Monday, July 21, 2014

Right-Wing Lies vs. New Deal Truth (part 9 of 10): "Half the country doesn't pay taxes!!!"

(Image courtesy of Wikipedia.)

In an attempt to cast some middle-class Americans, and all lower-income Americans, as "takers" and "parasites," therefore marginalizing their political voice, right-wing extremists often claim that middle & lower-income Americans don't pay taxes.

The problem here, is that they routinely leave out the words "federal income." The political right screams, "They don't pay taxes!", when they should be saying, calmly, "They usually don't pay federal income taxes." Why is this important? Because middle & lower-income Americans get hammered by an array of other taxes, tolls, fees, and fines, usually at the state & local level. Perhaps their federal income tax relief is an acknowledgement that they are getting battered elsewhere.

Middle & lower-income Americans pay one or all of the following: Federal fuel tax, state fuel tax, sales tax, Social Security tax, Medicare tax, property tax, state income tax, local income tax, and more. And these taxes are more burdensome (i.e., regressive) on lower-income Americans, for two reasons. The first reason is because it takes a higher percentage of their income to satisfy, for example, the sales tax. If a middle or lower-income person buys a $100 air conditioner, the $5-6 sales tax extracts a much higher percentage of his/her income, than it would from an upper middle-class or wealthy person's income. Does that seem fair to you? And that's just one purchase. Multiply this regressive taxation over hundreds of transactions, year after year.

The second reason these taxes are more burdensome on middle & lower-income individuals is because they extract money from their necessity income, whereas, from a wealthy person, it is extracted from his/her luxury income. To put it another way, a middle or lower-income person needs every penny he/she has for rent, car payments (or public transportation costs), groceries, utilities, clothes, etc. Wealthy people have these necessities covered, many times over, and so when they pay a tax it merely cuts into the money they might otherwise use for non-necessity spending, e.g., luxury items like boats, multiple homes, vacations, art, car collections, and gold-plated bathtubs.

In addition to regressive taxation, middle & lower-income Americans are also pummeled with regressive tolls, fees, and fines. A $5 bridge toll, a $60 car registration fee, a $25 parking fine are all regressive, meaning the government is forcing a middle or lower-income person to pay a higher percentage of his/her income to satisfy the toll, fee, or fine. Again, does this strike you as fair?

Interestingly, some countries base their traffic fines on a person's income. This is how it should be. If a fine is intended to deter behavior, e.g., speeding, then it needs to be in proportion to one's income so that the deterrence effect is equal. Bill Gates is not going to be deterred from speeding by a $100 fine (he may, or may not, be deterred for other reasons, e.g., a sense of social obligation to obey the law). However, most low-income drivers will be deterred by such a fine. Once again, does this seem fair to you--that government uses a heavier hand of deterrence on middle & lower-income folks? Of course, we rarely think about these things do we? And that's just how the political right, and the millionaires & billionaires who fund them, want it: Keep the people embarrassed about their lower-income status, and sheepish about the regressive taxes, tolls, fees, and fines that they are forced to pay.

As if all of the above were not bad enough, many super-wealthy Americans hide money in foreign bank accounts, or set up complicated estates & trusts, to evade and avoid taxes. These types of schemes are largely unavailable for middle & lower-income Americans. In this same vein, Corporate America is infamous in its ability to lobby for tax loopholes, and to play states & countries against one another, to secure the lowest possible effective tax rate. Do you think middle & lower-income Americans can play states & countries against one another, to secure lower taxes, the way Corporate America does?

And all this tax evasion & avoidance by many super-wealthy Americans (e.g., 22,000 at just one foreign bank; see next set of links) causes a downward pressure on revenue. In other words, to make up for the lost revenue from the super-wealthy (i.e., less potential for federal assistance), state & local governments are forced to raise taxes, tolls, fees, and fines on middle & lower-income Americans. And, indeed, that's just what they've been doing for the past 30+ years.

New Deal policymakers realized that our tax system is skewed in favor of super-wealthy Americans who can game the system with lawyers, accountants, lobbyists, tax shelters, foreign bank accounts, and political campaign contributions. That's why, when President Franklin Roosevelt advocated for the Revenue Act of 1935, which increased taxes on the super-wealthy, he said, "Our revenue laws have operated in many ways to the unfair advantage of the few" (from The New Deal: A Modern History, by Michael Hiltzik, 2011).

Sadly, we haven't followed Roosevelt's lead but, instead, are back to coddling the super-wealthy. And this coddling is one of the major reasons why poverty is rising and the middle-class is shrinking in America.

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