Taxes: How Much Is Too Much
by: Jeff Ostler
January 14, 2013
"The power to tax, involves the power to destroy"
Chief Justice John Marshall
There's been a spirited debate going on in Washington as well as in living rooms
across America: How much in taxes should American's pay into the Federal
Government to fund its spending? I'll try not to take sides; rather, I'll give you the
facts related to what's currently happening.
The President and the Democrats have argued that tax rates on the wealthiest
Americans should rise to help reduce our budget deficit. The Republicans argue that
job creation would be slowed by increasing taxes on those who create jobs. The two
parties came together and agreed to increase the top tax rate from 35% to 39.6%--the
highest rate under the Clinton Administration. This new rate will affect couples
making $450,000 per year or single taxpayers earning more than $400,000. They also
agreed to raise the capital gains tax.
Here's the problem: This tax increase is expected to raise $620 billion over ten years
(remember, whenever you hear a "dollar" figure thrown around in Washington, it's
always a ten year figure). If my math is correct, that's only $62 billion dollars a year.
Our deficits for the past four years have been over $1 trillion dollars each year. How
is $62 billion dollars a year going to put a dent in this deficit? Let me give you an
annual figure to think about: Let's say we were willing to trash the Constitution and
confiscate every dollar earned above $250,000 annually from all Americans. Not "tax"
it...just take it all. That would raise approximately $860 billion dollars for the
year....still not enough to balance our budget! Let's say we were willing to trash the
Constitution even further and confiscate all of the wealth from everyone who makes
more than $250,000 per year. I'm not talking about taking all their income above
$250,000 per year.....I'm saying that we take all of their assets; they're bank accounts,
stocks, bonds, all of it. We would confiscate everything Bill Gates, Warren Buffett,
Donald Trump, and any other person who makes more than $250,000 annually. Guess
what: You could run the Federal Government for a few months.
So here's the secret that the politicians don't want to tell you: They must raise taxes on
everyone. The numbers just aren't there by taxing upper-income taxpayers. It's either
that or cut spending. The Obama administration has not shown any serious
commitment to spending cuts so far, so I see no reason to believe that will change.
In 2011, social security payroll taxes were lowered to 4.2% from 6.2% to put a little
more cash in worker's pockets to help stimulate the economy. As part of the new tax
deal that became effective the 1st of this year, these taxes went back up to 6.2%,
catching the vast majority of Americans off guard. Even though they were paying
6.2% before, most Americans see this as a tax increase that they had no idea was
coming. For a middle-income worker earning $50,000 per year, this would reduce his
or her paycheck by around $45.00.
For all that's been done, there are still two fundamental problems that are being
"kicked down the street." First, we still have a huge annual deficit. In fact, the Obama
Administration is forecasting trillion dollar deficits for years into the future. Second,
we now have a national debt at $16.4 trillion dollars...more than $55,000 for every man,
woman and child in America. We're currently at our constitutional debt limit and
President Obama and the Democrats want to raise the limit, but the Republicans are
threatening not to go along unless the Democrats agree to spending cuts.
Greece recently went bankrupt and had to be "bailed out" by other European nations.
In exchange for the bailout, they had to agree to austerity measures to reduce
spending on their generous entitlement programs. People took to the streets and
rioted. Can that happen here?
Greece had a national debt of approximately $500 billion dollars. If you spread that
out across its 11,000,000 citizens, it amounts to roughly $45,000 per citizen...and their
economy collapsed. The United States debt is already $55,000 per citizen and growing
fast. How fast? I remember when our 40th President, Ronald Reagan, took office. We
had a national debt of $282 billion dollars....an amount I thought was outrageous.
Now, just four Presidents later (yes, it's really only been four), we have a national debt
of over $16 trillion dollars, and growing by $1.2 trillion dollars per year.
Many Americans don't believe this is a real issue; they believe we'll never pay it back
and we can keep borrowing as much as we want. Currently, the interest alone on this
debt costs American taxpayers hundreds of billions of dollars per year. Last year, we
paid just under $300 billion in interest on the national debt. It was more than $400
billion in 2011, but interest rates have fallen which helped out. However, if rates were
to rise (and they will), watch out. The chart below shows the projected interest
payments on our debt for the next ten years. This chart was created by the
non-partisan Congressional Budget Office (CBO).
In ten years time, we're looking at interest on our debt being the single largest
expenditure in the federal budget....larger than Social Security payments; larger than
Medicare and Medicaid; larger than defense spending! Where will the government go
to get more revenue? The wealthy are tapped out....we took all their wealth and only
funded the government for a few months.
Obviously, everyone is going to have to pay more; not only will the rich and
middle-class pay more, but so will the working poor. Maybe not in federal tax rates,
but there are so many other ways our federal, state and local governments tax us that
many people never think about. There are direct taxes like sales taxes on purchases
and there are indirect taxes like parking meter fees.
Let's take a look at the obvious and not so obvious taxes we pay to federal, state and
Federal Income Tax 10%-39.6% of income
State Income Tax 0%-13%of income
Local Income Tax 0%-3% of income
State and Local Sales Taxes 6%-11% of purchase
Social Security and Medicare Payroll Tax 7.65% of income
Property taxes Based on properties value
Capital Gains Taxes 23.8%
Dividend Taxes As high as 39.6%
Inheritance Taxes Up to 55% of value
Gift taxes Up to 55% of Value
Luxury Taxes Varies
Hotel/Motel Taxes Varies
Rental Car Taxes Varies
Excise Taxes on gasoline 18.4 cents per gallon
How about dog licenses, fishing licenses, hunting licenses, marriage licenses, building
permits, well permits, septic permits, school taxes, and commercial driver's licenses?
These are taxes. What about the $10 security fee we pay with each airline ticket to
fund the TSA? That's a tax. Have you ever looked at your phone bill and seen charges
for telephone federal excise tax; telephone federal universal service fee; telephone
surcharge taxes, etc?
What about indirect taxes such as toll booths, parking meters, toll bridges and toll
tunnels? How about IRS penalties, traffic fines, parking fines and court costs? Aren't
these taxes? Chicago just raised its parking meter fee to $6.50 per hour. Think about
it: You want to park your car along a city street paid for with your tax dollars. The
city requires that you pay $6.50 per hour for the privilege, and if your meter runs out,
you can expect a $60.00 fine. Isn't all that a tax?
Did you know that corporations that pay dividends to their shareholders get double
taxed? Here's how: Let's consider a fictitious corporation that manufactures widgets.
At the end of the year when all of its bills are paid, the corporation has $1 million
dollars left over as profit. The corporation plans to give this $1 million to its
shareholders: the owners of the company. Not so fast. Before this can happen, the
corporation most first pay its corporate income tax of 35%.....the highest rate of any
industrialized nation. So the million dollars in profit gets reduced after sending
$350,000 to the federal government. Now the corporation has $650,000 left over to
send to its shareholders which it divides out based on each shareholder's number of
shares. Here's where the double taxation comes in. Each shareholder who received a
dividend, must now report this dividend income on their tax returns and pay a tax
based on their tax rate from 10% up to 39.6%. The government, in effect, has taxed the
same profit twice. The government gets more of a corporations profits than anyone
Back to my original question: How much is too much? If you look at all the combined
taxes I've outlined, the average middle-class American is already spending more than
half of their incomes in taxes and government fees. Some wealthy Americans are
spending as high as 70% of their income in taxes. So how much is too much?
Governor Jerry Brown of California convinced Californians that the state needed a
massive tax increase to survive. The vast majority of the tax increases will be paid by,
you guessed it, those making over $250,000 per year. What makes California
lawmakers so proud of this new tax increase is the fact that the voters voted for it.
Here's the problem: All voters had an equal vote. It only seems fair to me that if
you're going to increase taxes on those making more than $250,000 per year, than only
those affected should get to vote. The old saying that 'if you're gonna rob Peter to pay
Paul, you can always count on Paul's support' rings true here.
The truth is, we're in a mess. When politicians make it to Washington they change.
Washington corrupts. Power corrupts. Special interests corrupts. Our Government is
corrupt. What do we have for our $16 trillion dollars in debt? What does government
do well? And now we're beginning to implement the most massive new entitlement
program since social security: Obamacare.
I don't want my government to borrow any more money. I fully support a
balanced-budget amendment, and don't believe we will ever balance our budget
without one. Politician's have proven that they can't be trusted to reform the
Washington culture. I want to be clear that both parties are equally to blame for this
mess. I'm going to call on Washington and all my fellow taxpayers to push for a
balanced budget amendment. I've started a petition on the White House website
asking for a Balanced Budget Amendment. Please sign it by linking here:
Remember, if we get 25,000 signatures, the White House must respond. If for no one
else, let's do this for our children.
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