While everyone is hurrying up to complete their taxes before April 18th, I thought I would give an interesting discussion on the topic. Tax Freedom Day occurred April 12th this year. So, congratulations as you pay your taxes this year. More than likely you have earned enough this year to pay for your taxes for the full year. It’s time to get productive and invest, and spend the rest on yourself and your family. The sobering fact means from January 1st till April 12th your income is solely going towards taxes.
According to the foundation, this year is one of the earliest dates in the past forty years. However, it’s not necessarily directly related to the tax code, but also related to how well the economy is doing. For example, May 1st 2000 saw the highest date because of the dot-com bubble, and all of the capital gains from selling stock. The date also depends upon the state you live in. Unfortunately for me, New York is the third highest at April 24th. You may think we have it bad, but other countries are worse. Norway ranks number one. On average you are paying taxes until July 29th in Norway!
If find it ironic (or maybe moronic) that Obama gave a highly partisan speech about the budget deficit and taxes a few days before taxes are due. One thought with the 2010 elections he would have stopped the class warfare. Obama agreed to the extension of the “Bush tax cuts”, which should now aptly be named “Obama continues to do everything Bush did”.
However, with his speech Barack was back! He was in full force with his usual “The rich have to pay their fair share” and the “rich don’t pay enough” rhetoric. News flash! The top 10% in income, pay 70% of all taxes collected. So Obama wants to increase the burden on this group. From the 2008 results, this includes any household making over $110k annually. While that salary is certainly higher than the national average, that isn’t anything atypical in a high taxed state like New York or California. From reports it appears the general public agree with Obama’s sentiment. Don’t tax thee, tax the guy behind the tree.
Let’s talk about facts, though. The fact is no matter how much we “tax the rich”, they don’t make enough money to cover budget deficits. If we taxed the upper five percent 100% of their income, from accounts I’ve seen, it would only cover 6 months of the 2011 budget. So Obama, please remind me who is going to pay for all of these additional entitlements? The simple fact, without reducing the budget, is we can’t without purposely devaluating the dollar and causing high inflation. The CBO not only has a budget deficit this year of $1.8 Trillion, but deficits like this for the next 10 years!
Over the years the government collects approximately 18% of GDP in taxes. It varies over the years based upon how well the economy is doing or various tax policies. So, no matter what we do, we collect approximately the same percentage. The problem we have now is the government is 25% of GDP. So how do we expect to make up for this shortfall in taxes? As it has been stated many times, we don’t have a tax collection problem, we have a spending problem.
Instead we have reports of the IRS targeting very high income individuals. It’s not that I have an issue targeting this group per-se, but honestly how much do they expect to get from this group? Typically this group has an accountant (or a group of accountants and tax advisors for that matter), whose job it is to make sure they are in compliance. Do you think these tax professionals would risk their reputations and their careers over a very questionable deduction? Don’t you think if one client of an accountant gets audited, the IRS knows they should start investigating their other clients? The problem isn’t compliance, but tax code complexity and ambiguity. If a flat tax existed, we would be able to eliminate hundreds of thousands of jobs within the government, and within the private sector for compliance. These people would be free to do much more productive activities than repairing broken windows.
Fortunately our government and Obama were smart enough to repeal the 1099 requirements that were included in Obamacare. So all hope isn’t lost in restoring some sanity with our government.
What I propose is massive budget decreases and removal of the complex tax code. The just recently past $40 Billion dollar budget cut is a joke and with our current budget is spent in a few days. Even Obama’s $4 Trillion dollars over ten year proposal is a joke based upon the estimated CBO deficit numbers. I propose everyone pay a flat 20% of their income to taxes. No deductions, and no exceptions. Obama’s speech was just more political rhetoric about how the rich have to pay their fair share. My point is everyone needs to pay their fair share. Representation without taxation always leads to individuals voting for more entitlements. If you aren’t paying for it, you’ll want more of it.
Readers: What do you propose we do to eliminate our budget deficits, and get us on the path to prosperity?