Observations on life

Changing America – raising taxes (on somebody else) is our salvation

Demographics tell part of the story, the traditional minorities are headed to the majority, but perhaps not even the most significant part. In the recent election women bought into the war on women nonsense and 90% of African Americans voted for, I’m not exactly sure for what, there certainly was nothing in the last four years that helped raise their economic standards. Hispanic Americans supposedly voted based on the fact they want immigration reform whatever that means. Others apparently saw their salvation in higher taxes … on somebody else.

By default Americans have voted for bigger government and higher taxes. The bigger government part means more entitlements, more subsidies, more regulation and as aside a growing gap between the living standards of government workers and everyone else … think high pay and generous benefits long gone from the private sector. Voters supporting higher taxes may be surprised (although I don’t know why) to learn that means higher taxes for everyone, not just for those Americans who already pay a disproportionate share of taxes. Contrary to populist rhetoric, families earning $250,000 or more pay their fair share and more.

Nobody seems to ask why we need higher taxes. To pay our debt is one reason. But how did we accumulate all this debt? Improving Medicare, war, economic stimulus, payroll tax holidays, investing in solar power and electric cars and more. And then there are programs such as Social Security and Medicare that are no longer able to pay for themselves. Much of the debt accumulated has gone to benefit the middle class and low income Americans, the people who pay little or no income tax. And let’s not forget Obamacare already raises taxes on the “wealthy.” It is hard to see how those who do pay considerable income taxes to pay for programs targeted at the middle class and below are not carrying a fair share of the burden, but what do I know?

Here is the liberal Center for American Progress’s take on the election. Note they see a decisive mandate where the “wealthy contribute to address our deficit challenges.” As absurd as that statement is, if there were a way to take incoming taxes and use them to reduce the deficit while not adding to it, it could make some sense. However, the CAP and others have a litany of progressive ideas that add to spending. When was the last time you addressed your family budget issues simply by making more money…you wish!

This election offered a clear choice between an America that works for everyone, and a top-down America that works only for the wealthy few. The outcome was decisive: Voters chose an America where everyone pays their fair share, where we create shared prosperity by strengthening the middle class, and where we treat all people with dignity and respect. As we look forward to the critical issues Washington faces, this election was a decisive mandate for a fair tax system where the wealthy contribute to address our deficit challenges. No issue was more litigated in the campaign than a fairer tax system and Americans will expect real action on this and other important priorities.

Raise taxes … then what? Whatever happened to expand, grow the economy that will do more than anything else to help the middle class (and reduce the deficit by the way)?

But what has really changed in America is attitude. Many Americans have come to accept the notion that they are victims and therefore their state in life is someone else’s fault. Pick a target; big business, insurance companies, Wall Street, Republicans, oil companies, banks, the 1% … Listen to Senator elect Elizabeth Warren of Massachusetts speak and it is a diatribe against big business and a pledge to solve every problem faced by working people, by the middle class.

“Scott Brown wants Republicans in control of the Senate and Mitt Romney in the White House to pursue the same ‘I’ve got mine, the rest of you are on your own’ strategy that hurt so many middle class families. I want to work with President Obama and a Democratic Senate to invest in those families, level the playing field and make sure everyone has the chance to succeed.”

Since when does everyone not have a chance to succeed? How does the federal government invest in families? Oh I have it, by investing in free contraception and abortion we will bring down the 72% rate of African American children born to single women. I knew there was a plan.

“The fact that she’s a woman and she’s also pro-choice … instead of a man representing us and telling us what to do with our bodies, it’s her, and she knows what we want because she’s a woman.”

“We have to say that those who make it big have to pay a fair share,’’ she said.

Apparently Americans decided to agree with the rhetoric and the concept, “okay, but just not from my wallet.” This from the New York Times November 6th:

Three-fifths of voters said they opposed raising taxes to help cut the deficit, a finding that favored Mr. Romney. But almost half support higher taxes on incomes over $250,000, as Mr. Obama has proposed.

Presumably a couple whose combined income from two jobs is $250,000 have made it big. I wonder if it makes a difference if the couple is a school administrator and utility lineman or two lawyers or if they work on Wall Street? Making it big and “fair share” are as illusive as “affordable” health care but they all resonate with voters who seek an excuse.

It simply is not true that the wealthy do not pay their fair and it is not true that the wealthy who have earned their wealth and continue to invest take opportunity from everyone else. Who among us does not aspire to financial success? (the answer to that question used to be obvious, I’m no so sure today). People don’t buy lottery tickets for fun, they buy them to become wealthy.

The real question is what will our still dysfunctional Congress do with new taxes that will increase the income of the middle class and make sure it gets its fair share … likely of a much smaller American pie.

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6 replies »

  1. As I see it, the general public views FICA taxes as prepayment toward social security and Medicare benefits that they accrue and contractually own similar to an annuity. This is where we get the notion of entitlements.

    Nothing could be further from the truth.
    It is a pay as you go plan where money you pay in while working goes directly to those at the other end who are getting benefits (ie. PONZI scheme). What keeps the PONZI from failing is that the government makes up the shortfall out of general revenue which is to great degree borrowed money. The so called trust funds are accounting gimmicks that attempt to give the whole thing an aire of legitimacy. I wonder how many people would enter into a contract with an insurance company to buy an annuity if the insurance company maintained the right to change the payout at their exclusive discretion. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 means tested Medicare with increased part B premiums which didn’t kick in until 2007 and have been going up each year since. This is a fairly recent development. Can social security be far behind?
    I seem to be getting off topic but I think the country has definitely made a turn towards socialism. Hello Europe and “The Road to Serfdom”

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  2. With respect to Social Security, and the FICA tax (OASDI @ 6.2% of wages, capped in 2012 @ $110,100), you have a similar, but not exactly the same situation.
    The complaint is that the tax is regressive as to wages – lower income individuals pay a higher share of their total income to fund their social security benefits.
    However, like Medicare Part A, these are earmarked taxes, not general fund taxes. That is, they are intended to go into a trust fund to provide for specific benefits. And, like Medicare Part A, the bottom line is that those who are at lower income levels tend to receive a disproportionate amount of benefits from Social Security – relative to the taxes they pay.
    Today, an individual who earned the wage base throughout her working life would receive a normal retirement social security benefit that replaced approximately 30% of her income, where almost all of the income would likely be subject to income taxes throughout retirement. While an individual who earned only minimum wage throughout their retirement would receive a benefit that replaced approximately 75% of their income throughout retirement, where none of the benefit would be subject to taxes. The other unique aspect of Social Security is that the process of using 35 years of earnings and the step rate formula to determine benefits will also disproportionately benefit those who have gaps in their work records – such as a mom who took off many years to raise children. These are single taxpayer comparisons – so, social security has some unique features with respect to those who have a spouse or dependents.
    Raising the cap, presumably without raising the compensation used to determine benefits, nor the formula used to determine the benefits, will only add to the progressivity of an already progressive benefit system.
    If your goal is to raise taxes to reduce the deficit, there is no need to do so by running the monies through the Social Security trust fund – effectively misrepresenting to workers and taxpayers a better funded benefit system (as all monies are loaned to Treasury to fund the federal debt, deficits)

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  3. Peter, thanks for your note.

    President Clinton removed the cap on one part of FICA taxes, FICA-Med, all the way back in 1994. That is the Part A Hospital Insurance tax. It has been unlimited since that time. However, it is only a tax on wages. PPACA extended the tax on certain other forms of income. So, obviously, simply taking the cap off of the tax was no solution for the Hospital Insurance Trust Fund – which is still scheduled to run out of money soon.

    Further, consider this. The Medicare benefits a high income individual receives, someone who saved to prepare for a financially successful retirement, will see higher Medicare Part B and Medicare Part D contributions while they are in receipt of the benefits. So, you have a situation where the individual, throughout their working career, paid taxes that were a level percentage of their income – even though the benefits from the hospital insurance are the same as for someone who made minimum wage throughout their life. Further, this same individual will pay dramatically greater contributions for Part B and Part D throughout their retirement, and receive less benefit from Medicare, compared to the same individual who made minimum wage throughout his lifetime, because he will likely be “dual eligible” – so his contribution to Medicare Part B and Part D will be waived as will all point of purchase cost sharing.

    Simply, the suggestion to raise taxes or remove the cap was one where individuals complained that the taxes were regressive (those at lower incomes paid a higher share of their income in taxes, not a higher rate, because of the tax). As the above information confirms, THE BENEFITS RECEIVED ARE MUCH MORE REGRESSIVE THAN THE TAXES PAID. And, once you account for Medicare Part B and Part D, which are funded primarily through income taxes and contributions from those of modest or higher incomes in retirement, and the Medicaid subsidies, the fact is that Medicare is a highly “progressive” system – where higher income folks pay a disproportionate amount in taxes for less benefits than those paid to lower income individuals.
    Peter, thanks for the note.

    Certainly, we saw President Clinton remove the cap on Medicare Part A taxes, shown on your paycheck as FICA-Med. Has that reduced the

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  4. Dick, I often wonder why the FICA tax always stopped when reaching a set limit. Wouldn’t It be better to continue taking out the tax on all levels of income. Then those of us at the higher bracket would be paying more? Deacon Peter Cistaro

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    • Pete, that may well come out as part of the solution. However, it also changes the fundamental concept behind Social Security which was that we paid for our benefits down the road. Keep in mind that the salary cap for the tax is also the cap used to calculate the maximum benefit. Breaking that relationship makes SS more like a welfare program. Nevertheless we seem to be in a new era of thinking class envy so something like that may come about, but it will be quite an increase in taxes and one that in my view is unfair to single income families. For example, single income family earning $200,000 would pay roughly $5,000 more in taxes. On the other hand a family with two wage earners each earning $100,000 would see no increase in taxes.

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