Tax season has officially opened, so why not? I truly believe our tax system is killing our country. No amount of spending cuts or tax increases will prevent our eventual (and sooner rather than later) economic meltdown if they are made within our current tax system. Our tax system discourages risk-taking and hard work, it chases wealth out of the country and it intrudes on our freedoms. I wrote about what I see as the solution here. It's called the Fair Tax and while it isn't painless or perfect, it would correct the problems I just mentioned overnight.
But I don't want to go into a huge discussion of the whole system of taxation today. I just want to discuss two aspects that I find from discussions with my friends are very misunderstood.
Corporate Income Tax
This one gets tossed around every election season. It's easy to use it to show the poor put upon middle and lower class voters how much you care about them and how you are going to stick it to their mean, evil, greedy bosses and those greedy CEOs they see on the news. It's one of the most over-used and sad populist themes out there. I despise populism, by the way, and this demonstrates why.
The only source of tax revenue in this country is the citizens of this country. Period. Corporations don't pay taxes, you do. When that congressmen who cares so much about the average working guy raises the corporate income tax, it's the average working guy who pays it, and then thanks the congressman for it by voting him in again. Businesses get their money by selling products or services to you. When they need more money, to pay taxes for example, they simply charge you more for the product or service. But, you say, why don't they just make less profit? Those greedy investors don't need it, they already have a bigger car then me and a pool in their yard to boot! Ok, that also is an option, but who pays for that really? Who are these "investors" who receive the windfall from these corporations' obscene profits? That's you too, pal. If you carry insurance of any kind (home, car, health), if you have a 401k account or an IRA, if you belong to a union that gives you a pension, if you work for a company that offers a pension, if you work for the state or county or city or federal government and have a retirement plan, if you have a savings account then YOU are the greedy investor. The lion's share of stocks in this country are owned by mutual funds, banks, insurance companies and retirement and pension plans. Individual investors are a small slice of the pie. When companies cut their profits to pay taxes, you have less money for your retirement or pay more for your insurance. In the end, it's the "average Joe" who pays ALL the taxes.
If you work at all you pay the Social Security and Medicare taxes, if you make enough you pay income taxes. You see those. But you also pay all the other taxes you don't see, the ones that you think are levied on "the other guy." If you buy a loaf of bread at Food Lion you are paying the corporate taxes for Food Lion, the bakery, the distributor, the farmer, the maker of the trucks it was delivered on, the makers of the ovens, the makers of the tractors, the seed vendors, the silo company, the agri-chem outfits that made the fertilizer and pesticides, the vendor of said chemicals, the ad agencies that promoted the sales of the trucks and ovens and seed and chemicals and bread and the list goes on. You paid the gasoline tax on every gallon that was burned in the production and delivery of that loaf. You paid the environmental taxes on the diesel and the extra mileage taxes on the 18-wheelers. You paid for compliance with every regulation from seed to loaf and from bolt to truck. You paid all of that, not Food Lion or Merita.
Corporate income tax is a lie and a deception. And the American people fall for it every single time.
Talk about lies and deceptions. This is the be all and end all.
If you work, you pay the Social Security tax. Call it payroll tax or FICA or whatever you like, you pay 12.4% of your income below $113,700. If you are self-employed you get this, but if not, you're probably calling me a liar. The 6.2% you see come out of your check if you work for someone else is only half. Your employer pays the other half, but like the corporate tax, this isn't coming out of your employer's pocket, it's coming out of yours. It is part of the cost of employing you and as such is part of your compensation for whatever work you do. In order to continue employing you, you must provide more value to your employer than the total cost of your employment, be that taxes or health insurance or benefits or straight up pay. That is how businesses work. If your employers cost of employing you go up, you need to provide that much more value to him in order for it to be worthwhile to keep you on.
Ok, what happens to that money? I recently heard some friends, and very smart ones, blow off the recent increase in FICA taxes as not a big deal because it was going to social security and the program needs it. I'll admit to being a Libertarian and as such not a fan of government programs of any type. I see Social Security as a trade off of freedom for security and I don't like it. Having said that, I'll admit that Social Security is one of the most useful and used programs in our whole government. It offers real help to real people, both as retirement income and dependent income in cases of a parent dying. It does real, measurable good and I am fine with the majority opinion that we keep it around in some form. But let's get rid of this fiction that there is such a thing as a Social Security Trust Fund.
When you pay the Social Security tax it goes to the Social Security Administration. It is used to pay benefits and any extra, there is very little now but in the past there was a lot of extra, is used to purchase US Savings Bonds. This is where the fiction comes into play. People who know better would have you believe that money invested in bonds actually exists somehow waiting to be spent when the system needs it. It does not. Every penny not spent by Social Security is spent by the rest of the government. It's gone. What we have is IOUs from the US government to the US government.
Look at it this way. You have $100, $50 in a savings account and $50 in a checking account. You know you need that $50 in savings to pay a bill at the end of the month, but you REALLY want to buy something that costs $100 right now. So you take the $50 out of savings, put it in checking and buy your new toy. You write yourself a note reminding you that you need to put that $50 back in savings and go about your merry way. Come the end of the month, what do you have? Paul Krugman and his ilk would have you believe you have $50 in savings because you told yourself you owed it to yourself. But unless you found a way to replace that money between the time you spent it and time you needed it, you don't really have anything but a worthless note. That's what the Social Security Administration does. It loans it's extra money out not to outside agencies like a bank would, it loans it to itself. If you had loaned that theoretical $50 to your friend, at the end of the month you'd have an asset. You can enforce a loan agreement and get your money back when you loan it to another. But you can't when you loan it to yourself. A loan from the US government to the US government is not an asset. Both the Social Security Administration and the general fund have the exact same revenue stream, you.
The money you pay into Social Security is spent on benefits, yes, but also on smart bombs and drones and Obama phones and to pay the dude who tells you how much water your toilet can use. When the money coming into Social Security doesn't cover the benefits, and that will happen in the next 10 to 15 years, we will need to either take more money from the American workforce or stop buying things or both. We don't have a savings account and no extra money taken today will ever go into one.
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