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A tax-time tale

This is an old story about taxes. The numbers may need to be adjusted a bit, but I would bet that that adjustment would be very small. The article I am pulling the story from was published just a bit over four years ago. It still illustrates very simply what is wrong with a "progressive" tax system and the entire "tax cuts for the rich" mantra you hear from the left and from Democrats every time tax cuts are proposed: 

Ten men go to dinner every day and order the same meal. Each meal costs $10, making $100 in all, but they decide to pay the bill the way we pay our taxes. So the first four, being poor, pay nothing. The fifth is better off, so he pays $1. The sixth pays $3, the seventh pays $7, the eighth pays $12 and the ninth pays $18.

The tenth man is rich. He has worked long, hard hours, saved and invested wisely, and it has paid off. Therefore, he pays the balance of the bill, which is $59.

This really is how our tax code works; the top 50 percent of taxpayers pay more than 96 percent of our taxes. The other 50 percent pay less than 4 percent.

Back to our story.

The restaurant cuts the cost of their meal to $80 (reflecting Bush’s proposed tax cut) so now the cost of each man’s meal is reduced.

The first four still pay nothing, but now the fifth also pays nothing. The sixth only pays $2, rather than the $3 he has been paying; the seventh pays $5, rather than $7; the eighth pays $9 rather than $12, and the ninth pays $12, rather than his customary $18.

The tenth man also gets a $7 cut from the $59 he has previously paid, down to $52. He is still paying most of the bill, but at least he too enjoys a cut in his rate.

...

The sixth man looks at his cut, from $3 to $2, and says,"I only got a $1 cut out of the $20 reduction in the cost of our meal, but he (pointing to the rich man) got a $7 cut."

The fifth man says, "Yeah, that’s right. I only saved a dollar, too. He got seven times more than I did."

"That’s true," shouts the seventh man. "Why should he get $7 back when I only got $2? The wealthy get all the breaks."

"Wait a minute," yell the first four men in unison."We didn’t get anything at all. The system exploits the poor."

Now we have a mob. The laws of democracy — mob rule — take over and they turn on the tenth diner. They grab him, tie him up and threaten to lynch him.

The proprietor watches the goings-on and decides to step in. He takes the seven dollars out of the tenth diner’s hand and gives it to the other nine.

Mollified, they untie the tenth man.

The next day, the first nine diners show up for dinner, eat, and get an $72 bill.

The tenth diner doesn’t show, doesn’t eat and therefore, doesn’t pay more than half the bill.

Oh, my goodness! Guess who must pay for their own dinner?

As the deadline for filing my taxes approaches, far more rapidly than I'd like, this story reminds me how unfair our income tax system really is. I'm used to the socialist rhetoric that would divide our nation along lines of "class", and I've rejected it all of my life.

I've heard lots of proposals for a "flat tax". I've watched them proposed in Congress, and I've watched them fail. Invariably the left is outraged that the rich receive a larger tax cut than the rest of us, even though the percentage rate of that tax cut is smaller than ours.

The typical whining about "why should the rich get more" really doesn't fly as far as I'm concerned. The rich aren't "getting" something from government when their taxes are cut, they're just being soaked a little less. The people who "get" something from government at tax time are the people who receive "earned income credits" or in so many other ways manage to get back more at tax time than they paid in. THAT is what isn't fair.

The socialist redistribution of wealth, earned wealth, is fundamentally unfair. It's also counter-productive. I've always believed that when you punish a behavior you get less of it, and when you reward a behavior you get more of it. It's common sense.

Think about that a bit when we talk about income tax, and you might see what I mean. If we punish the behavior of earning an income via a "progressive" tax system, more and more people will find earning an income less attractive. If we reward the behavior of not earning an income by giving credits to people that didn't earn much, more people will wonder why they bother to work to earn an income. This so-called "progressive" tax system actually encourages sloth and provides disincentives for productivity.

The government tries to mitigate this a bit. They don't really want you knowing just how much you're really paying. So they invented income withholding. That's a nice little euphemism. It's also a lie.

The government isn't withholding something from you. They're taking something from you. Withholding implies that the government is the source of your income. What's really happening is they're taking what you earned, by force.

Something horrible happens at tax time. By taking a little out of every paycheck the government hides (in plain sight) from you how much they're really taking. A lot of people do their taxes, and they are happy when they don't owe anything more to the government. Some of them are really ecstatic when they find they are owed a refund.

But what happens if you find that you owe more? If you owe enough, the government tacks on a penalty because you didn't allow them to take enough of your money from you during the year.

You are being forced by the government to give them money with every paycheck, and if you don't give them enough, they penalize you for it, even though your taxes haven't been calculated yet. Most of the time, you never see this forced taking of your money. All you see is your net (after tax) earnings. So when you get money back, or don't have to pay any extra at the end of the year, it's a relief.

This is a scam. When I hear people talk about their taxes, I hear statements like: "I didn't have to pay anything this year." or "I got $500 back on my taxes this year." That's a crock of manure. Look at the total tax paid, not at "the amount you still owe" or "the amount you are owed". That number should frighten you. If more people looked at the total tax paid rather than their refund, or small amount owed, the progressive tax system's inherent unfairness might be more obvious.

The lie of withholding makes the confiscatory tax rates seem less of a burden. Only people that don't earn a significant amount of money benefit from the progressive tax system. Those people actually get paid by the government not to earn an income. In the story of the ten men going to dinner above, this would be like having the two poorest men actually being paid to eat, so adjust the tale a bit. The 10th man pays $61 to begin with instead of $59, and the two at the bottom each get given $1.

What's worse, we punish the state of being rich. So if a rich person decides not to work, but to live off of their investments and their estate, we still tax them. In fact, if they were able to reduce their tax burden by taking deductions like the ones allowed for paying state income taxes, paying for the depreciation of equipment and so on, even if they take a loss we apply the alternative minimum tax.

This tax is a true abomination. A business that loses money, but still does an appreciable volume of business is taxed as if it had actually made money. Worse yet, the middle class taxpayer is more and more often getting hit with the alternative minimum tax, whenever they would pay more based on it than they would through the normal tax system.

To put it mildly, our income tax system is grossly unfair, not to the poorer segments of our society, but to the segments of our society that earn the most. If you believe that money comes from government, then all is right with the world. But if you believe that our economy is driven by entrepreneurship, hard work, and the like and that government can only take from producers things are not fair.

While we're on the subject of fairness, consider this. In our criminal justice system you are innocent until proven guilty. Try and convince the I.R.S. of that!

The tax system affects a lot of us in ways we don't even think about. So-called "progressive" taxes even bring consequences to things you wouldn't think are tax related. Illegal immigration comes to mind. I seem to recall that there were some recent court decisions regarding "undocumented workers" being eligible to receive social security if they paid into the system.

So how can an "undocumented worker" pay social security? The only way I know of is to commit identity theft. They have to steal someone's social security number and report their earnings against it. Why would that be a problem?

What if it's your social security number they steal. Here you are, you've worked all year. You've filled out your W-4 forms to correctly establish the withholding rates. You've paid in your taxes all year. When you file your tax return you think everything's cool. And then the I.R.S. notifies you that you underreported your income. You reported that you made X, but the I.R.S. says you made Y and guess what buddy, you're in a higher tax bracket and you owe more money because of it.

How do you feel about illegal immigration now? How do you feel about the "progressive" tax system now? This can even be worse than you think. The extra income reported by "you" in another state may have other consequences. You may now be eligible for the alternative minimum tax! Or you may have gone over the income threshold where your deductions start phasing out. That can really come as a shock. Earn enough money, and you don't get deductions for your dependents anymore.

I've got one final problem with the progressive tax system we see these days, and that's a constitutional one. No, I'm not one of those nutjobs that thinks that an income tax isn't constitutional. The 16th amendment gives Congress the right to "lay and collect taxes on incomes, from whatever source derived". So income taxes are constitutional.

No, my problem with the progressive tax system has to do with the uniformity of how taxes are applied, and with the equal protection clause of the 14th amendment. Article I, section 8 of the Constitution says (emphasis added):

"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;"

Perhaps it could be argued that this doesn't disallow a progressive, rather than a uniform tax system, since the emphasized portion doesn't specifically mention taxes. How about the equal protection clause then? In the 14th amendment, section 1 states (emphasis added):

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Doesn't this argue that a progressive tax should be invalid? Well, again, at the federal level maybe not, since this injunction is against the states. But it certainly could be used as an argument against progressive taxes at the state level.

So what? I suppose, whether I like it or not, a progressive tax system is constitutional, at least at the federal level. It's still unfair, counter-productive and wrong. It still punishes hard work and rewards sloth. It's still grossly unfair to the people that pay the most in taxes.

It's also not likely to change. So, I guess I'll pay these unfair taxes.

I'm not likely to see a flat tax in my lifetime. I'll still argue for it.

I'd prefer to see a consumption tax. I'll still argue for it.

But... with the socialist nature of the left and the Democratic party, and the big-government, big-spending nature of politicians everywhere, what I'm afraid we'll see is the worst possible outcome...

A progressive income tax, coupled with a progressive consumption tax.

Trackposted to Outside the Beltway, Blog @ MoreWhat.com, Is It Just Me?, The Virtuous Republic, 123beta, Maggie's Notebook, basil's blog, Stuck On Stupid, Cao's Blog, The Bullwinkle Blog, Phastidio.net, Conservative Cat, Jo's Cafe, Pursuing Holiness, Rightlinx, Faultline USA, third world county, Woman Honor Thyself, stikNstein... has no mercy, The World According to Carl, Pirate's Cove, Right Voices, and The Yankee Sailor, thanks to Linkfest Haven Deluxe.

Cross posted at NW Bloggers.com

Non-human computer wizards

Humans arent the only primates to get sucked in by video games. Are we going to have to worry about lazy, backtalking orangutans next? CNN is reporting about orangutan computer wizards:

ATLANTA, Georgia (AP) -- Four-year-old Bernas isn't the computer wizard his mom is, but he's learning. Just the other day he used his lips and feet to play a game on the touch-screen monitor as his mom, Madu, swung from vines and climbed trees.

The two Sumatran orangutans at Zoo Atlanta are playing computer games while researchers study the cognitive skills of the orange and brown primates.

The best part? Zoo visitors get to watch their every move.

The orangutans use a touch screen built into a tree-like structure that blends in with their zoo habitat. Visitors watch from a video monitor in front of the exhibit.

"That's so cool," Jeri McCarthy told her three daughters as Bernas drew a red, blue and yellow picture on the screen. "He can't get enough!"

Zoo officials hope the exhibit will raise awareness of the rapidly diminishing wild orangutan population, which is on track to completely disappear in the next decade, and potentially provide keys to their survival.

"The more we understand about orangutan's cognitive processes, the more we'll understand about what they need to survive in the wild," said Tara Stoinski, manager of conservation partnerships for the zoo. "It enables us to show the public how smart they are."

I'm all in favor of this actually. Orangutans are probably the smartest primates next to man. If video games can help them survive, that's cool.

Trackposted to The Virtuous Republic, Blog @ MoreWhat.com, Is It Just Me?, Maggie's Notebook, basil's blog, Stuck On Stupid, Cao's Blog, The Bullwinkle Blog, Conservative Cat, Jo's Cafe, Conservative Thoughts, Pursuing Holiness, Rightlinx, Allie Is Wired, Faultline USA, third world county, stikNstein... has no mercy, The World According to Carl, Blue Star Chronicles, Pirate's Cove, The Pink Flamingo, Dumb Ox Daily News, Right Voices, Gone Hollywood, and The Yankee Sailor, thanks to Linkfest Haven Deluxe.