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Reality of taxes lost in rhetoric

Published on December 17, 2010 3:01AM

Last changed on January 14, 2011 8:39AM

Rik Dalvit/For the Capital Press

Rik Dalvit/For the Capital Press

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At this writing, Congress was still wrangling over the issue of extending current tax rates for the next two years, new rates and exemptions for the estate tax, payroll tax cuts proposed by President Barack Obama, and a host of credits, breaks and incentives added to the proposal to win passage before the Christmas break.

We are certain that some kind of deal will be passed. But in the absence of details on what likely will be passed, we offer the following observations about taxes and the ongoing debate:

* Let's be clear about what's really at stake. Current tax rates were set by law in 2001 and 2003. Those measures cut income, capital gains and estate tax rates then in effect in an effort to jump start the economy in the wake of the Sept. 11 terrorism attacks. To get the measures passed, President George W. Bush and congressional Republicans agreed to let those rates "sundown" on Jan. 1, 2011. If Congress does nothing, a whole host of tax rates will increase to their 2001 levels, and several credits and exemptions will go away.

Much of the rhetoric about extending the current income tax rates used by the Democrats, particularly when applied to the wealthiest Americans, focuses on giving tax breaks to taxpayers. But no one will get a tax break if Congress merely extends the current rates. Everyone, however, will get a fairly hefty tax hike if nothing is done.

* Some liberal members of Congress contend that extending these rates to the wealthiest taxpayers will "cost the government" as much as $800 billion over two years. A failure to increase the top tax rates won't cost the government a dime, because it isn't the government's money.

Too many politicians, and journalists, wrongly believe the government has first claim on the assets of the people. Government does not allow us to keep a share of our money. We give a share to the government. It is ours. And if we, through our elected representatives, choose to give the government less, it is not "at a cost" to the government.

If you gave your brother-in-law $100 this year, but next year gave him $90, he can't claim that your decision cost him $10.

* There is an assumption that wealthy people don't pay their share. According to the Congressional Budget Office, the top 20 percent of income earners pay 69 percent of all federal taxes, and 86.3 percent of federal income taxes. On average, those taxpayers had average household incomes of $248,000, but could have incomes as little as $71,500. The top 5 percent paid 60.9 percent of income taxes.

* According to IRS data, the treasury collected a total of $2.34 trillion in fiscal 2009. Corporate and individual income taxes accounted for $1.416 trillion of the total, with individual taxpayers chipping in $1.17 trillion and corporations just under $300 billion. Payroll taxes such as Social Security and unemployment brought in $858 billion. The balance came from tariffs, fees and fines.

It's a lot of money. Unfortunately, the federal government spent $3.1 trillion that same year. We don't have a collection problem, we have a spending problem. Congress appropriates ever-increasing amounts of money to an ever-increasing number of programs. Entitlement programs, termed non-discretionary in budget parlance to indicate that they cannot be cut or reduced, grow like Topsy.

None of this is sustainable. We cannot keep pretending that every problem or civic desire, no matter how worthy, deserves a taxpayer-funded solution -- particularly when so much is being paid for with borrowed money.

Like many, we believe Americans must have a serious discussion sooner rather than later about what we realistically expect government to do, and how much we are willing to pay. In most households, the available pot of money is apportioned to those things that are really necessary, and anything left over can be used for luxuries. That seems like a sound way to run a country, too.


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