Friday, January 27, 2012

Taxes and Fairness ... A Dumb Idea

The top 1% of earners pay 37% of federal income taxes.
The top 5% of earners pay 59% of taxes.
The top 10% of earners pay 70% of taxes.
The top 25% of earners pay 87% of taxes.
The top 50% of earners pay 98% of taxes.

According to my rough math, if the top one million earners, representing considerably less than 1% of taxpayers, each "donated" an additional $1 million to our federal government, that would equal $1 trillion of "new" money for the government to spend, invest or waste on behalf of the people. In other words, $1 trillion of greedy fat cat MOM would voluntarily become government OPM.

Then our trusted government officials would act as the responsible public servants they are. And soon we'd be well on our way to both a full and complete economic recovery and end up with a fair society for all. Right?

Accordingly, here's the question to ponder. What would the government do with that extra $1 trillion to make our country's long term economic and employment prospects better?

What would the tax system, the entitlements system, the energy system, the regulatory system and the educational system become, assuming improvements would be made?

In other words, would our politicians commit to revising the currently broken tax system, and if so, what would they propose? Same with Entitlements, Energy, Regulations and Education.

What's the comprehensive plan to solve our financial dilemma and get us out of this mess? Can they even put one together?

Today there is no such plan. Not even a comprehensive proposal. Just empty rhetoric and name calling.

Let's consider some facts.

Here's the IRS story on who pays what in taxes. You can decide what's fair, but this is the way things stand today. {AGI represents the group's adjusted gross income.}

Table 1
Summary of Federal Income Tax Data, 2009

Number of Returns with Positive AGI

AGI ($ millions)

Income Taxes Paid ($ millions)

Group's Share of Total AGI

Group's Share of Income Taxes

Income Split Point

Average Tax Rate

All Taxpayers








Top 1%















Top 5%















Top 10%















Top 25%






$ 66,193.00









Top 50%






> $32,396


Bottom 50%






< $32,396


Source: Internal Revenue Service

If government received $1 trillion in unexpected and unowed tax receipts, would they proceed to waste it, or would they spend it wisely as fiduciaries of the public's funds and trust?

Stated another way, would the result be permanent change which would benefit our country and its citizens over the long haul? I doubt it very much.

So why give them any more money--even if the fat cats can afford it--unless and until government tells us what they plan to do with it?

My opinion is that we can't trust our elected officials to even try to do the right thing. The logic of OPM and politics says just that, and so does much of the evidence from our recent $800 billion "stimulus" program.

Your Tax Dollars Not at Work reviews the new book "Money Well Spent?" and supports the position that government waste results when government has more money to spend. The book describes many wasteful boondoggles associated with recent efforts to "stimulate" the economy through $800 billion in government spending.

The reviewer says this:

""Money Well Spent?" would make a compelling book-club selection for politically oriented readers, who could argue over which recipient of taxpayer funds was the least deserving. The failed solar-panel maker Solyndra has attracted a federal investigation, but there are other worthy competitors for the title. Mr. Grabell (the book's author) reminds us of the $783,000 grant to study why young people consume malt liquor and marijuana, and the $219,000 to study the "hookups" of college students. (Perhaps these research efforts could have been combined.) Then there is the $92,000 spent by the Army Corps of Engineers "on costumes for mascots like Bobber the Water Safety Dog."

Democrats said at the time of the bill's passage that it included no earmarks, or spending specially targeted by individual politicians, but this claim turned out to be false. The Senate's closed-door negotiations over the bill were described for Mr. Grabell by Mel Martinez, a Republican senator from Florida who has since retired: "It was essentially about going around the table and instead of talking about the merits of the bill, it was what goodies they could get, what pet projects and the value and the price of it." Mr. Martinez was appalled and ended up voting against the bill.

After the act was signed into law, Vice President Joseph Biden became a stimulus cheerleader and urged the local politicians who would be receiving much of the money not to waste it on "stupid things." He was asking the impossible. But what is perhaps most striking in this tale is not the waste of particular boondoggles but the program's failure to meet its own goals.

If the aim was to create jobs, why were the funds not specifically directed to areas with the highest unemployment? If the aim was to underwrite vital construction projects, why did an Alaskan village called Ouzinkie, population 167, receive a $15 million airport? "By contrast," Mr. Grabell notes, "major hubs such as Newark and Las Vegas didn't get any stimulus money. Atlanta, the busiest airport in the world, received nothing in the first round of grants."

With money carved out of the stimulus for Democratic constituencies such as government workers and for various anti-poverty programs, only about 10% of the spending, or $80 billion, was devoted to infrastructure—and very little of that total went to critical work. The political necessity to fund the "shovel-ready" projects promised by the president meant that money didn't go to the bridges most in need of repair but to jobs that could quickly clear the thicket of regulatory permitting. Repaving roads was a typical activity; less than 12% of the infrastructure spending went for work on bridges."

The reviewer concludes as follows:

"The Obama administration justified its spending blowout with an economic analysis that claimed the bill would keep unemployment from rising above 8%. More than two years later, in the spring of 2011, the rate was still above 9%. The stimulus had failed on its own terms; the promised green-jobs boom never materialized. Mr. Grabell . . . also argues that infrastructure spending helped put a floor under the construction industry and that the government funded some useful projects. He seems to accept John Maynard Keynes's view that government spending revives stagnant economies by increasing aggregate demand. "The Recovery Act failed to live up to its promise," Mr. Grabell says, "not because it was too small or because Keynesian economics is obsolete, but because it was poorly designed."

Of course it was poorly designed—politicians designed it—but given the resulting joblessness, Mr. Grabell should hardly give Keynes a pass. Summing up the stimulus, Mr. Grabell concludes: "The nation might never see such an extraordinary and flawed endeavor as the American Recovery and Reinvestment Act again." Taxpayers can only hope."

So here's the deal, my fellow Americans. Shall we trust the politicians to do better this time?

Raising taxes will give them the funds to do so. And besides, we're only talking about the fat cats paying more. It's only "fair." Right?

If we the people want the government to spend more money and take another swing at fixing our economy, here's a dumb idea with respect to how we could raise the funds for another try without growing the national debt or annual operating deficits.

First, we get all the small ball players temporarily out of the income tax paying community. We'll give 75% of our fellow taxpayers a free income tax lunch for a year.

And we'll do that by asking the top 25% of earners, who already pay 87% of income taxes, to agree to pay the remaining 13% for one year. By so doing, 75% will pay zero.

Then we'll ask the top one million income earners, aka the greedy fat cats, representing considerably less than 1% of total taxpayers, to each come up with a one time "fairness" payment of $1 million. That will get us $1 trillion to give the politicians to spend wisely on our behalf.

Or if raising the $1 trillion that way won't be possible, we'll ask people like Buffett and Romney to each pay $2 million or more. Or we'll limit the total fat cat contribution to $800 billion, an amount equal to that of the last stimulus package. In any event, we'll get the necessary money from the fat cats.

In exchange, we'll merely insist that the current government present us with an overall credible plan to get our financial house in order. It's only "fair."

And that credible plan must be one that requires all taxpayers to pay future taxes in an amount that's "fair." Maybe the bottom 75% can pay 37.5% of the total or some such thing. Whatever's fair, for sure, but we'll start at the bottom 75% and not at the very top of the income ladder. We'll get to the greedy fat cats later.

In other words, the government can tell us what's fair for 75% of the people. So that's the starting point of the "plan," along with what the politicians intend to spend. Then 75% will know about how much taxes they'll owe. We'll get to the remaining 25% now.

Then the top 25% of earners will pay the rest. And of the 25%, the government will then tell us what's fair for 80% of them, or 20% of the total taxpayer base.

That leaves the top 5% earners, and they'll pay the rest. And the top 1% can pay 80% of that amount.

If we were to do this, or something similar, all taxpayers would want to know up front how much of MOM our government is going to spend as OPM, as well as on what they intend to spend it.

If 75% of the people are going to pay something approaching 37.5% of the total government expenditures, they'll take an active interest in government spending. Then we'll be able to get government spending under control. But not until then.

This all-in requirement will cause we the people not to pay more taxes than required to operate the government effectively and efficiently.

As it is today, we get limited taxpayer involvement and concern about how our money is spent and how much of it is being wasted.

Here's the deal. Until government leaders become accountable and taxpayers, large and small, become interested and informed about what government is doing with our money, we'll continue to have runaway government spending.

As a result of continuing that wasteful and chaotic approach to government, the U.S. economic, employment and educational outlook will remain weak.

That we can't afford. It's far too expensive. And so utterly unnecessary, too.

Thanks. Bob.

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