Trickle-Down

Who was paying taxes in 2009...

Taxes have been all over the news as of late… pretty much since the debt-ceiling debate (not including last year’s debate over the Bush-era tax cuts), so I decided to give it a go because of some things that have recently come out to stir the pot on this hot-button issue.  So let me start at the end of 2010 with the debate on the Bush-era tax cuts.  Everyone wanted them extended.  The major differences… the Democrats wanted to end the tax breaks on the wealthiest 2% of Americans and Republicans wanted them made permanent.  The tax breaks were continued for all for a couple of years in the end.  Now let’s fast forward to the debt-ceiling debate.  By this time we have a whole new Congress in place.  The House is controlled by the Republicans (with the Tea-Party Republicans) and the Senate controlled by the Democrats.  President Obama wanted originally just a plain bill to raise the ceiling like had been done before for several administrations.  But the Tea-Party Republicans screamed foul and wanted budget cuts.  So the President went along with that and shot for a $4 trillion cut in spending.  This was to be done by cuts across the board, reworking Social Security and Medicare to be more solvent, and by ending the Bush-era tax cuts to the wealthiest 2% of Americans.  This died quickly as the Republicans stood their ground by repeatedly saying “they would not raise taxes on anyone.”  The deal was reached with just budget cuts and a plan to cut more… but there was no reworking of entitlement programs and no end to the Bush-era tax cuts.  The Republicans and the Tea-Party remained adamant that taxes for any person or any corporation should not increase.

Let’s skip ahead to the past week and the op-ed in the New York Times by billionaire (and one of the world’s richest people) Warren Buffett who was basically screaming at Congress to stop coddling the super-rich and to tax them more.  Yes… someone was telling Congress to tax them more.  And this isn’t the first time Buffett has told Congress this.  They just don’t know how to listen very well.  Buffett paid about 17.4% in taxes last year; whereas, the other 20-people in his office paid between 33-41% in taxes.  How is this so?  Tax-loopholes and the fact that most of his money comes from his stocks/investments… capital gains.  Buffett is mostly screaming for the top 1/2 of 1%… the rich of the rich or the cream of the crop so to speak.  And his arguments have hit a chord amongst the average person.  In fact, the day it appeared, it was the most retweeted thing on Twitter.  Why?  Because the average person believes the rich (especially the super rich) get off more easily and they are having a harder time just trying to make ends meet, and what Buffett said reinforced that belief.

So did Congress hear anything yet… “That the wealthy are being coddled and have it the best they’ve ever had”?  To a degree… and to a lesser degree, at that.  Republicans in Congress have no hinted that they may approve an increase in taxes.  But not to the degree of what Buffett was writing about or to what the Democrats and President Obama have wanted.  In fact, the likely tax increase will be opposed by all of them.  Why?  Since the beginning of 2011, there has been a tax cut in place off our paychecks… a payroll tax cut.  It is only good for this year and expires at the end of the year.  This has put on average $1000 extra dollars into the pockets of hard-working, average, everyday Americans who are just trying to pay the bills and keep the economy somewhat chugging along… even if it appears to be limping at present date.  The Republicans have stated that they want the payroll tax holiday to end at the end of the year and thus increasing taxes on those of us who are working and trying to make ends meet in a slower economy.  After fighting tooth and nail and screaming that there was to be no tax increase at all period, they have now done an about face and want to tax not the people that can easily afford it but those that can’t.

2011-2012 Tax Revenue

Of course they have their reasoning for this, too.  The rich, with their extra money from tax cuts, will use that money to help investments and by getting people back to work, etc. etc. etc.  Basically the same sticking points the argument has always been for tax cuts for the wealthy.  And this should all sound somewhat familiar to those that are old enough because it’s very similar to the theory of trickle-down economics of the Reagan years.  The problem is that we have proven since then that that didn’t work.  And to make the case again now is completely ridiculous because the rich have had this money since the Bush-era tax cuts were put into place almost 10-years ago, and I haven’t seen any investment or anything trickling down at all.  They aren’t investing in our economy or creating jobs.  They are sitting on that money and making more money off it… the same as they’ve always done with it.  This is why the gap between rich and poor has gotten so much wider.  And this is also why the middle-class gets hit with tax after tax after tax.  The Republicans have also been arguing that the Bush-era tax cuts, which again I remind my readers that they were done almost 10-years ago and will again come up for a vote next year, were meant to be long-term and continually renewed; whereas, the payroll tax holiday was only meant to be temporary and therefore shouldn’t go past the end of the year as it was set up.  Sound like a twisted answer?  Allow taxes to increase on those that can’t afford one, but keep everything in place for those that can.

Tax reform is desperately needed in this country.  These short-term solutions aren’t going to cut it.  And yes, the Bush-era tax cuts are considered short-term solutions though the Republicans want to make them permanent for everyone.  And like anyone, I like keep more of my money that I earn… and was happy for the tax cuts, except I saw through the smoke and mirrors.  (And if I did write about the Bush-era tax cuts, it probably would have been on a different blog.)  He’s letting me keep more of my money (or in the case of the initial stimulus that was pre-Obama, when the government was sending out rebate checks), but at the same time, the administration didn’t cut spending so it was still spending the money that I then had in my possession.   What does that mean?  It means that I would have to pay it back with interest.  The long-term picture of this was not on anyone’s mind.

I do agree with Republicans on a key point (and it will probably shock most of my friends when they read this).  Corporate taxes should not be increased… and this does include energy companies.  My reasoning is based on simple economics.  Companies (especially energy companies) are making big profits.  The average person wants the energy companies to be taxed more to help bring in revenue (since most of us realize that spending cuts aren’t going to do anything unless the federal government can get added revenues somehow).  But there is something that is being overlooked.  Energy companies are businesses, and they aren’t going to allow higher taxes to take away more of their profits.  They’ll just raise the rates as to what they charge us as the average consumer, and their profit margins will be just fine.  Unfortunately, it will be costing us more in the long-term because we would be paying more.  This is one of those cases where it sounds great on paper but in reality, it just won’t work out that way… especially in the current state of our economy.

So what are the options for tax reform?  We are getting close to an election year, so we are going to be hearing a lot of hype about our tax system from all the candidates.  Republican candidates are espousing permanent extension of all the Bush-tax cuts (even for the wealthiest 2%) but also pushing for flatter tax brackets.  Their plans might not be a complete flat tax, but flatter than what they currently are.   The other week, I was having a nice dinner with a friend that I hadn’t seen in a couple of months when we started talking about this, and he brought up an interesting idea… more tax brackets than there currently are so that a person’s income is more proportionately taxed rather than being these bigger brackets.  It’s an idea I hadn’t even thought about.  I don’t mind paying my fair share… but the key word in that is “fair”.  I will agree that tax loopholes need to be closed and will agree with Warren Buffett that the wealthiest need to pay their “fair” share and not have everything come down on me, the average working man.

So in leaving you with all of this to ponder, I have a few questions for your opinions.  Should the payroll tax be extended at the end of this year, and are Republicans being hypocritical by threatening to allow them to expire?  Should the Bush-era tax cuts be extended next year for everyone, for some, or shall they go away?  What are your opinions on the flatter-tax brackets idea that the Republicans are talking about and what are your opinions about the idea of more tax brackets that might tax your income more proportionately than the current system does?  And my final question… what are your overall ideas on revamping and overhauling our tax codes?  Leave your opinions below.

LINK:  Warren Buffett’s op-ed piece from the New York Times

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One Response to Trickle-Down

  1. hotshot bald cop says:

    I agree 100%

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