Taxes. With the current melee going in Washington DC regarding the Debt Limit and the Deficit we have been hearing about spending cuts and taxes. Now taxes are a fact of life and have been since people started organizing themselves. Taxes have taken the form of in-kind material, labor, lives, or money. People have always seemed to have paid one type of tax or another ostensibly for the collective good. As long as there have been taxes it seems that people have complained about taxes, tax collectors, and the uses of taxes.
During the recent melee in Washington DC a group known as the “Tea Party”, a sub-set of the Republican Party, has made it an absolute tenant that they will not tolerate any increases in taxes of any kind. They seem very adamant on this. Many moderate Republicans in governance have taken great pride in saying that they did NOT raise taxes when they were in charge. Instead of raising taxes they demand a decrease in spending and some even call for a decrease in taxes.
When the Democrats wanted to repeal tax breaks on certain affluent people i.e. not really raise taxes but re-instate existing taxes that were placed on a time-out by the former President of the United States (POTUS George W. Bush), the Tea Party activists quickly decried this as a tax increase that would kill economic recovery. They choose to label those currently eligible for the tax breaks not as rich, well-to-do, successful, affluent, or prosperous but rather as “job creators”.
Whether you call them rich, well-to-do, successful, affluent, prosperous or “job creators”, it is a fact that since the ratification of the 16th Amendment to the US Constitution “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” on the third of February, 1913 that income is the primary source of tax revenue from the individual for the US Federal Government.
In 1913 when the income tax went into effect everybody paid a 1% minimum on their income with the highest tax bracket being a 7% tax rate. The great majority of taxpayers were in the 1% range. You did not get to the 2% bracket until you were making $20,000USD per year. The Rockefellers and Carnegies were in the 7% bracket of income over $500,000.00USD. This would change radically in World War One with the costs of the war being passed on to the citizenry though taxation. We should note that in this era the richest 1% of Americans earned roughly 18% of all income.
At the peak of the First World War (1918) the minimum tax was now 6% on all income $4,000.00USD and under. The top bracket was 77% on all income $1,000,000.00USD and over. The former top bracket of $500.000.00USD is now registering at 76%.
Moving ahead to 1925 and the prosperity of the Jazz Age the minimum tax was now 1.5% on all income $4,000.00USD and under. The top bracket was 25% on all income $100,000.00USD and over. The former top bracket of $500.000.00USD is now defunct.
Moving ahead to 1935 six years after the market crash and two years into the New Deal and government expansion the minimum tax was now 4% on all income $4,000.00USD and under. The top bracket was increased to 63% on all income $1,000,000.00USD and over. The former top bracket of $500.000.00USD from 1913 is now registering at 61%.
Moving ahead to 1944 the height of the Second World War the minimum tax was now 23% on all income $2,000.00USD and under. $4,000.00USD is now being taxed at 25%. The top bracket was increased to 94% on all income $200,000.00USD and over. The former top bracket of $500.000.00USD from 1913 is in the 94% bracket.
Moving ahead to 1951 the US is funding the Marshall Plan, fighting a war in Korea (the US almost doubled the size of the Army having in June 1951 over 229,000 men in Korea), and funding the post war GI Bill the minimum tax was now 20.4%% on all income $2,000.00USD and under. The top bracket was decreased to 91% on all income $200,000.00USD and over. The former top bracket of $500.000.00USD from 1913 is in the 91% bracket.
Moving ahead to 1960 the US is funding NASA and the race to the moon, and the construction of the National Interstate system the minimum tax was now 20% on all income $4,000.00USD and under. The top bracket was remained 91% on all income $400,000.00USD and over (so a tax cut down to 89% for the $200,000.00USD group). The former top bracket of $500.000.00USD from 1913 is in the 91% bracket.
The Kennedy tax cut occurs in 1964 while the US is still funding NASA and the race to the moon, and the construction of the National Interstate system changing the graph to a minimum of 16% on all income $1,000.00USD and under. The top bracket was reduced to 77% on all income $400,000.00USD and over (so a tax cut down to 76.5% for the $200,000.00USD group). The former top bracket of $500.000.00USD from 1913 is in the 77% bracket.
Moving ahead to 1969 the US is funding NASA and the race to the moon, and the construction of the National Interstate system, the War in Vietnam, and the Great Society programs the minimum tax was now 14% on all income $1,000.00USD and under. The top bracket was reduced to 70% on all income $200,000.00USD and over. The former top bracket of $500.000.00USD from 1913 is in the 70% bracket.
Moving ahead to 1982 and the Reagan Tax Cut the US is funding a Cold War Weapons Race and the race to the moon, and the construction of the National Interstate system the minimum tax was now 12% on all income over $3,400.00USD - $5,500.00USD (those under $3,400.00USD are tax exempt!) The top bracket was reduced to 50% on all income $85,000.00USD and over. The former top bracket of $500.000.00USD from 1913 is in the 50% bracket.
Moving ahead to 1996 and the height of the Clinton era the minimum tax was now 15% on all income $40,100.00USD and under. The top bracket was reduced to 39.6% on all income $263,750.00USD and over. The former top bracket of $500.000.00USD from 1913 is in the 39.6% bracket.
Moving ahead to 2004 in the era of the Bush Tax Cuts the US is fighting a global War on Terror with troops in Iraq and Afghanistan the minimum tax was now 10% on all income $14,600.00USD and under. The top bracket was reduced to 35% on all income $336,550.00USD and over. The former top bracket of $500.000.00USD from 1913 is in the 35% bracket.
And now in 2011 the US is funding a war in Afghanistan and the tail end of a transition in Iraq the minimum tax is now 10% on all income $17,000.00USD and under. The top bracket is 35% on all income $379,150.00USD and over. The former top bracket of $500.000.00USD from 1913 is in the 35% bracket.
Now we have seen a little snapshot of taxes and rates going back to 1913. Currently taxes are historically extremely low. In the first blurb about 1913 I noted that the income disparity or wealth gap was that the richest 1% of Americans earned roughly 18% of all income. Today, the top 1% account for 24% of all income.
The gap decreased for while reaching its smallest in 1968 and then expanding rapidly to today. In 2010, the top 20% of Americans earned 49.4% of the nation’s income, compared with the 3.4% earned by the roughly 15% of the population living below the poverty line. This earnings ratio of 14.5 to 1 was an increase from the 13.6 to 1 ratio in 2008 and a significant rise from the historic low of 7.69 to 1 in 1968
Between 1979 and 2005, the mean after-tax income for the top 1% increased by 176%, compared to an increase of 69% for the top quintile overall, 20% for the fourth quintile, 21% for the middle quintile, 17% for the second quintile and 6% for the bottom quintile.
This data would seem to mean that the rich have gotten richer while the poor have stayed level or decreased in their economic power. When tax rates fell to 50% or less in the top strata the wealth gap accelerated.
It should be pointed out that a 70% tax rate does not limit your ability earn money. You can still go out and earn $100.000.00USD but you only keep say $30,000.00USD. But that 70% you gave to the government is not a net loss because you do benefit from the services that it purchases (infrastructure, regulation, law and order, security, social security, AAA government bond rating etc). If you want $100,000.00USD in your pocket then you simply go out and earn $150,000.00USD.
Personal income tax is not detriment to job creation in the larger sense as most Americans do not work for individuals but rather companies.
The Kennedy tax cut is often heralded as proof that tax cutting creates jobs, profits, and growth. But little exploration has been done as to if there is a threshold below which tax cutting does more harm than good. Cutting from 90% down to 70% is not the same as cutting from 50% down to 35%.
Is it responsible to cut taxes or not raise taxes with a war on? Historically taxes increased or held steady to pay for conflict. Increased costs of conflict were acknowledged by an increase in revenue … not a cut in other spending. We have been at war now since 2001 with no increase in revenue, no shared cost to the conflict to unify around ... instead it has been a race to cut taxes, cut “wasteful” government spending and live with in our means while at the same time conducting two wars and nation building. This defies past practices ….
It was in my mind irresponsible after 9-11 not to raise taxes as a patriotic act to pay for the added costs and share the burden of the struggle. The military should not have an unlimited stream of cash … there must be limits. There must be limits in order to prevent greed and graft that large tempting sums of money can produce. There must be limits in order promote creative thinking and out of the box solutions instead of business as usual. Yet troops should not have to suffer for a lack of funding. The troops and their families should also not be the only people bearing the burden of the conflict. Raising taxes is a way to spread the burden out to all and give people an increased voice in the goals and conduct of the conflict … it is a way to make people who do not have loved ones in the line of fire to care. With out a draft or conscription paying taxes is the American form of National Service.
“Wasteful” government spending is typically a buzzword to gut aspects of the governments social welfare network. I can also be thought of as a social security net. “Wasteful” depends largely on the values and perspective of the beholder. There are two sides at least to most government programs and careful thought should be given to cutting, eliminating, or leaving alone these programs. Ideally a policy of no harm would ensue, but states and localities are often ill equipped to handle the task as they suffer under the same mantra of “no new taxes”, “cut taxes”, live within limits. Merely shifting the burden from one level of government to another is creating unfunded mandates or demands.
States and some localities have hamstrung themselves by passing constitutional amendments and laws which require a balanced budget. This makes them ill equipped to deal with an increase in expenditures or needs of service. They artificially limited themselves to address real issues unless they have the courage to increase revenues to historic levels.
Historically the largest user of individual taxes were localities, followed by states and then the federal government. The Federal government increased its take often at the expense of the localities during times of crises though it did and does return some funds through block grants and federal programs. What you see is a shift of funding and therefore responsibility from local to federal. If the federal government wants to shift responsibility back to the localities then the localities will have to increase revenue to meet these demands. Either that or start letting people fall through the cracks. This will long term impact society in a negative way. At the base level there needs to base services as part of the collective.
I think that I get pretty good value for what I pay in taxes in terms of government services. Roads, fire, schools, regulation of financial systems, OSHA, product safety, standards of weights and measures, clean air, clean water, food safety, communications, national defense, research, etc. Lots of services (Local, State, Federal) that I use everyday provided because of my tax dollars (Local, State, Federal) that I never consider.
In the end “We the People” need to decide what we want government to do and not to do. Then we need to pay for it.