Unseriously unfair - REALLY?

In 2008, the top 1% paid 38% of all federal income taxes, and the top 5% paid 58%.

Unseriously unfair

www.economist.com

 

One of Barack Obama's clearest themes in his speech today laying out his latest deficit-reduction plan was that rich people ought to pay more in taxes.

 

There are many fallacies in the Economist argument. 

First, most wealthy people make a lot of their money through capital gains, and thus only pay a 15% marginal tax on the largest share of their income, because we tax capital gains and dividends differently. And the Social Security and Medicare taxes are not applied to so-called unearned income. So the guy flipping burgers at McDonald's pays his 19.9% in Social Security and Medicare taxes, while the wealthy pay “0”, that’s right ZERO, on their "unearned income." (Yes, I know some will argue that McDonald's pays half of that tax, but I would argue that it is benefit in lieu of taxes, so if McDonald's wasn't paying that 9.95% of payroll, they could and would pay their employees more, but we can have that argument, later.)  

So, higher incomes start out with an almost 20% lower tax rate.  So, in 2010, the average working family pays a marginal tax rate of 44%, 25% in income tax and 19% in Social Security and Medicare taxes.  But families making over $373,000 only pay a marginal tax rate of 39.9%, 37% in income tax, and 2.9% in Medicare taxes, as they are no Social Security taxes on income over $108,000. 

That’s not fair!  Even by the Economist's standards. 

I think we should eliminate the distinction between earned (worked for) income, and unearned (clipping coupons) income.  Maybe we should try completely scrapping the distinction, and tax all capital gains and dividends at the income tax marginal rate, adding a 10% penalty for short term capital gains, if one believe that it is necessary, and I do, to discourage efforts to manipulate stocks and the market that result short term gains but long term pain to the vast majority of us.  Think September 2008. 

And one has to remember. The first $50,000 anyone earns, we all pay the same tax rate on it. Higher incomes pay a higher marginal rate on their additional income, only.  Thus, someone who makes $108,000 and someone who makes $250,000, they both pay the same taxes on that first $108,000.

That's fair.

But, since the marginal tax rates don't start to kick in to $373,000, that next $265,000 is taxed very low overall, as there are no Social Security taxes on it. 

That's not fair!  Even by the Economist's standards. 

And the top 5% of income represents 60% of all income, so at that rate if they are currently only paying 58% of the taxes, they aren't paying enough. 

That's not fair! 

And if you really want to fix social security, you apply the 17% Social Security tax to all income, earned and unearned, and you have a solvent system for at least the next century, and probably forever. 

Right now over 50% of the income in the US doesn’t pay any Social Security taxes. 

That’s not fair.  Even by the Economist's standards. 

Let's go back to the income tax rates and deductions from 1950, and index them all for value of those dollars versus the value of today's dollars.  Most working families of four, under those circumstances, would pay zero in federal taxes. 

Remember the 1950s? The times for a booming economy, were the American dream was alive and well for all, and our deficits were minimal.  Yes, those 1950s, the ones that Reagan used to "dream" about, the days of Ozzie and Harriet and Fat her Knows Best.  Those are the days that many of the Republinuts say they want America to return to:  The days of 90% marginal tax rates on the upper income of people.  Back to the days when corporations like GE and others, gladly paid their fair share of corporate taxes, and didn't have an army of lobbyists to see that the tax code was written in their favor.  Back to the days when corporate taxes were 60-70% of the total taxes paid and individuals only paid 30-40% of the total tax bill. 

Oh yes, I say, let's make life and taxes fair for more, and return to the good old days, and tax all income, making no distinction of if you are flipping burgers or cutting coupons.  And make all taxes apply to all income, with Social Security and medicate taxes being applied to income, making no distinction between worked for and coupon clipping.