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The Truth about the Tax Overhaul

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CORRUPTION WATCH-The new congressional mantra is that a tax overhaul will somehow lead to increased jobs and a better economy. The theory is that the concentration of capital in the hands of a few superrich people will better produce jobs than that same capital spread out among a broad portion of society. 

The proposal deals with an alteration of the federal income tax system and the specifics of income taxes, estate taxes and corporate taxes. The federal income tax system is the collection of taxes by the Internal Revenue Service and is only a portion of the taxes actually paid by the citizens. Taxes are broken into two general categories ‘progressive’ taxes and ‘regressive’ taxes. ‘Progressive’ taxes means that the more you earn a higher percentage of your earnings will be used to pay taxes, up to a limit. 

‘Regressive’ taxes on those taxes which are substantially paid by the lower and middle income taxpayers. The taxes are not based upon income but rather on your expenditure of money.  Since middle income and lower income taxpayers spend the majority of their income they pay a higher percentage of that income in these residual taxes such as sales and gasoline taxes. Those with higher incomes tend to spend less of a percentage of their income and save more. Therefore the percentage that is spent on sales and gasoline taxes are a small percentage of their income. 

The federal income tax system is a progressive income tax system and has been such since the creation of the Internal Revenue Service. Depending upon your income you may pay anywhere between 10% and 39% of your taxable income to the federal government. The maximum tax bracket,  39% at this time, is approximately 1/2 of the rate that it was 40 years ago.  The sales tax has risen almost 50% in Los Angeles at during the same time.  Where are all the tax protestors? 

Income taxes are only a percentage of the taxes that each individual pays as taxes are levied on transactions such as sales and gasoline. These taxes are known as regressive taxes because everyone pays the same percentage without regard to your income. 

The federal government is considering increasing the gasoline tax because gasoline usage has been reduced at the recommendation of the government. Even though you don't buy as much gas they want you to pay the same amount of taxes. Many states have been increasing vehicle registration tax and also gasoline taxes in order to make up for the reduced income caused by gasoline efficiency. It seems a bit ironic that those who encourage you to reduce your usage of a commodity want to tax you for having followed their advice. 

The purpose of taxes is to redirect capital towards the needs of a broad society. Many industries have been developed through the use of tax credits provided by the income tax system. Among these industries are the oil and gas industry and the real estate industry.  They have prospered with government subsidies and credits in order to expand the growth of those industries. Now the same people who have benefited from government programs now want to reduce the government's involvement in the taxation of the profitability that was generated by those programs. 

Let me make it clear that I'm not in favor of any substantial tax increase for any tax bracket because I believe that the government receives too high a percentage of incomes already. However, the reality is that those with the money must do the funding of the government. 

I've been a CPA for more than 25 years and have heard many complaints about the amount of taxes that are paid by not only the wealthy but also moderate income individuals.  Everyone understands the necessity of taxes in a free society. Most do not have a problem paying those taxes as long as they feel that they are fair in relation to what everyone pays. No one wants to pay more taxes. 

I believe that one formidable revenue generation vehicle would be a tax on political contributions. I don't want to hear the excuse that such a tax would somehow limit the First Amendment rights of those who were being taxed. Newspapers and film companies all pay taxes on their money. 

The substitution of hidden and regressive taxes for a responsible progressive tax regulation that has been the history of the United States is a danger to the middle income that make up the broad taxpaying base within the United States.

 

(Clinton Galloway  is the author of the fascinating book “Anatomy of a Hustle: Cable Comes to South Central LA”.    This is another installment in an ongoing CityWatch series on power, influence and corruption in government … Corruption Watch. Galloway is a CityWatch contributor and can be  reached here.

 -cw

 

 

 

CityWatch

Vol 13 Issue 33

Pub: Apr 21, 2015

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