Taxes good when you pay, not so good when I have to pay

I watched a steady stream of poor people pass my window on the way to meet the April 17 income tax deadline. They must all be poor because the mainstream news has convinced me that the Bush tax cuts have left all rich people with no taxes to pay.

Baloney. More than 40 percent of income-earners in the U.S. pay no income taxes at all. In fact, people that have income in the lower 21 to 40 percent income group receive $30 billion sent to them from the Earned Income Tax Credit (EITC). This is “earned” even when they have paid no taxes.

A portion of those making $10,000 per year are eligible for up to $5,000 in EITC funds. Not bad to pay no income tax and get a check equal to half your gross pay.

Actually, smaller amounts of the EITC money went to people making as much as $75,000 per year when the taxpayer has a large family. In addition, parents also receive a child credit per child. I did raise a family and it cost a good bit and I do not begrudge a tax break for parents. However, I do have a problem with the “common knowledge” that only the rich get tax breaks.

The income tax system is the most direct “poverty” program in this country and redistributes lots of dollars from the wealthy to others, according to social policy experts on both sides of the issue. I did not say that is bad policy, but I do give the rich folks credit for sharing the wealth with the masses, even if you do think the rich get too much.

First, recognize that nearly half of the people pay zero income tax and get a $30 billion slice of what others pay.

Five percent of the people pay 50 percent of all the income tax collected. The top one percent (a million families or individual filers) pay 30 percent of the total. These “rich” taxpayers pay 50 percent more of the total than they did in 1977 before the Reagan and Bush tax cuts.

Many believe all those “rich” in the top 1 percent of taxpayers are billionaires. Actually, the top 1 percent includes a total of 1.3 million taxpayers and the income level began at $327,000 in 2003.

Some people make the mistake of thinking the same people are always in the poor or in the rich categories. An Internal Revenue study of taxpayers over time indicates people move up and down. A common pattern is for a family or individuals to move up the income scale as they get older, have better jobs and invest money. People in their 20s expect to make more money at 40 and 50. The majority do, but some do not. Sickness, divorce, losing a job or making poor investments decreases income. Many workers at Enron and in the computer tech business lost income after Sept. 11, 2001.

It seems to be good politics to soak the rich and give to the poor. I am sure the 40-plus percent who pay no income taxes like higher tax rates on the rest of the people. Note the outcry when Congress wants to cut food stamps, rent subsidies, welfare or help for seniors. When 5 percent of the people pay 50 percent of the income tax, the voters that reap the benefits greatly outnumber the taxpayers left to vote.

Few realize that someone has to feed the Golden Goose. If no one makes a lot of money, those who pay for the benefits won’t have the money to continue paying. The rich will always pay for the largest part of government, provide the money for investments that creates jobs and make contributions to public projects. I appreciate that the USA provides a system where a poor kid can make his family rich because he can shoot a basketball, hit a baseball or throw one 100 miles per hour.

In most societies around the globe, individuals are born to a station in life with little or no chance to better themselves.

Those illegal immigrants are not fighting to return to Mexico where the rich stay rich and powerful and the poor stay poor and hungry.

Most people would be amazed to know that Internal Revenue data indicates the top 20 percent of income-earners in the U.S. begins at $75,000. A family of two school teachers making $40,000 each and filing together are in the top 25 (rich) percent. Individuals making $800 per week are in the top 25 percent, says the IRS, and they have the figures to prove it.

Surprise. You may be one of those “rich folks” the media demeans for being rich and getting “huge” tax breaks. Taxes are best if you pay them and terrible if I have to pay them. Do you agree?

Window Pain

Ronald Reagan worked in Hollywood when the tax rate on $1 million was $910,000 (91 percent). If that rate were in place today, a ballplayer, business owner, investor or movie star getting $10 million per year would pay nearly all the income past the first million to the government for taxes. What incentive would there be to make two films, start a business, risk investments or play pro sports? Why risk capital when the government would take 91 percent anyway?

That was the experience that motivated Reagan to propose the tax cuts that revived our economy in the 1980s. He got the votes from a Democratic-controlled House of Representatives. Lower taxes increased government revenue because the money is risked for investments and people worked more. The money circulates, creating income to be taxed.

Reagan turned the Golden Goose loose and George Bush learned from the Reagan experience. But Democrats of today have forgotten what they learned from Reagan tax policies.