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Your Take: Is Our Tax System Fair?

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Tax CalculatorWhen Miranda approached me with the idea for this morning’s story, based on what she recently read in a CBO report, I thought it would make for an interesting (and lively, as all political and tax related Your Takes tend to be!) topic of discussion on the eve of the 4th of July. We’ll be taking tomorrow and Friday off but I wanted to discuss this before everyone left for the weekend, so we accelerated the Your Take to a very rare Wednesday afternoon. Hopefully you’re all still here and can chime in.

Personally, I think our tax system is overly complicated because it’s a series of tax breaks and tax punishments to incentivize and penalize certain behavior. The end result is something that analysts have to review and project the impact (they project to ten years and then freely admit there’s no way the projection is right because law will change in two) and it’s always complicated.

What amazed me about this morning’s story is that you can put that title “Top 20% get more than half the benefit” right next to “half of Americans don’t pay any taxes” and they both are right because they’re looking at two different statistics. The top 20% get more than half the benefit of tax breaks because they make that much money than the bottom 80%. The bottom 47% don’t pay any taxes because they make too little.

Is it fair that they don’t pay taxes? Is it fair that the top 20% get the majority of the benefits of tax breaks? Or is it a big psychological game so that everyone feels like they’re “winning” something?

(Credit: kenteegardin)

{ 29 comments, please add your thoughts now! }

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29 Responses to “Your Take: Is Our Tax System Fair?”

  1. Demi says:

    There is only ONE fair way to tax the masses: flat tax and every one pays their share. Period. No discounts. No deductions. No special orders.

    • dmosinee says:

      You do realize that switching to a flat tax system would cause your tax bill to go up significantly, right? (I’m assuming you’re not a multi-millionaire)

      I think this is a thing that many advocates of a flat tax don’t realize — they think that a flat tax would somehow mean that everyone would pay less at the end of the day. If we were to switch to a flat tax system, while remaining revenue-neutral (which you have to do to give a fair comparison between tax systems); it would mean that the rich would pay far less in taxes, the middle class would pay a significant amount more than we do now, and the poor would be crushed under the heel of heavy taxes they can’t afford to pay. The only way the numbers add up is if the middle and lower classes pay a lot more to make up for the huge loss of revenue from dropping rates on top-earners.

      Even if you don’t care a lick about the poor, I doubt many people think that the solution to our tax mess is to jack up rates on already stressed middle class earners.

      If you’re about to respond saying “No, we’ll just set the flat tax rate to what the middle class pays now.” then your plan would not be revenue-neutral. You’d really be talking about a change in fiscal policy (slashing spending so we don’t need as much revenue) as opposed to tax policy, and so it wouldn’t be a fair comparison (because we could also just slash spending while leaving the system as it is now).

      • Graham says:

        There’s been a lot of discussion about paying one’s “fair share.” How do you define fair? I define fair as a pie that consists of 300 Million Americans (not accounting for illegal immigrants). Each person should pay 1/300,000,000 of that tax bill. Give all Americans the same effective tax rate. That’s how I define fair. Our current system disincetivizes people who earn a decent amount of income from earning more, and it incentivizes people who don’t earn much income to earn under a certain amount of income. Talk about vicious circle. On top of that, a majority of the people who pay all of these taxes consume little to none of the services that taxes provide. Conversely, those who pay NOTHING into this system consume the vast majority of the services that are paid for by the tax-paying citizens. It also doesn’t help that illegal immigrants compound this issue.

        • dmosinee says:

          You responded to my comment, but you did not actually respond to any of the points that I made. My comment had nothing to do with what is “fair” (and did not mention it once); my post is about the realities of switching to a flat tax system.

          To your point “Each person should pay 1/300,000,000 of that tax bill”, that works out to each man, woman, and child in the U.S. paying roughly $6,300. So you’re suggesting that every single family of 4 in the country pay over $25,000 in federal income tax ALONE (that number doesn’t count state income tax, federal SS/Medicare withholding, or other items like sales and property tax). Median household income is around $50,000 — so that works out to an effective federal income tax rate of 50% on the average family.

          If I go by your next sentence “Give all Americans the same effective tax rate”, then we need an income tax rate to apply to all that would result in collecting $1.9T in revenue. Based on recent data, a federal flat income tax rate of a little over 15% with no deductions would accomplish this. Median effective household rates are currently around 7%, so you’re talking about more than doubling that tax burden on the average family. Not as hard to swallow as the 50% above, but still a big gut-punch to families working hard to stay afloat in this economy.

          I’ll rephrase myself from above: if your argument relies on bringing in less than $1.9T in the first place (as it seems to do, given the text about those using all the services and immigrants), then you’re talking about fiscal policy (how we spend the money), NOT tax policy (how we get the money).

    • Robert says:

      FAIR. Yes a FLAT tax is the only way to make it FAIR. That way EVERYONE pays something. Or giv everyone an exemption on the first 50k and then a 10-15% rate on everything else. No deductions etc.. The question was is out tax system fair. Currently no. You say the wealth get the tax breaks and benefits. They should as they pay the most taxes. I am not wealthy, but why is ANYONE entitled to anything someone else has earned? Is that fair??

  2. Demi says:

    I posted a comment on here…not sure where it went.

    I believe a flat tax is the only way to go. Period. No discounts. No deductions. The current tax system is convoluted and is as a result of one law trying to fix another. Scrap them all an institute a fairly written flat tax for all…even those collecting welfare. Paying taxes builds responsibility that those that collect free forms of money do not know, nor do they understand. When I have to save every month to pay my school district based property tax…or I risk losing my home to a tax sale…believe me, I am very responsible about saving that money.

  3. Terry Pratt says:

    I’ve had a tax idea for some years:

    Everyone pays a nominal minimum income tax, I suggest something in the range of $100 – $500 for a childless adult. (Currently a single, childless adult working full-time at minimum wage pays a little more than $500 annually.)

    Next, an income level is determined which allows a person or family to enjoy disposable income. e.g. $30K (used for illustration). No additional income tax is owed on income up to this amount, and income above this amount is taxed at a flat rate.

  4. Glenn Lasher says:

    Regardless of whether you use a bracketed, gradiated, flat or whatever tax, I think it is a very bad idea to tax assets. We do this now to pay for schools and town/village government. The problem is that the presence of an asset doesn’t equal liquidity, especially if that asset is your home. Tax income, sure. Tax spending, sure. Tax interest, sure. These are all places where money is liquid and flowing.

    I’ve often thought that a fairly low tax on all sales might be the way to go. This would differ from a VAT in that the tax would be levied on the revenue, not the profit. The actual percentage could be kind of low because any given dollar of value will be taxed multiple times from raw material to consumer, but the task of computing the tax would be very easy and if there are no exceptions, it could suffice. Break it into slices for each layer of government involved, and collect/pay it on anything any time money changes hands. (For this purpose, though, putting money in your bank account wouldn’t count as it changing hands, but any interest it earns would).

    Moving to a different idea, more closely related to what we have now, I’d like to see the distinction removed between investment and earned income. I don’t think it should matter whether your income came from you lending money or from you going out and busting your hump.

    So while I don’t think I know what solution is ideal, I think it is very easy to come up with systems better than what we have now. This is without even taking this to the next step of questioning the difference between a fair tax system and a just tax system.

    • Sailor Jo says:

      Taxing assets is bad. I owned a piece of land on which I wanted to build my retirement house. In the real estate bubble the taxes went up 500%. The county was flooded with undeserved money and the schools were wasting it. Finally I had to sell the place because the taxes sapped my saved money to the point that I could not build any more. Thanks to all the law makers who think these taxes are fair! Or do not care.

      The only somewhat fair tax system is a good VAT and removal of all other taxes and tax substitutes like “fees” for nothing.

  5. Ben says:

    The biggest, but by far not the only, problem with the tax code is the enforcement agency: I. R. S. = unelected, unaccountable agency with unlimited enforcement power: In complete disregard for the bill of rights one is guilty until one proves -to them- ones innocence.
    They get caught being a hatchet-man for one political party against others and what is the result? Paid vacations, bonuses, & early retirement.

    • dmosinee says:

      Have you actually read the details of the congressional hearings? Your supposed “hatchet-man” used the SAME “hatchet” against BOTH political parties, so your argument that it constitutes a partisan political attack is completely counter-factual. Even if it was one-sided, it could hardly be called an attack, considering that at the end of the day NONE of the tax exempt status applications by these groups were even denied.

      There are serious problems with our tax system that deserve attention, but it doesn’t help anyone to throw around misinformation and untrue statements.

      • Graham says:

        I would hardly say that the IRS was targeting both parties…

        “Sarah Hall Ingram served as commissioner of the office responsible for tax-exempt organizations between 2009 and 2012. But Ingram has since left that part of the IRS and is now the director of the IRS’ Affordable Care Act office.”

        Yeah, we still have the commissioner of the office at the time of this scandal involved in our government. That definitely restores my faith. But of course, no partisanship here.

        And just because none of the applications were denied, does not mean they didn’t abuse their power and act unethically. If someone mugged you, but gave your money back afterwards, would that be ok with you?

        There are serious problems with our tax system that deserve attention, but it doesn’t help anyone to throw around misinformation and untrue assertions.

  6. Donald says:

    Everyone who earns a paycheck or spends money pays taxes. There are no personal exemptions or deductions for the payroll taxes which supposedly go to Social Security and Medicare. Sales taxes are charged in most states on nearly everything you buy except food. Renters pay property taxes indirectly through their monthly rent. Let the whining about people not paying taxes stop now, please.

  7. admiral58 says:

    def not fair when half the population has no skin in the game. congressional democrats could never put through a flat tax because that would upset so many of their voters.

  8. I think the tax system is intentionally designed that way it is–“a series of tax breaks and tax punishments to incentivize and penalize certain behavior”–to facilitate financing of politicians’ campaigns.

    If Congress and the Prez ever abandoned the opportunity to target tax benefits and punishments (say through a genuine flat tax), the gusher of direct and indirect campaign contributions aiming to affect tax policy would dry up. In other words, a simple tax system is ‘bad for business’–if your business is controlling government!

  9. Debbie says:

    I am a Christian and believe in tithing (10%+ whatever else I am moved to give). For those who pay taxes, 15% is the minimum plus all of the taxes we pay as business owners, homeowners, state tax, social security, sales tax. It is not fair – for those who honestly pay their share. When fraud is uncovered, it is on a massive scale. Not enough monitoring. A flat tax on all goods and away with the rest!

  10. AJ says:

    No, it is not fair.
    What’s wrong with a flat tax?
    That is the only “fair” way to tax.
    What is the logical argument against it?
    You make more you can afford to pay more.
    If you make a little, you pay a little….some are probably not paying any taxes because they make a little, yet pulling out welfare. Why not think of income tax in these situations as ‘insurance’? Paying a bit into the ‘system’ to get benefits out of it?
    The other side of a flat tax is that the IRS could be much smaller. Really it would only have to monitor business’ if the onus is on business’ to tax employees at the flat tax rate. Individuals would no longer have to file returns, the tax would have been deducted already. Well, items like tips would have to be figured out. I’m sure I’m being too simplistic, but still it is time to make taxes fair for the middle-class.

  11. Erin says:

    I’m not sure of the best solution, but I think it is RIDICULOUS that the smartest/most efficient/most effective way to file taxes is to PAY someone to do it. I’m in my 20’s and completely shocked at how much I have to work if I try to file my own taxes. I do not know if a flat tax is the best way to do things, but I do think things are overly complicated.

    I want to be in control of my own money, but I do not want to miss out on possible exemptions and deductions because I do not know about them. Attempting to understand the tax system (both state and federal) has been extremely discouraging for me to continue to try to learn.

  12. JoeTaxpayer says:

    There is no system that all would find fair. If you confiscate the wealth of the top 1%, we’d still be in a mess. The tax breaks impact those who pay tax. That would stand to reason. I have no issue with the 47%, except perhaps with those who have $100K+ coming in tax free muni income. My friend or neighbor with 2 kids and a $40K income shouldn’t pay a federal tax and they don’t.

    Changes to the tax code never simplify the code, they just expand it. I’d propose that for every line added, four must be removed. Simplify. When (mortgage) rates were 10%, the tax deduction made a huge difference. The mortgage I got in 1996 had $37K interest the first year, and you can be sure I appreciated the $10K tax savings early on. My interest burden is 1/4 what it used to be, less than $9K, and with sub-5% rates, still, it’s time to eliminate the deduction, and many others. Stop the social engineering via tax code. And get of that damned AMT.

  13. Russ Colvin says:

    I don’t know why all these replies do not mention the H/B 25 or fair tax. This is a tax that everyone who buys a new product would pay. I mean every one. criminals, drug dealers[SAME THING]illegal aliens,rich,poor,POLITICIANS,big companies, little companies,etc. If you have not heard of it go to and study it.

    P.S. It would abolish the Infernal Revenue Service

  14. Jay says:

    No it should be a flat tax. Get rid of most of the income tax and substitute it with a sales tax and exempt food. That would be non-regressive tax. You just have to get it passed through all the lawyers in Congress.

  15. rick says:

    It is better for the rich to pay more taxes. a flat tax is unfair, because everyone needs to buy a certain amount of things just for subsistence. The rich mainly prosper off the sweat and hard work of the poor and have little regard for anyone unless they are forced to pay a little extra. McCrory is espousing a high sales tax in NC and it is such a regressive tax.

  16. Shafi says:

    As long as the tax system depicts the following two points, it can never be fair:

    1. The more you make, the less you pay – ever heard of loopholes?

    2. The less you make, the more you pay – never heard of loopholes?

  17. Ann says:

    They should have did a flat tax rather than tax everything you see, do and have. Would have worked out better and less confusing as to what is and what is not taxed. Most things are double taxed as it is. I’ve come to the conclusion they don’t want this to work. There’s not enough money to confiscate if they did a flat tax. You would know where it is all going and who has it!

  18. Can'ThinkofaCleverName says:

    There is a lot of misconceptions. Most high earners (top 10%) pay the majority of the taxes. I am a high earner (top 2%) and about 1/3 of my income goes towards taxes. That being said, I am well aware that I cannot benefit from most tax deductions due to income limits. Perhaps the mega rich are privy to “loopholes” that I am not aware of?

  19. ChrisCD says:

    First, just look at the time it takes to complete your taxes, especially if you own a business.

    Second, look at the size of the entity (IRS) and how much it costs just to collect our taxes.

    We would all save a ton of time and the Gov’t would save a ton of $ if it went to some sort of a Flat tax scenario. And if the Flat Tax were collected via sales taxes, they would capture a lot of revenue that they are missing.

    Providing a credit to low income earners would offset the increased tax.

    Everyone should pay something. We all benefit from the various services and infrastructure that our Gov’t provides. But to ever have to give over 50% of your income no matter how much you make is just ridiculous.

    So, no our current system is not fair.

  20. Flat tax is the way to go. Not sure why we cannot implement this. It is the most fair to everyone.

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