Federal Income Taxes Really Do Get A Bum Rap, Here are Some Reasons Why. [243*1]

FEDERAL INCOME TAXES DO A LOT OF GOOD BUT GET A BUM RAP INSTEAD. There is a myth generated by the Conservative propaganda machine that federal taxes are inherently bad, in fact, some want you to believe they are evil. They want you to believe that federal tax dollars do little good but line the pockets of donors or are wasted on helping those who can't help themselves(the "can't" is quickly reclassified to "won't" as soon as one case of fraud is found). There is this assertion that federal taxes can't create jobs; and the list goes on. I am here to tell you, all of these bumper-sticker, sound-bite, howlings regarding federal taxes are a bunch of b... malarkey!

There are many ways to debunk the Conservative's message and I will use three in this hub. But first, let me go over my standard pitch about taxes and their uses. Our government exists to fulfill the duties laid on it by the Preamble of the U.S. Constitution in its contract with the People of America. Among other things, it is to provide for the common Defense and the general Welfare, two items mentioned in both the Preamble and Section 8, Article 1. The body of the Constitution goes on to create the government and establish the mechanism by which it will operate. It also tells how Congress is to fund the government to carry out the Preamble's duties. It does so in Article 1, Section 8, Clause 1 - "... to lay and collect Taxes, Duties, Imposts, and Excises ...". Further, as a consequence of Section 8, and many other sections, Congress will pass laws in the furtherance of the goals of the Constitution and leave it to the Executive branch to implement and maintain them using the funding provided by Congress.

What these laws do is create a method by which certain goods and services, such as national defense or the Interstate Highway system, can be provided back to the People. In the end, what these goods and services will be are determined by the People through their elected Representatives. All of these goods and services, as well as the salaries of the federal employees hired to manage and provide the same are paid for through taxes levied on the citizenry and businesses of America; this is what your federal tax dollars are paying for, the goods and services You ordered the federal government to provide, along with the overhead costs that accompany such requirements, of course.

Case #1 - Buying the Next Generation Fighter (NGF) Aircraft

(For those of you who get bored with numbers, you might want to jump down to the bottom line and trust how I came to that conclusion.)

THE FIRST APPROACH I WILL TAKE IS THE SIMPLEST TO UNDERSTAND. the acquisition of common Defense. Everyone, I hope, agrees this is a function of the federal government and, so long as it is needed and not wasteful, should be funded via income tax revenue. Well this "simple" example debunks several of the Conservative myths, one being that "government doesn't create jobs"; Malarkey! (I am taken with that term, if you can't tell.) The federal government absolutely creates jobs both in the private and public sectors and here is how (hang in there).

Let us assume that the Threat has changed and the Air Force now needs a NGF to supplement its current fleet of fighter aircraft. Assume further the initial price tag for the first 200 of these beauties is going to be $120 billion over the 10-year development and production cycle. Where does this money come from?

For this, let's further assume for the moment the debt and deficit are zero while spending is status quo and all, even the most Right-wing Conservative, agree can't be cut any further. Consequently, with this set of constraints the $120 billion must either be borrowed or taxes must be raised; we hate deficits and debt, so the decision is to raise taxes, it is for national defense after all.

[ASIDE - why am I making all of these assumptions? I do it to help control for all of the variables except the one we are considering, taxes. By making these assumptions and holding them constant, I don't have to worry about any changes in them hiding the results I want to show you. This methodology works fine so long as the variables being held constant would have no effect on how all of the variables interact with each other, except for the magnitude of the results. But you might ask, is the situation I am setting up unrealistic? In this case it is not for America has experienced this many times before. Nevertheless, even if it were unrealistic and might not ever occur in real life, it doesn't make any difference for it is the sequence of events I want to show you, not any particular outcome.

So, let me make a couple more "simplifying" assumptions; 1) we are at "full-employment" with the unemployment rate somewhere around 4 - 5% and 2) economic growth is at the sustainable level of 3% - 3.5%/year. What these assumptions accomplish are to eliminate outside economic forces on what choices are made.

OK, with that established, let us look at what happens with your tax dollars as the federal government acquires this Next Generation Fighter. To do so, I will use accounting tools like Balance Sheets and Income Statements to show the flow of your cash dollars.

Cash Flow

OBVIOUSLY, THIS IS GOING TO BE a very simplified picture of what really happens, but I hope it will in sufficient detail to let you see what really goes on with your tax dollar.

YEAR 1: 1) Congress will appropriate money to the Air Force to design and produce the NGF and 2) taxes will be raised to pay for it, $12 billion.

I am going to represent this funding through a series of entries into my "accounting" books set up for both the Private sector and the Public sector. There will be two books (I am being very liberal with my terminology here), one for things that appear on a Balance Sheet (assets and liabilities) and one that appears on Income Statements (income and expenses).

APRIL 15, 2013: So, the first entry you will see is an "Expense" for the Private sector of $12 B and in "Income" for the Public sector of the same amount; these appear in the table labeled INCOME STATEMENT. You will also see a Decrease in the Private sector's Bank of $12 B with a similar increase in the Public sector's Bank (the US Treasury); this is in the table Labeled BALANCE SHEET.

JUNE 1, 2013: The AF establishes the NGF systems program office (SPO) at Wright-Patterson AFB from internal AF civilian and military resources to begin the process of organizing the development and procurement of the NGF. The SPO also starts procuring the supplies they need

JUNE 30, 2013: Payroll for SPO staff goes out but since the personnel are current AF resources, their salaries are already programmed for and not taken out of the new $12 B, but the supplies are. So let's make an entry for money spent on supplies and such until June 30, 2013.

AUGUST 1, 2013: At this point the SPO is far enough along to start hiring contractors to work in the SPO office to begin the initial planning of the Research and Development (R&D) effort for the NGF. These people, more than likely, will come from currently hired staff of the contractor, and not new hires from the economy; let's say 20 are hired at $80K each or $133K/month.

AUGUST 31, 2013: Time to pay the contractors and other expenses. Again, the government payroll is not counted as it was already programmed for using non-NGF tax dollars.

JANUARY 1, 2014: The SPO has an R&D plan and now it is time to put the R&D phase out for competition. To do this requires many more people to accomplish all of the documentation and analysis that goes on in a Source Selection. The SPO hires 20 new civilians and expands the contractor workforce by 80, which requires the contractor to go out on the street and hire. The government folk cost $70K each while the contractors still cost $80K. Between them, that is another $783K/mo plus the previous $133K and we get almost $1M/mo. Toss in another $1M for other expenses and that brings the total up to $2M/mo

JANUARY 31, 2014: Why don't we catch up on our accounting.

APRIL 15, 2014: New tax revenues are received and disbursed.

OCTOBER 31, 2014: Big source selections are like giving birth, long and painful. They may last from nine-months to over a year; ours ends at the end of October. We catch up on our accounting again.

NOVEMBER 1, 2014: The R&D contract for the NGF is let to Boeing Corp and Lockheed Martin for a total of $40 billion to be spent out over three-years and two-months: Boeing and Lockheed will make a 15% before-tax profit. The SPO doubles in size to manage the contract and is spending $10 million/mo.

DECEMBER 31, 2014: Let's make an accounting.

APRIL 15, 2015, 2016, 2017: New tax revenues are received.

DECEMBER 31, 2017: Let's make another accounting

JANUARY 1, 2018: The competing R&D designs are received and reviewed and after about one year, a winner is selected. Costs are incurred by each competing design team during this process as well as for the SPO. A total of $600 million is spent.

APRIL 15, 2018: New tax revenues are received.

JANUARY 1, 2019: Boeing Corp is announced the winner and a five-year production contract is awarded to produce 200 Next Generation Fighters at a cost of $80 billion or $400 million per aircraft (the F-22 was $150 million a copy in 2009$ for lots totalling 195)

APRIL 15, 2019, 2020, 2021, 2022: New tax revenues are received.

DECEMBER 31, 2023: Production and contract complete.

Income Statement

PRIVATE SECTOR
INCOME
EXPENSE
April 15, 2013
 
$12 B
June 30, 2013
$0.0001 B
 
August 31, 2013
$0.001 B
 
January 31, 2014
$0.006 B
 
April 15, 2014
 
$12B
October 31, 2014
$0.018 B
 
December 31, 2014
$2.115 B
$0.047 B
April 15, 2015, 2016, 2017
 
$36 B
December 31, 2017
$37.076 B
$0.853 B
April 15, 2018
 
$12 B
December 31, 2018
$0.600 B
 
April 15, 2019, 2020. 2021, 2022
 
$48 B
December 31, 2023
$80.050
$1.8 B
TOTALS
$119.9 B
$122.7
 
INCOME
EXPENSE
PUBLIC SECTOR
 
 
April 15, 2013
$12 B
 
June 30, 2013
 
$0.0001 B
August 31, 2013
 
$0.001 B
January 31, 2014
 
$0.006 B
April 15, 2014
$12 B
 
Ocotber 31, 2014
 
$0.018 B
December 31, 2014
$0.047 B
$2.115 B
April 15, 2015, 2016, 2017
$36 B
 
December 31, 2017
$0.853 B
$37.076 B
April 15, 2018
$12 B
 
December 31, 2018
 
$0.600 B
April 15, 2019, 2020. 2021, 2022
$48 B
 
December 31, 2023
$1.8 B
$80.050 B
TOTALS
$122.7 B
$119.9 B
TABLE 1

Balance Sheet

Private Sector "Bank"
CASH IN
CASH OUT
April 15, 2013
 
$12 B
June 30, 2013
$0.0001 B
 
August 31, 2013
$0.001 B
 
January 31, 2014
$0.006 B
 
April 15, 2014
 
$12 B
October 31, 2014
$0.018 B
 
December 31, 2014
$2.115 B
$0.047 B
April 15, 2015, 2016, 2017
 
$36 B
December 31, 2017
$37.076 B
$0.853 B
April 15, 2018
 
$12 B
December 31, 2018
$0 006 B
 
April 15, 2019. 2020, 2021, 2022
 
$ 48 B
December 31, 2023
$80.05 B
$1.8 B
 
CASH IN
CASH OUT
U.S. Treasury "Bank"
 
 
April 15, 2013
$12 B
 
June 30, 2013
 
$0.0001 B
August 31, 2013
 
$0.001 B
January 31, 2014
 
$.006 B
April 15, 2014
$12 B
 
October 31, 2014
 
$0.018 B
December 14, 2014
$0.047 B
$2.115 B
April 15, 2015, 2016, 2017
$36 B
 
December 31, 2017
$0.853 B
$37.076 B
April 15, 2018
$12 B
 
December 31, 2018
 
$0.006B
April 15, 2019. 2020, 2021, 2022
$48 B
 
December 31, 2023
$1.8 B
$80.05 B
TABLE 2

ALRIGHT, ONCE YOU WIPE YOUR EYES and are able to refocus, what did you observe? First, you might notice the two statements, the Income Statement and Balance Sheet, look identical; this is an artifact of the simplicity of my example. In real life, there is no comparison even though they are closely related, e.g., tax revenues (income statement) are deposited into the bank (balance sheet) and the like for there are so many other things going on that cloud the picture.

The next thing you might see is that Private Sector Income (the amount paid to contractors by the government) is equal to the $120 B tax bill that was originally planned, meaning all of the taxes paid into the Public Sector came back to the Private Sector. This is easy to see because of all of those constraints, assumptions, I levied at the beginning of this case. Even as you loosen those constraints, the process remains the same.

The third thing that might seem a bit odd, is the Private Sector actually paid more in taxes than the $120 B originally required. The reason for this is when the government paid the contractors to develop and produce the NGF, the contractors earned a profit, which, of course is taxable and comes back to the government for use elsewhere. I will come back to this later.

INDUSTRY LEVEL
GOV'T/CONTRACTOR CONTRACTS
LABOR EXP
SUPPLY EXP
PROFIT
TAX OF PROFIT (20%)
TAX ON INCOME (15%)
NGF CONTRACT
$2.14 B
$1.61 B
$0.32
$0.21 B
$0.04 B
$0.24
TIER 1
$0.32 B
$0.24 B
$0.05
$0.03 B
$0.01 B
$0.04
TIER 2
$0.05 B
$0.04 B
$0.01
 
 
$0.01
TIER 3
$0.01 B
$0.01 B
 
 
 
 
TIER 4
$0.001
 
 
 
 
 
TOTAL
 
 
 
 
 
 
 
 
$1.90 B
 
$0.24 B
$0.05 B
$0.29 B
TABLE 3

IN TABLE 3, I TRY TO EXPLAIN WHERE THE additional taxes came from. Table 3 can also be used to explain what some call the "economic multiplier" effect (although this effect is most noticeable when applied in cases where unemployment is high and economic growth is low.) What I am attempting to portray with all of these tables and numbers is the cash flow of your tax dollars.

In Table 3, the initial $2.14B of your tax dollars came from the 2013 and 2014 outlays seen in the first five rows in the Cash In column of Table 1 on the NGF program. The next two columns "spend" those dollars on labor and in the purchase of other goods and services; in this case, I assume, for chart purposes, that 65% is spent on labor and 25% on other goods and services; the remaining 10% is considered profit. Following that are two columns displaying the federal taxes collected on the profit (20%) and wages (15%) respectively. The next row, Tier 1, is the receiver of those funds spent on "other goods and services" by the original contractor; they, in turn, spent it on labor, goods and services, and profit. So it goes until the amount spent by a contractor on goods and services becomes too small to count.

Let's take a moment and rehearse.

  1. In the beginning, the gov't decided they needed the NGF
  2. Then, because the balanced budget amendment had been passed, Congress could not borrow the money, therefore they needed to increase revenues to pay for it.
  3. The only route for that is to raise taxes, so they got the 2/3 of each House to go along with the tax increase, because that is what the BBA required for new taxes (I really doubt we would fund the NGF under a BBA, you couldn't get enough consensus).
  4. Taxes are raised and revenue starts flowing in
  5. The NGF program is started and some of your tax dollars begin to be spent
  6. Where are your tax dollars spent? In the Private Sector as pay, e.g. the $2.14 B, the contractors and others received
  7. What does the Private Sector do with your tax dollars? They pay their employees (taxpayers) a wage, make a profit, and hire other Private Sector contractors who do the same.
  8. This process continues until 100% of your tax dollars are converted back into wages paid to the taxpayer or profits made by the Private Sector. (Notice the Totals in Table 3, the wages and profits equal the initial $2.14 B in taxpayer dollars spent by the NGF program office.
  9. Finally, those wages paid by your tax dollars (you paid yourself, in other words) and profits are taxed leading to increased revenues to the gov't.
  10. The gov't can then do three things with this new revenue, 1) pay down the debt, if there is any, 2) find something else to buy, thereby increasing demand directly, and/or 3) lower tax rates, thereby potentially increasing demand indirectly

Hopefully, with this review and Tables 1 and 3 you have a better understanding that, in the case where the government cannot borrow money to fund its programs (this works for all programs), two things happen that are obvious, 1) the taxpayer gets their money back and 2) the gov't gets new tax revenue over and above the original funding. This last result leads to several other, less obvious consequences, that necessarily follow.

Gov't Spending Does Create Demand

AND, THEREFORE, JOBS. Unlike the propaganda from the Right, government spending absolutely creates jobs in the private sector. This is most easily seen in the NGF case where the gov't decides to keep the new tax revenue and build a surplus.

At some point, since tax rates aren't being lowered, the surplus must be spent for it is not good too accumulate too much wealth (in my hubs on Economics 101 for the Political Junkie, you will see why). Let's say the decision is made to build a monorail system from New York City to Washington D.C. Like the NGF, the Department of Transportation will establish some sort of program office to oversee the program and begin the work of turning the dream into reality.

But, what must they do to accomplish this feat? Hire private sector contractors, don't you see. All of this new work for which the federal government hires the private sector creates demand, not only with the primary contractors, but for those who supply them and those who supply the suppliers. To meet demand, if it is significant, businesses generally must hire more workers to meet it, ipso facto, the government has created jobs by spending tax dollars.

But what if there is no surplus, yet the People want the monorail built anyway. One of two things must happen to pay for it, 1) raise taxes or 2) borrow from domestic and foreign sources. In the former case, either the additional money comes from savings or, if a person has no savings, then the standard of living goes down; in the second case, all of the money comes from domestic or foreign savings. In either case, the money is returned to the economy in the form of increased demand for the goods and services needed to complete the monorail. And when the dust settles, the dollars have either ended up 1) in the hands of workers as pay, 2) business owners as profits, 3) government coffers as new taxes collected, and 4) in the hands of investors as return of principle plus interest, if the money was borrowed.

In the latter case, things get more complicated, for unless the government is running a profit-making monorail (a very rare occurrence indeed) there is little to repay the loan and interest with, isn't there, since virtually all of the money ultimately ended up as wages, profits, and taxes, there isn't much left to repay the loans, let alone pay interest. So, what's to be done; why increase economic growth, raise taxes, cut government spending, or some combination of all three; that is the only way to reduce government debt, of course; which is why the government should be tread very carefully in assuming debt.

Federal Taxes Pays For Needed National Infrastructure and Services

WITHOUT FEDERAL TAXES, THE FOLLOWING ARE SOME OF THINGS which would not be available to the American people at all or yet :

  • Army, Navy, Air Force, Marines, and Coast Guard (common defense)
  • The Interstate Highway system (common defense)
  • An integrated Air Traffic Control system (common defense)
  • The Internet (common defense)
  • Cell phones, Ipads, or anything else made with microtechnology
  • National Parks (general Welfare)
  • Clean lakes, somewhat clean air, and similar things
  • A nation of forests (general Welfare)
  • A somewhat drug-free transportation system (down from around 10% positives in 1986 to 4% today) general Welfare)
  • Response to natural disasters, beyond the resources of the State (genera; Welfare)
  • Federal Court system (establish Justice)
  • a cohesive national foreign policy (common defense, general Welfare)
  • and the list goes on and on

Some items on the list our obvious, such as our national defense. at least two might be challenged by a few as abridging State prerogatives, that being the response to natural disasters and National Forests. I left of this lest, although they would certainly be on my personal list, are the various social welfare programs like Social Security, Veterans Benefits, and the like. These are hot button services which a significant portion of our population does not believe the Federal government should be involved.

Others you might find surprising like iPads, the Internet, and their ilk. The Internet was a government funded operation to help conduct government funded research (and yes. Vice President Gore did help by pushing for funding when he was a Senator); it existed at least two decades before the public became aware of it in the early 1980s. Cell phones, iPads and similar devices which rely on super miniaturization of the electronic components likewise came from original technology developed by government laboratories or private labs under contract to the government to such government programs as the Space Program. (The transistor, however, the first true step toward miniaturization, came from Bell Lab's in one of their few basic research projects.)

The point, of course, is that the majority of what you take for granted in your material life today has, at its source, federal tax dollars behind it. Absent that, you might still be living back in the 1920's when the federal government actually did ignore the general welfare of its citizenry, save for national defense (save for the efforts of President Theodore Roosevelt).

ONE COULD GO IN AND ON WITH OTHER EXAMPLES of the benefits of a national tax, be it a federal income tax or national sales tax. The point is, you get what you pay for, And, if you don't want to pay for a functional society that is pleasant to live and get around in, where one has an equal opportunity to succeed so long as they try and work hard, regardless of which state you travel to, then keep fighting for lower and lower taxes or no taxes at all. But if you do want the things states can't or won't provide, then you have to provide for them through your taxes.

Further, if you have a myopic view that a strong common defense is simple having a core military infrastructure ready to accept ready, willing, and able cannon fodder (the way it was prior to 1945), then keep taxes very low. Or, if you are one that believes that in order to protect America's national security interests you need in addition to a strong standing Army, Navy, and Air Force you also have to have an America that is better educated than the rest of the world in all 50 states, more technologically advanced than our major potential enemies, at least as healthy as everybody else, and a population where 3/4 of it isn't living paycheck by paycheck or worse then you have to be willing to to pay for it with higher taxes and a system that is more progressive than it is today or that the right-side of the aisle wants.

While I am on a roll, if you want a strong Nation, the one the Constitution had in mind, rather than 50 weak States, then you best start sending representatives to Congress who have the needs of America uppermost in their mind rather than the state from which they come or their personal ideological principle (do you hear me John Boehner and Chuck Schumer? Please bring back the Tip O'Neil's and Bob Dole's)

To drive home the point, there are simply things the federal government must do, which costs lots of money, to make that happen because states either can't or won't do themselves. e,g,, such as provide adequate schooling for all of their children, desegregate their schools, clean up their environment, provide for the poor and sick, the list goes on. Even before there was a Constitution or a free America, it was patently obvious the could rarely row together for a common cause when, after the initial enthusiasm, they decided to fight the Revolution on theiir own and in large part stopped giving the Continental Congress the funding to prosecute the war. Thanks to the States, it took loans from foreign countries and wealthy financiers (which would happen more than once in our history).along with military intervention from France to carry the day.

After a few national patriots from most of the States figured out a strong central government, with the authority to tax was needed, the Articles of Confederation was replaced with the Constitution. Even with a general taxing authority that could raise money through direct taxes, excise/import taxes and loans, it ended up not being enough; national disasters, wars, and expansion are expensive, you know. Until economists figured out free-trade was a better way to do business for all, the original authority worked well and the federal government ended up with surpluses a few times; having the odd problem of figuring out what to do with it. Some argued spending it, God-forbid, on infrastructure, but they generally lost.

Once the excise tax stopped being a good source of revenue, and alternative was needed so in 1913 the government finally turned to a general income tax; which was challenged, but nevertheless made part of the Constitution with the 16th Amendment. It was made progressive because, in 1913, income inequality was at one of its local highs (it has been surpassed today) and a progressive income tax is one of the more effective ways to mitigate the "rich-get-richer, poor-get-poorer" effect of laissez-faire capitalism. That system has successfully been under assault in America since the 1980s leading to:

  • a reemergence of income and wealth distribution inequality (not the only reason of course)
  • underfunding of critical federal functions (ones that the states won't or can't do on a consistent basis across all 50 states) such as:
  • - our military
  • - our food inspection
  • - interstate infrastructure
  • - basic research
  • - air traffic controllers
  • - upgrade of air traffic control systems
  • - rural development
  • - border patrols
  • - embassy security
  • - oversight offices like my old AF Cost Analysis Agency which sought to keep contractors honest, cut down on FWA (fraud, waste, and abuse), and save money; which, in our heydey, we did to the tune of at least a few hundreds of millions of dollars a year as a minimum. (my program alone (google AFTOC-Belford) saved and estimated 3 to 5 times its cost each year)
  • - military procurement oversight (not that it was much good in the first place, but now it is worse)
  • assistance to the starving
  • and the list goes on

This is the world one side of the aisle thinks we should be living in and believe even now too much money is being spent on these things and other things because they are pushing for even lower federal taxes. I, of course, believe they are absolutely wrong. And this is not an esoteric discussion for there is no doubt in my mind that if they get their way, America will go the way of the Roman Empire without ever having been an empire (thankfully).

OK, Now Your Turn to Vent

What Do You Think About Federal Taxes (sorry about the complexity)

  • Federal Income Taxes are a "Good" Thing
  • Federal Income Taxes are a "Bad" Thing
  • Federal Social Security Taxes are a "Good" Thing
  • Federal Social Security Taxes are a "Bad" Thing
  • Federal Medicare Taxes are a "Good" Thing
  • Federal Medicare Taxes are a "Bad" Thing
  • Federal Medicare Taxes are a "Bad" Thing
  • Federal Income Tax AND Social Security Taxes are a "Good" Thing
  • Federal Income Tax AND Social Security Taxes are a "Good" Thing
  • Federal Income Tax AND Social Security Taxes are a "Bad" Thing
  • Federal Income Tax AND Medicare Taxes are a "Good" Thing
  • Federal Income Tax AND Medicare Taxes are a "Bad" Thing
  • Federal Social Secuiry AND Medicare Taxes are a "Good" Thing
  • Federal Social Secuiry AND Medicare Taxes are a "Bad" Thing
  • Federal Income AND Social Secuiry AND Medicare Taxes are a "Good" Thing
  • Federal Income AND Social Secuiry AND Medicare Taxes are a "Bad" Thing
See results without voting

DEMOGRAPHIC QUESTION 1

Do you political lean to the

  • Left, most of the time
  • Right, most of the time
  • Sometime Left and sometimes Right, depending on the issue
  • Something else
See results without voting

DEMOGRAPHIC QUESTION 2

Are you

  • 62 years old or more
  • greater than 45 years and less than 62 years old
  • greater than 20 years old and 45 years old or less
  • 20 years old or less
See results without voting

DEMOGRAPHIC QUESTION 3

Are you

  • Female
  • Male
See results without voting

AMAZON ON FEDERAL TAXES

© 2014 My Esoteric

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Comments 24 comments

mio cid profile image

mio cid 2 years ago from Uruguay

The US tax System is clearly and objectively a "SOCIALIST" system in the true meaning of the word.It is a progressive system,so it is no wonder the right wing extremists want to see it no longer in existence and replace it for a flat tax system,or a system that does not favor one class over another as the current system does.What their ideological blindness doesn't allow them to see is that this leveling of the playing field ends up benefitting not only the working class and the poor, but the wealthy and the whole country as well.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Thank you for your comments and observations @Mio. While your conclusions are quite correct, I ask you to review the definition of Socialism. I think you will find public ownership of the means of production and distribution are quite different than a progressive tax system.

Personally, I favor a national sales tax over an income tax set up in such a way as to relieve the poor and poorish of any tax burden. (There are esoteric benefits, I am told, from taxing consumption rather than income) Next, I do favor a flat tax, but with the first $50,000 or so of income excluded. Then, I favor a progressive income tax with standard deductions like we have today, but something like the first $5000 of adjusted gross set at a zero tax rate and let the marginal rate go up to around 50%, which is well below the peak of the Laffer curve (which Reagan used to justify lowering taxes and is estimated today at about 60 - 70%) that maximizes tax revenue.

I would also allow a low capital gains tax for actual investments and not for people playing the stock market where stock is simple traded between people artificially raising prices.


SassySue1963 2 years ago

I disagree that the US tax system is a socialist system per se. I guess it does lean that way to an extent with people not paying into the system receiving monies from the system (which current law has curtailed by half I might add).

I don't really take issue with a flat tax system provided that loopholes are eliminated and everyone pays their percentage. No you don't get to take off your $1 million dollar mortgage because you can afford a billion dollar house. No you don't get to pay no taxes because you chose to have 10 children. That sort of thing.

One thing is certain, the current system is broken.


mio cid profile image

mio cid 2 years ago from Uruguay

I agree with most of your ideas,the only discrepancy I have is with the sales tax over the income tax . Coming from a country where the sales tax has been the main tax revenue for decades ,I can assure you that those who claim it taxes the workers and the poor disproportionately more are 100 percent correct,and it had the effect of contributing to stifling the economic growth everywhere where it was implemented.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Mio, if care is not taken, a national sales tax could be the most regressive tax in the world, which is what you apparently experienced. If it doesn't come with things like basic food staples, medicine, medical, the first $xxx of rent, and a lot of things like that being non-taxable, then there is no question you are correct.

Thanks for chiming in @Sassy, I appreciate it. Did what I put together at the top make any sense, or were you even able to get through it before falling asleep?


SassySue1963 2 years ago

Yes it made sense but I do have some accounting in my background so that might have helped.

I am against a National sales tax replacing income taxes, though not against luxury taxes for things like boats, limos, second homes etc. Most sales taxes in states (though not all) do exclude things like food, clothes, rent and prescription medication (though I am not certain OTC medicines are included). National sales taxes, even if adjusted for necessities do unfairly target the poor and middle class. We already have such taxes in place IMO such as taxes on gasoline. There are too many areas in this vast country that gasoline is a requirement, there being no public transportation and things separated by too many miles to walk. This leaves an undue burden on those without means, forced to pay much much more for what is for them a necessity, even though it would not be for everyone. If that makes sense.

I would not want a tiered flat tax either, other than to exclude those living below the poverty line. That would not mean that you get to reduce your tax liability per child however, making children a commodity. If your income falls above the poverty line then you pay your flat tax.

Of course now, we have to include premium payments for insurance in there as well.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

For me, a national sales tax is wishful thinking, it will definitely never happen, and if it did, it would, as you suggest, @Sassy, be flawed. In am not sure what you mean by a "tiered" flat tax, however; that sounds like a normal income tax.


SassySue1963 2 years ago

Well tiered as in divided by income brackets - I realize that sort of means it wouldn't be a flat tax as we think of it, but I could see that being bandied about. It would still be a flat tax within the income bracket - eliminating loopholes and such - but not a true flat tax as in everyone pays a set percentage.

I was just thinking of the backlash and what would be brought forth if a flat tax system were to be suggested. You know there will be screaming lol


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

There probably would be, mainly from the Left, I would think; but the idea is catching on in Congress. It may have legs if American can ever elect people who can remember how to govern rather than dig in their ideology and bring government to a standstill because they can't get 101% of their way.


SassySue1963 2 years ago

I'm not sure we have any of them left. Moderates are either hiding or extinct it seems. We've been taken over on every side by radicals.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

What is interesting is that the Ds used to be a good admixture of conservatives, moderates, and liberals leaving the Ds to the middle Left. Then the Tea Party comes along and knocks off most of the conservative Ds and moderate and liberal Rs Congressmen and women.

The Tea Party, of course, won't compromise and some on the liberals won't either; so you are right, there isn't many left who believe in using reason to govern.


SassySue1963 2 years ago

Yeah but the moderate D's did that to themselves with Obamacare. When the people that elected you are 80% against a certain legislation and you do it anyway - you're done at re-election time. They should have stayed moderate and not let the radicals sway them. They'd still be there.

Not only that - I blame their lack of a backbone for the Tea Party even existing. But that's just me.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Hehe, I am still banking on people finally figuring out Obamacare is a good thing. It will all depend on what the new insurance rates do. Given it is pretty well established that more insurance companies will be joining the exchanges for the November round; that is supposed to force down the rates. Unfortunately, that won't be ubiquitous throughout the exchanges so some rates will go up and you can believe if even one does, the Rs will be all over it claiming Obamacare has failed even though every other rate declined (I know, that won't happen either, but I think you get my point.)


SassySue1963 2 years ago

It could be a good thing if the D's would admit it needs tweaked. Otherwise, it is going to be a massive failure and economic drain. The bulk of sign-ups (not even enrolled just yet) were the newly expanded Medicaid, not payers into the system. And they did not get enough of the young & healthy by far to make it work economically.

Not only that - the added restrictions have already affected testing and prescriptions etc. I've seen that first hand. It is having, currently anyway, a detrimental affect on care itself. Mind you we've not even begun to see how many will lose their insurance until all the waivers run out.

The only difference I see so far is that I couldn't afford insurance before and now I still can't afford it but I'm going to get fined for not affording it. I don't consider that a good thing and there are more than you think in my same situation.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

I think they are at that point, and if they aren't, they might as well as take gun and shoot themselves in the head. Now, like with any big undertaking, that the rubber met the road and the inevitable kinks (which Americans, even the liberal ones, somehow don't think ought to exist) show themselves, the fixes need to be developed and installed.

I think you are wrong on your stats. The last I looked, they had about 90% of the 8.5 million who signed up paid at least their first premium. And while the exchanges themselves came up somewhat short on the youth part (as they were expected to), the off-exchange and kids on parents plans are all part of the same pool the insurance companies consider when making rates. So in the end, while not there yet over all, they aren't too far off.

Are you in the gap between Medicaid and Obamacare some states put their people in by not expanding Medicaid? Beyond that, I would hope you would be eligible for some sort of subsidy. If it is the former, there is no fine.


SassySue1963 2 years ago

No I am in that $1 over income group. Because that $1 is going to make me be able to afford the $200 insurance rate. In April they were reporting 7.5 million sign ups (not sure if Medicaid was included in that number) and an 80% paid first premium. That does not mean they continued paying, per the Administration.

Here is a good breakdown of all the numbers and the issues to come as implementation of all the delays (in order to try to stem a backlash in the mid-term elections) come into play. It is fairly non-partisan so I trust its accuracy.

http://www.freerepublic.com/focus/news/3146361/pos...


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Sassy, you might find these interesting regarding Obamacare numbers:

- http://www.motherjones.com/kevin-drum/2014/05/new-...

- http://money.cnn.com/2014/05/07/news/economy/obama...

But I have something to say about the Free Republic-Forbes article. Judge Judy says something like "When something doesn't sound reasonable, it usually isn't true" and the Free Republic's claim that keeping young adult through age 26 on their parent''s insurance policies had no impact on coverage of young adults didn't sound reasonable to me. So I turned to the Forbes article they used as a source.

The bottom line is that it said the Obama administration cheated in using 2010 (when the mandate was effective) as a baseline because it started just as the country was pulling out of the Great Recession. And it you look at the accompanying chart, which extents the picture back to 1997 or something, they appear to be right. The increase in the percent coverage of young adults by 2013 has just now gotten back to 2007 levels. (Interesting note-the percent of covered young adults has been decreasing constantly since 2001, with a blip in 2006, while those on gov't programs has been increasing since then until 2011 when it started decreasing.)

Well, that tells a pretty compelling story about the squishiness of Obama's numbers until you stop and consider that the Forbes journalist fell prey to his own analysis. You can argue either he picked the wrong baseline (Obama had the right one) or his mathematics are wrong; which is the one I will go with.

Percent young adults insured is simply # young adults insured/total # of insurable young adults. According the Forbes chart, the percentage of insured young adults began falling quickly (and the percentage of uninsured and on gov't insurance began climbing) in 2006. By July - Dec 2009 the percentages of privately, gov't, and uninsured stabilized until July - Dec 2010 when the Obamacare mandate kicked in; and this is where the journalists math is wrong.

It doesn't make any difference what the baseline is, for this short a time period, all you need to know is the beginning and end points and in the next 6 months, from Jan - Jun 2011, there was a dramatic rise in the young adult insured and just a dramatic drop in the uninsured young adults; gov't insured remained constant.

But even if we were talking about long-term baselines, like the author was, keep in mind, most of the parents who had jobs in 2006 that would have put their kids on their plans in 2010, didn't have jobs anymore; consequently, statistically, you have apples and oranges.

You can wake up now, :-)


bradmaster 2 years ago

My Esoteric

"FEDERAL INCOME TAXES DO A LOT OF GOOD BUT GET A BUM RAP INSTEAD."

1. The US didn't have the income tax system of today, until the 16th Amendment was passed. This says that Article I Section 8 didn't make income taxes its goal. Before then, there were Excise Taxes and other federal taxes, but none on Income.

2. The 10th Amendment really existed so that the states could take care of its citizens, and not that of the federal government. The reason for the federal government was simply to have a focal point of the US, when dealing without other countries, and differences between the states.

3. The bloated size of the federal government over the years is the result of the feds taking over functions that should have stayed with the states. The reason that income taxes support the bloated size of the federal government and its large workforce is circular. Building a national defense, and an interstate highways system needs to be federal, but having a huge Internal Revenue System is not. And neither is a national government pension, and health care system.

The bulk of the Internal Revenue System, and especially the Internal Revenue Code can be drastically reduced by replacing them with a National Sales Tax. This tax use the same mechanism and exclusions that already exist in state sales tax.

This is not a flat tax because there is no federal tax return necessary. The federal government gets the tax with a minimum of paperwork, and it gets it non accrued, or almost immediately. There is no need to have the IRS involved in it. Yes, there will be a paradigm shift in taxes on the federal level. No need for the average worker to use a CPA, or even Quicken. There would be a drastic reduction of federal workers in the IRS, and they could be reassigned to some other program. There would be only the FICA deduction from their paycheck. But even that wouldn't exist if the SS and Medicare were turned into privately managed programs.

Unfortunately, the Supreme Court has denied any rational for deciding that the 16th Amendment as applied is unconstitutional. But, in today's litigious society of finding everything having unequal protection, the court doesn't seem to think that it applies to the 1040. Is there equal protection for those people that earn more money to justify different tax rates. Or to give different tax rates to married people. Equal protection would dictate on tax rate, and not different tax brackets. Even with the same tax rate, people making more money pay more dollars than people making less dollars.

The court also denied the 5th Amendment protection of self incrimination. Also, the tax code changes every year, and this doesn't allow people or businesses to use their income effectively, because they have to apply it against the taxes, and not the health of the business.

The federal government doesn't work their budget based on what they get in revenue, they base their budget as if they didn't have a budget.

When a business or person spends more than they earn, they go into debt. And if that debt is severe enough they file for bankruptcy, or go out of business, but the federal government, just raises taxes. It can't go bankrupt, and there is no limit to their creativity of increasing revenue with taxes. The federal government has spent trillions of dollars over the years for national defense. Unfortunately, it didn't help on 911, because the defense was against the Russians, as no one in the government thought about what the rest of the threats to the US would be after the cold war ended.

I stopped at your first major chapter because my current comment is already too big.

Thanks

bradmaster


bradmaster 2 years ago

My Esoteric

This comment is on the NGF.

Ref: http://en.wikipedia.org/wiki/Lockheed_Martin_F-35_...

This is a real life example of how the government works.

This is not a one type of scenario, it is consistent with how government spends its money on the military. It starts with a great idea, but when it is implemented using the government, and politics of actually coming up with a finished product, it fails to meet its intended goals, costs, timeline or all of the above.

The F35 may be canceled because of these government generated problems.

The B1 bomber was another example, and the B1A years later replaced it. As is consistent for the government, the original number of bombers was cut short. This is not a supersonic bomber.

Sgt York was an army tank project that failed.

NASA and the shuttle ended, now they need SpaceX or the Russians to get our astronauts to the ISS.

There are many more examples throughout the years, showing that the way the government does business for the military doesn't make sense.

I have worked in the defense industry as a contractor, and I have seen too many programs go over budget, under feature, delayed, aborted, or just not meeting the goals.

These military projects do create jobs, but in the defense industry with select vendors due to security requirements. So, it does keep government workers employed, but it doesn't create much work in the private sector companies that don't have government contracts. It cost a lot of money to vet workers for security clearances, and so they pick from those that already have the clearance. So, it is hardly an equal opportunity project.

My point is that the government is not the best employer to manage the taxes it receives in revenue from the taxpayer. Boeing is having real trouble in its passenger plane business, but not it will partner with SpaceX for NASA.

It is only because of the federal government's deep income tax revenue pockets that any of its projects finally work.

Tbanks

bradmaster


bradmaster 2 years ago

My Esoteric

Federal Infrastructure

I just lost an hour of this comment so I won't try to reproduce it.

The bottom line is that the government deals with the infrastructure but it doesn't do a good job of it.

The government is reactive, and not proactive.

None of those infrastructures that you list are doing well under the control of the federal government.

Thanks

bradmaster


bradmaster 2 years ago

My Esoteric

• a reemergence of income and wealth distribution inequality (not the only reason of course)

bradmaster: The income taxes have destroyed the middle class so they fall into the lower middle class, or the poverty class. , while creating billionaires using the Internal Revenue Code.

-------

• underfunding of critical federal functions (ones that the states won't or can't do on a consistent basis across all 50 states) such as:

• - our military

bradmaster: This is under the control of the US Congress, and they have comprised the effectiveness of our military.

• - our food inspection

bradmaster: That is not the fault of underfunding, it is the fact that more of our food is coming from other countries than ever before.

• - interstate infrastructure

bradmaster: The congress has had over 50 years to make the system work for the increase of population, but chose not to do it.

• - basic research

bradmaster: Basic research is done in the private sector.

• - air traffic controllers

bradmaster: The air traffic control systems our outdated, as their procedures, which failed during 911.

• - upgrade of air traffic control systems

bradmaster: The air traffic control systems are always being upgraded, but it is the inefficiency of the government politics to do it in a proactive fashion.

• - rural development

bradmaster: don't have a clue

• - border patrols

bradmaster: Again, the Congress has had at least fifty years to secure the borders, but they are only reactive, and not proactive. We should have had the borders secured last century.

• - embassy security

bradmaster: didn't work in Benghazi.

• - oversight offices like my old AF Cost Analysis Agency which sought to keep contractors honest, cut down on FWA (fraud, waste, and abuse), and save money; which, in our heydey, we did to the tune of at least a few hundreds of millions of dollars a year as a minimum. (my program alone (google AFTOC-Belford) saved and estimated 3 to 5 times its cost each year)

• - military procurement oversight (not that it was much good in the first place, but now it is worse)

• assistance to the starving

bradmaster: Starving people in other countries or ours?

• and the list goes on

bradmaster: And so does the failure of government programs.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Again, thanks for reading and commenting @Bradmaster.

"1. The US didn't have the income tax system of today, until ..."

-- You are quite correct, it didn't, but it allowed for it. The 16th Amendment was needed to overcome a different section about apportionment of direct taxes like the income tax.

2. The 10th Amendment really existed so that the states ... "

-- Have to disagree with you here. The 10th was to put into words what the Constitutions authors believed was implicit in the basic document by stating outright that "powers not delegated to the United States ... are reserved to the States ..." If what you said was true, there is no need for the Preamble, but it is not true. It was true, however, for the Continental Congress and the Articles of Confederation. A simplified purpose for the Constitution, if you read, among other things Madison's Notes on the Constitutional Convention, was to divide up powers between the states and federal government, but when in conflict, the federal government wins (Supremacy Clause) It is left to the Supreme Court to decide when the federal government exceeds "the powers delegated to ..." provisions. BTW, I have a feeling even a "strict constructionist" reading of Section 8 far exceeds your definition of "simply to have a focal point of the US, when dealing [with] other countries, and differences between the states.

"3. The bloated size of the federal government over the years ..." Besides the military, I would say most of the non-social service functions revolve around the Commerce Clause in Section 8. A lot of the rest of the federal government developed because so many of those States, who you think so highly of, failed to do their jobs in a big way and left the needs of their people in the dust, much like many conservative governors are screwing poor people by not expanding Medicaid in their states, and pandered to only the rich. After the Great Depression, much of America decided it wasn't a good idea to let Joe Sixpack starve on the streets anymore when times got tough.

BTW, I am a proponent of replacing the income tax with a modified sales tax (modified such that it is not regressive) as well. It won't happen, but maybe a well structured flat tax will.

Having said that, I just finished an economics book that made an extremely convincing case for the need of a progressive income tax to counter the ever increasing wage and capital inequality that is a function of capitalism.


bradmaster 2 years ago

My Esoteric

Thanks for your response.

Socialism is interested in economic inequality, are we Socialists?

Capitalism doesn't penalize success.

A Flat Tax doesn't help because it retains the IRS and the IRC.

A National Sales Tax like a State Sales Tax is not progressive.

It is fair, and it is non invasive of personal privacy, and it allows people to make better decisions on what to do with their money.

If you want to help the poor, then bring back the millions of good paying jobs that have been lost

Yes, the tenth amendment gives states the powers not taken by the federal government. The problem is that in the last one hundred years, the federal government has taken over mostly everything. At this point, there is no real reason for the states to exist, if the feds keep taking up more territory.

The sixteenth amendment didn't really do anything more than address apportionment, but neither did it foresee that the income tax would be what it is today, a socialist tool, but ineffective in preventing the huge increase in the wealthy, and I mean billionaires.

Without the income tax system having no limits of taxation, the federal government is not prevented from growing and growing, and taking rights away from the states.

The Constitution was not setup for a strong central government, and weak state governments, because that is why they fought in the Revolution.

According to Liberal Michael Moore

"Four hundred obscenely wealthy individuals, 400 little Mubaraks -- most of whom benefited in some way from the multi-trillion-dollar taxpayer bailout of 2008 -- now have more cash, stock and property than the assets of 155 million Americans combined."

That should be the problem to be solved to level the inequities.

Thanks

bradmaster


bradmaster from oc ca 23 months ago

My Esoteric

The real problem is that the federal government get more incompetent the larger that it grows. This is not a partisan issue, it is the entire government.

I am at a loss to recall any instances where the government excels in what it is responsible for, or even actually controls.

Thanks

bm

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