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Redistributing the Tax Burden - and the Wealth

2008-10-24 by

In the course of addressing the concept of people helping each other, and this presidential campaign where the candidates talk of pushing the tax burden on the very rich, the top few % of the population – there’s a great deal of criticism or sarcasm. Marx’s concept of ‘FROM each according to his ability; TO each according to his need’ which was so brilliantly, and scornfully exposed in most of Ayn Rand’s novels doesn’t hold true in today’s economy.

Today, the average ‘taxpayer’ is working more hours than ever on jobs that are paying less than ever before. They are not slacking off. They are not freeloaders. They just aren’t earning what they are worth. The median income level for 116 million American households for 2007 was $50,233
Can you really support a family of four on that in an urban area where just the rent/mortgage is about $14,000 per year?

IRS statistics (2005) show that less than 3% of the population has income over $200,000. (and less than 3 million people with net worth of $1.5 million or more.)

The problem is, among the 1/3 million taxpayers whose net worth is over $5 million are many executives on Wall Street and publicly held corporations who have been paid millions of dollars for doing a sub-standard, or even criminal job – or for selling sub-prime loans, knowing the homeowner would never be able to make the payments when the honeymoon rate ended. These people are not the Randian or Nietzschian superman who perform to top standards or create great works.
Since they won’t have to face legal fees or criminal prosecutions, do you really mind if they pay a little extra tax to cover the cost of unemployment, health care, and housing for those whom they’ve bankrupted?

In an interview with the Libertarian candidate Bob Barr on one of the news shows last weekend, he was asked what he would have done if he were president during this troubled time. Barr said one of the first things he would have done is to instruct the attorney general to start some criminal investigations in the misconduct by Fannie Mae and Freddie Mac. (Why haven’t I heard anyone else say that?) One of his press releases says , “We need an independent investigation of the money spent and tactics used by Freddie Mac and Fannie Mae that enabled them to so abuse the public trust.”

I don’t know very much about this Libertarian fellow who used to be a Republican Representative from Georgia. What he does tell us about himself is – that Bob Barr supports firearms, and is for marriage for everyone. But doesn’t even mention a woman’s right to chose on his list of issues at all. (Don’t you want to know which way he leans?) He is an advocate of less government – in keeping with the Libertarian philosophy.

Let’s face it, we all like the idea of less government – and having the government stay out of our business. In fact, we just saw the results of the government staying out of the mortgage industry. They stopped overseeing the transactions and removed the regulations. Did the market forces take care of things themselves? Heck no! Perhaps the laissez faire concept doesn’t work as well as theorists think it should?

Barr does want to reform the tax system, perhaps replacing income taxes with a consumption tax, like the Fair Tax System. It’s like a national sales tax of 23% (wow!). As a consumption tax, it’s a regressive tax. The burden is higher on the taxpayer who spends the largest percentage of her income on consumables – poor and middle class. Sure, the wealthy may pay more in absolute dollars (think of the tax on a yacht). But as a percentage of their income, the Fair Tax is a small percentage. I’d still rather see a flat tax on taxpayers and businesses – where everyone who earns more than 2x or 3x minimum wage pays a fixed amount of tax. Period. With no fudging or cheating, the overall tax rate can be lower.

Hey, this is neat. The Fair Tax folks compared McCain’s and Obama’s tax plans to the Fair Tax.

By the way, looking at the IRS statistics from 2005 tax returns, have you come to realize that Barack Obama wants to shift the largest part of the tax burden for the entire country onto the shoulders of about 3 or 4 million taxpayers? As angry as we might be at the country’s current economic situation, that’s impractical and ridiculous. We need a president who’s in touch with financial reality.

We’ve already talked about McCain’s proposal to switch health care costs and choices directly to the taxpayer by giving each household $5,000 to cover the cost of over $12,000 worth of premiums for a family of 4. What a clear understanding of family finances that is!

Unfortunately, so far, none of these candidates make me feel secure about our future.

Please, please, someone tell who we can trust to lead our country?

We’re getting down to the wire and I can’t figure out who is going to the least damage if elected!

Ask TaxMama
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Census Bureau Reports
Income, Poverty, and Health Insurance Coverage in the United States: 2007
IRS Stats
Analysis of 2005 Tax Returns
IRS Stats
Top Wealth Holders of $1.5 million or more 2004
Bob Barr, Libertarian Presidential Candidate
Call to Investigate Fannie Mae and Freddie Mac
Bob Barr, Libertarian Presidential Candidate
About Bob Barr and his policies
The Fair Tax
A National Sales Tax of 23%
The Fair Tax
Comparison of Presidential Tax Plans

All Comments RSS

  1. Thomas Avery Blair, EA Says:

    The answer TaxMama: There are no good choices. The true statesmen (or stateswomen) have either stepped out of the loop or have all become extinct. My hope is that Mrs. Palin might grow in knowledge and experience…because at least I can understand what she says…and believe that she has a level of integrity that will hopefully insulate her from wallowing with the swine in Washington and on Wall Street.

  2. Ed Gandia Says:

    Eva – Great post! As you and Thomas have both stated, the sad fact is that neither candidate is offering true solutions to these very real problems facing our nation. It's sad that we don't have a true leader stepping up to the plate, willing to take political risks and talking straight about the TRUE changes they're going to make if elected president. Someone who makes an overt and very clear promise to the American people that he/she WILL investigate the fraud and corruption in the banking industry…and he/she won't stop until the perpetrators are behind bars.

    Fact it, Americans are ready for a candidate that takes risks by saying (and meaning) such things. But neither candidate is willing to do that; they're afraid of the fallout.

    I will tell you that is really on to something. This is a bipartisan group comprised of some big-name Democrats and Republicans that—mark my words—will have a huge impact on the 2012 election. I suspect that the pendulum has swung to a point where this kind of TRULY bipartisan effort will actually work. You can only polarize the country so much before it backfires. I attended their Solutions Day 2008 conference last month and was really impressed with their ideas and plan for implementing them—true bipartisanship at work (not a dream!)

    On the FairTax issue, Eva, I urge you to read Neal Boorz 2nd book on the subject titled "Answering the Critics." It's NOT a national sales tax. It's an imbedded tax that would replace BOTH the fed income tax and payroll taxes.

    I was scared of the whole "23% more to pay" idea. In fact, I was a flat tax guy myself (until I read this). But I'm telling you, once you read it, you'll see why this is REALLY a fair tax for everyone. In fact, the economists that studied the whole thing (the sponsors of this thing have poured millions into studies), have concluded that the poor and middle class would benefit the most from the FairTax—NOT high-income earners.

    You WON'T pay 23% more for anything. That's the biggest misonception out there.

  3. Ian Says:

    Check my posting at Slate Online ( )pointing to some professional research on the FairTax. Then, listen to Dr. Kotlikoff's interview ( )on why he thinks we had better move to the FairTax SOON . . . OR ELSE!

  4. Diana Green Says:

    I love your heart, Taxmama. And I'm sold on the fair tax. I, too, lack confidence in the two candidates, but I have less confidence in Obama with his shady connections. His Chief Economic Advisors, Frank Raines, Tim Howard and Jim Johnson, are the very same Fannie Mae CEO's who got us into this mess!

  5. pismoclam Says:

    Obama wants to confiscate our 401ks and our IRAs and put into dark hole of SS. Will pay us 3% interest plus phony CPI. We will access it when we get our SS. If that's not Marxism what is. He will give our SS to illegal aliens as well as the welfare queens and homeless under the bridge. This makes me puke. I know you love Obama,TM but give me a break!

  6. Eva Rosenberg - Your TaxMama® Says:

    Hey Pismo,

    Why would you think I support Obama?

    Because I look at the stats, his fundraising and the numbers of people who support him – and predict that he will win?

    That's a prediction. Period.

    If you despise him so much, stop making baseless accusations – and go out and get the vote out against him.

    Obama won't win if people like fight back, instead of just bitching!

    Do something!



  7. Jim in Idaho Says:

    Comment on McCain healthcare plan: You don't seem to be against the plan, only against the tax credit amount. Would you be for it if the tax credit was $12,000 instead of $5,000?

    On the Fair Tax issues, how about basing the income tax on the Federal Minimum Wage. If you make less than 2 times the minimum wage, you pay no taxes. Between 2 times and 6 times the minimum wage, you pay 10%. Between 6 times and 10 times, you pay 20% and over 10 times you pay 30%. (Basically, make over $150K and pay 30%.) No exemptions, no deductions, no tax credits.
    Personally the tax code is too complicated to be understood so the only solution is to hire 'experts' to minimize your tax burden. Hogwash!!

  8. Ron Says:

    The wealthiest 5% of Americans earn about 37% of the nation’s income, but pay some 60% of the nation’s income taxes. Sure, let's tax 'em some more!

    It's a slippery slope when you start justifying why it's okay to continue to increase the tax burden of the wealthy and most productive in a society.

    A flat or fair tax would be much better than the current system, no doubt. But I guess TM would want to add a special income tax for the rich. Remember, Obama started pegging the rich at $250K, then started throwing out $200K and then Biden threw out $150K…that slope is really slippery!

    Those executives who truly committed a crime should be punished. But we don't need a witch hunt. Prudent risk-taking needs to be preserved; it's largely responsible for the dramatic expansion in our standard of living over the last century.

    This economic crisis is due more to government lapses than anything else. Here's a very insightful article on the current economic crisis:

  9. pismoclam Says:

    The top 1% pay 40% of the taxes. The top 50% pay97% of the taxes. Obama is lying when he says that he will lower taxes on 95% of the people. The bottom 40% don't pay taxes at all(get acheck from you and I) and if the Dems in Congress let Bush's cuts expire at the end of 2009, EVERYONE making Over $40,000 will see a TAX INCREASE. I'll move to Canada with Cher and the other dummies. Oh, you mean they didn't move when GW kicked Gore and Kerry's a-ses.

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