Are our taxes too high?
Tomorrow is one of the most dreaded days of the year for many Americans (excluding those who foolishly celebrate that they are “getting a refund,” which simply means that they overpaid their withholding/estimated payments and gave Uncle Sam an interest free loan for the year).
To most people, the answer to the question posed is a no-brainer: a resounding yes. Paying taxes to many is the equivalent of a financial root canal or an episiotomy during childbirth (as if guys can possibly know what that feels like). After all, who really wants to pay a significant portion of their hard-earned money to someone else – especially to the often despised “government?”
We Americans have always had a thing against taxes- from the English tax on Tea at Boston Harbor that helped give rise to the country’s inception, to objections to the 16th Amendment establishing the personal income tax in the first place, to present day efforts by many citizens and companies to distort their income and deductions to avoid paying what they owe. Tax reduction and avoidance has become deeply embedded in our DNA.
It’s not surprising, therefore, that promising to reduce taxes is a well-recognized winning political strategy and, conversely, suggesting that taxes ought to be increased is political suicide. George Bush, the first, can attest firsthand to that principle, having been politically crucified for insisting that he would never raise taxes (the famous “read my lips” line), only to later recant when he realized it was necessary.
And yet, for all the hostility expressed for them, taxes are essential to the operation of a government and so many things that we depend on for our safety and welfare — defense against foreign governments, terrorism, and domestic criminal activity, protection from contaminated food and water and risky drugs, and assistance in dealing with a plethora of natural disasters from hurricanes and tornadoes to fires and floods. Government revenue is also critical to highway construction, airline safety, education, scientific research, immigration, trade, our beloved national parks, social security, veteran’s benefits, health care and much more.
It’s frankly absurd for a citizen to expect to receive all of the benefits and services of a first-rate country without someone (all of us to at least some degree) paying for it. Many of the very folks who clamor for “small government” (often from Southern states) sure wanted it to come to their rescue when their communities were devastated by Hurricanes Katrina, Irma and Harvey. There are millions of our citizens who labor under this hypocrisy, epitomized by those who rant that “the government should keep their hands off my social security!”
I get it that we disagree about where the money should be spent. (We selfishly tend to favor expenditures that help our particular economic situation, health issue or interest and disfavor those where we don’t personally benefit). And we disagree about who should bear the brunt of the cost (folks are generally far more accepting of higher taxes on others).
The United States, like most Western countries, has a progressive tax system – i.e. the more income you make, the more you pay – not only in terms of absolute dollars, but also as a percentage as your income rises over various thresholds. The current highest income tax rate on wealthiest Americans is 37% (although some of our wealthiest citizens and corporations, including our President and companies like Amazon, use deductions, credits, write-offs and other crafty tax strategies to avoid paying much or even any taxes.)
So, how does this compare to other developed countries? Despite frequent whining about how much we pay in tax, U.S. personal income tax rates are actually low by comparison- by my unofficial count, there are at least 30 countries with higher marginal tax rates and the U.S. is well below that of most other successful economic countries, such as Germany, Japan, the UK, Israel and most of the Scandinavian countries.
Some argue that our low tax rates on the wealthy is why we have the strongest economy in the world. They maintain that reducing taxes will stimulate investment and everyone will become wealthier and be better off. Even the government, they say, will financially benefit from this groundswell of investment at the end of the day. However, the math equation that says LESS total taxes- i.e. taking in LESS REVENUE – actually results in MORE MONEY for the government is a ruse and doesn’t pass logical muster. Just take a look at the growth of our federal deficit since the most recent massive tax reduction!
The notion that reducing taxes leads to greater economic benefits to a country as a whole and, more importantly, a higher quality of life, is also undermined by the performance of rest of the world. Not only do countries like Sweden, Denmark, the Netherlands, Japan and Israel have marginal tax rates for the wealthiest folks that equal or exceed 50%, they also provide an excellent economic standard of living for most of their citizens AND are consistently among the countries rated as having the highest overall quality of life – indeed, higher than that of the United States.
Correspondingly, most of the countries in the world with the lowest tax rates are hardly ones that Americans tend to idolize: i.e. Libya, Syria, Iraq, Afghanistan, and the like. Unless you live in a country like Kuwait, where the fortuitous existence of oil ensures that there are NO personal income taxes, taxes are necessary to support the lifestyle that Americans have come to expect.
Moreover, our current tax rates on the wealthy are paltry by our own country’s historical rates. Throughout history the United States has routinely raised tax rates significantly when there have been major wars to pay for. The wealthy have always shouldered a disproportionate burden of the cost in such times. Indeed, the highest marginal tax rates were a whopping 67% in 1917 and 77% in 1918 in order to help fund World War I. World War II became so costly that the wealthiest Americans were forced to pay a tax rate of – hold your hat- 94%! on all income over $200,000 (the equivalent of about $2.5 Million in today’s dollars). And during the Korean war and Vietnam wars the top marginal tax rate never went below 70%.
While we may not be officially at war today, our military budget sure says otherwise. Indeed, we spend more money today on military expenditures than we have at any point in our history. And yet, despite this fact, the U.S. marginal income tax rate on the wealthiest Americans is less than half of what it was in previous times of war.
Some folks belabor the inefficiency of government and its “excessive” spending highlighting certain programs, research or other expenditures that represent, in their minds, government waste. There are no doubt many examples of this in a budget in the trillions, but the items that tax reduction hawks love to highlight represent a mere particle of sand on a beach. Of the $4.7 trillion dollar federal budget, 2.8 trillion goes to social security, medicare and medicaid, nearly 1 trillion goes to military related spending, nearly 500 Million goes to interest to pay off the national debt (created by spending that exceeds tax revenue). This leaves less than 500 billion for everything else in the entire government.
There is undeniable basic math involved here: If we want to have a monstrous military (which spends nearly three times more than the next highest spender, China), a social security system for the elderly and a minimum baseline of services for all of our citizens (poverty relief and basic health care), someone is going to have to pay for these enormous costs. The only meaningful solution, short of bankrupting our nation, is to secure more tax revenue (not less) – at least until we can dig ourselves out of the trillion dollar deficit hole caused by Democrats and Republicans, who lack the political courage to meaningfully address the simple problem we tell our kids: “you can’t spend money you don’t have.”
While ideally everyone should share in this cost to some degree and experience some pain as a collective lesson, the only practical way to make a significant dent on this problem is to more heavily tax those folks who can most afford it – especially the billionaires among us. It may seem unfair to some that wealthy folks are forced to pay for such a large percentage of our past mistakes and excesses. But they have also benefited the most by our economy and way of life, and were the greatest beneficiaries by far of the most recent massive tax cuts. They also stand the most to lose if the country does not survive, economically or militarily. And, perhaps most importantly, they are the only ones who can really do it. It’s not unlike what their wealthy forefathers did in other critical moments in our nation’s history. That said, we all need to play a part.
So, as you sign your tax returns, quit whining about how much you pay, appreciate that you live in a country with so many benefits and freedoms, and support the very few candidates who tell you the truth about the basic math involved here and not just what you want to hear.
