other petty things we are distracted by? Or are we going to face the reality of this financial train wreck we’re headed for while we still have time to do something about it?
So, just to clarify this one more time, none of us have had our taxes cut. Our taxes have been postponed and allowed to accumulate as the National Debt. I hope this will help clarify any future discussions you have about taxes. Oh, and remember that all the costs of the war/occupation are adding $12 Billion a month to the National Debt.
2. Sex and Poverty
The blush and outrage factors have been high reading the Omaha World Herald the last three days. Sunday’s front page article was about a 31 year old grandmother (yes, grandmother, unwed at that) expecting her 12th child. The grandmother does not use birth control because of the religious teachings of her own mother. How much tax-funded support the grandmother got from the state was discussed in some detail.
Monday’s front page had an article about Planned Parenthood’s web site being deemed too explicit for the taste of Nebraska’s three congressional representatives.
Tuesday’s editorial section has commentary by local columnist Mike Kelly, as well as an editorial cartoon by Jeff Koterba. The cartoon has a drawing of a pregnant teenage girl and an STD infected teenage boy alongside an open laptop computer with the words “Web Site Containing Sex Ed Info” linked to it. Koterba’s caption reads, “Guess which one certain members of Congress find most offensive?”
You can see all of this at www.omaha.com .
Obviously, a series of articles like this raises a whole host of issues about personal responsibility, education, poverty and their impact on politics and government. I write about many of them in a couple of chapters of my book. Given the length of this week’s message I won’t rehash them here. I will say this. Is part of our problem the fact that we are no longer an agrarian society and can’t observe first hand the result of farm animals copulating? Were we better about educating our children when sex was so visibly demonstrated for them in the barnyard? I wonder.
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On The Truth about Taxes.
You say: "So, just to clarify this one more time, none of us have had our taxes cut. Our taxes have been postponed and allowed to accumulate as the National Debt."
This is a nice theoretical argument, but I doubt if it would hold up on Main Street. Suppose I make about the same amount each year, and one year, the tax rates are lower for me and I actually pay less taxes on April 15. That is a tax cut. There is no other way to look at it.
Then, again with steady income, if tax rates are raised for me, and I have to pay more taxes on the next April 15, that is a tax increase.
I know, there are payroll taxes and medicare and social security taxes and self-employment taxes, but the sleight of hand here is the claim that if I pay less taxes on the same income, it is not a tax cut.
And if reversing previous "Tax Cuts" results in a higher tax bill for me on the same income, that is a tax increase.
The discussion of which candidates will raise or lower taxes is very important to me, because it hits me right in the wallet. I don't mind paying taxes for important government services, but I have zero confidence in the ability of those talking tax increases to be wise stewards of my money.
The other part of this discussion is the national debt. You say we have not had a tax cut, we have accumulated Federal Debt. I say we HAVE had a tax cut, AND we have accumulated Federal Debt. Maybe.
If taxes would be raised with the express purpose of paying off Federal Debt, what are the chances of the debt actually being paid? Or would any extra revenue be diverted to pet projects, earmarks, etc. You can probably guess what I think.
We clearly have a problem in what our national government owes, but there are other ways to look at the Federal Debt. My first home mortgage had a monthly payment of $126 a month. We wondered if we could make the payments. As time went by and there were pay raises and inflation, the $126 didn't seem like so much. In 20 years, maybe the $500 a month per family to pay down the Federal Debt won't seem like so much.
Another aspect of Federal Debt is the potential growth of our economy. As the tax base increases, or decreases, tax revenues are affected directly. Of course, any objective analysis of tax policy, increases or decreases, should consider this factor.
So, I say we definitely have had tax cuts, AND we have accumulated our debt.
Just my opinion.
Reply to this
Jim,
Thanks for your comment.
Think of things this way. If elected officials are behaving responsibly in running our government, then they are taking in sufficient revenue to keep up with expenses. They refrain from borrowing so much money that the repayment of the debt will not be a significant burden on the tax payers.
A true tax cut would mean that those officials have found a way to lower the operating costs of government and have passed on the resulting savings to the tax payers.
Reducing tax rates, continuing to spend at the rates you spent before, and funding that spending by borrowing to hide the true burden being imposed on tax payers is misleading. Some might even call it criminal.
If your spouse tells you they don't need as big an allowance to pay the household bills, then your expectation is that less of your money is going to household bills. Should you find out your spouse is spending every bit as much as they spent before, is financing the expenditures on credit cards, and has run up a considerable debt on those cards, you would be upset.
I've known of that happening in real life. We're having that happen to us in real life with our Federal Government.
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