Federal Taxes: Debunking The Democrat Narrative

Political theater is hogging the spotlight as Congress grapples with the issue of federal income taxes. The actors in Washington are repeating familiar lines.  Tax cuts benefit the oligarchs and billionaires. The wealthy don't pay their fair share. The tax burden falls on the shoulders of the little guy.

Leading roles are being played by Sen. Bernie Sanders and Rep. Alexander Ocasio-Cortez. The Democrat duo are barnstorming the hinterland braying about a "government of the billionaires, by the billionaires and for the billionaires."  The rich are to be scorned and their earnings confiscated. 

The truth is without millionaires and billionaires the federal government would run out of money.  But class warfare has always been viewed by Democrats as a winning political strategy.  Personal success is permissive as along as your income doesn't cross the border into seven figures. 

Taxes are on center stage because of the impending expiration of key provisions of President Trump's 2017 Tax cuts and Jobs Act. Republicans are pushing legislation to make the current taxes permanent, while Democrats are characterizing the package as a pay off to the wealthiest.

Facts are stubborn reminders of the progressive nature of America's tax code.  The more money you make, the federal government takes a larger share of your income.  The 2017 legislation reduced taxes for most Americans, including those in the top 1% of the income bracket.

What Democrats and their media allies are loath to admit is the Trump tax cuts benefited most those in three of the bottom four income brackets. Included are Americans who earn $12,250, $49,750 and $106,000.  Raising their tax rates would hurt the middle class. 

If the current tax cuts are not renewed and rates revert to 2016 levels, 62 percent of tax filers would experience increases in their personal income taxes in 2026. 

Those who rail about reductions in taxes for high earners ignore history's lesson.  Even as taxes have been reduced for the top tax bracket, their share of the income tax burden has grown.  Conversely, the bottom half of earners share of the tax burden has sharply declined. Those are indisputable facts.

In 1980 the top marginal rate was 70% for the wealthiest 1%.  They paid 19% of all federal income taxes.  Since then, their share of the tax burden has grown, even as the top marginal rates were lowered.  At the same time, the tax share of the bottom 50% has declined from 7% in 1980 to 2.96% in 2022.

The latest Internal Revenue Service data from 2022, shows the top 1%--those with incomes over $663,164--paid 40.43% of all federal income taxes. The current tax rate is 39.6% for top earners.The top ten percent of taxpayers--those earning $261,591 and above--paid 76% of personal income taxes.

Including the top 25%, the percentage of taxes paid reaches 89%.  The IRS collected 97% of all personal income taxes from the top 50%. Of the 161.3 million returns filed for the tax year 2022, a total of 50.7 million individuals paid no federal income tax.  

Liberals are quick to point out that taxpayers whose income are in the bottom 50% pay more in payroll taxes than income taxes.  Employers collect these taxes from wages and pay the money directly to the IRS. Payroll taxes fund Social Security and Medicare. 

But that doesn't change the fact that the top 1% paid $855 billion dollars in personal income taxes in 2022, by far the largest share of any marginal tax rate group.  The wealthiest earned 22.4% of all the personal income yet paid nearly twice that percentage in taxes: 40.43%.

Tax fairness depends on your definition of what is equitable.  For historical perspective, the highest marginal tax rate was 94% during 1944.  From 1945 until 1963, it was 91%. By 1964, the rate fell to 77%. For the tax years 1991-1992, the rate dipped to 31%.  

Throughout those years, the top earners always paid the lion's share of taxes to Uncle Sam. 

The Trump tax cuts also lowered the corporate tax rate from 35% to 21%.  Reverting to the higher rate would risk increasing inflation. Consumers ultimately pay corporate taxes.  Firms price their goods and services based on all their costs, including taxes.  Demagoguery doesn't change that fact. 

America does not have a revenue problem.  Spending is the chief issue. In the fiscal years of 2020-2024, the federal government spent $38.35 trillion. The gusher created a deficit chasm of $10.78 trillion over the same period. The national debt has ballooned to $36.22 trillion and counting. 

But even a suggestion of budget cuts triggers caterwauling throughout the halls of Congress.  People will go hungry if a smidgen is sliced from the federal government's budget.  But unless the federal budget growth is halted, taxes will need to be raised every year to avoid runaway deficits.

As the Washington drama unfolds, ignore the rhetoric.  This play acting is all about politics.  Democrats want to wreck the Trump presidency by raising taxes which will sink consumer confidence and rattle the  economy.  Winning the midterms is the goal without regard to costs to American household budgets.    

Tax Scam: Don't Be Fooled By Tax Cuts

Washington is buzzing about tax cuts as Congress prepares to tackle one of the president's top agenda items.  As expected, both political parties have engaged in a propaganda war with little attention paid to the American taxpayer's No. 1 villain: the indecipherable federal tax code. 

The tax code is a government document of more than 10 million words that details the rules individuals and businesses follow in computing their federal taxes.  Over the past 60 years, the instrument has grown nearly 144,500 words annually, according to the Tax Foundation.

This complexity creates migraine headaches for taxpayers.  Americans spend about 6.1 billion hours to comply with the onerous tax code.  Ninety percent of taxpayers hire a professional to prepare their taxes at a cost of $233.8 billion annually.  

No wonder a Pew Research poll in 2015 found that 72 percent of Americans are confounded by the incomprehensible code.  Even today, as Americans grapple with the new tax plan details unveiled by the House and Senate, it's impossible to discern the dollar impact on the average household.

Even if rates of tax are lowered, it may not translate into an individual household owing less money to Uncle Sam.  That's because the tax code contains guidelines for deductions and exemptions that lower the taxable income.  The rate applies to adjusted taxable income not the total income.     

Some deductions are well known.  For example, the write-offs for interest on home mortgages, charitable donations and medical expenses.  Others are not so well understood. Income may be taxed at different rates depending on the source.  Some income may be excluded from taxation.

In many ways, that renders the tax rate meaningless.  For instance, what if tax deductions for child care and educational expenses are abolished, but the tax rate is lowered by five percent.  Depending on the dollar amount of the lost deduction, it may mean a higher tax bill for some.

If you include businesses in this discussion, the code takes on even more importance.  The code includes a legion of business offsets and credits, referred to erroneously as loopholes.  Although the official business tax rate is 39.1 percent, most corporations pay only to 10 to 15 percent in taxes.

Individuals also game the tax code.  In theory, households earning over $200,000 are supposed to pay around 40 percent in taxes.  In practice, studies show that the effective rate is 23 percent because they are armed with tax planners and lawyers paid to legally reduce their tax bill.

That's why tax rates distort tax fairness.  To rectify this imbalance, Congress needs to quit fiddling at the margins on the tax issue.  If lawmakers and the president are serious about tax reform, the first step should be to scrap the arcane tax code.  Blow it to smithereens. 

In its place, Congress should adopt a simple flat tax for all Americans, regardless of income.  No individual deductions.  No business loopholes.  No special treatment for income based on the source.  Whatever money you make, no matter how it's earned, it is taxed at the same rate.  Period.

Some will scream "Unfair!"  They want a regressive tax system that punishes the rich.  The top 10 percent already pay two-thirds of the taxes collected from individuals.  Mount Everest taxpayers--those in the 0.1 percent echelon--make up 16 percent of all household taxes.

Pandering politicians, who don't give a wit about fairness, demonize those with personal fortunes and foster class envy. That's why brainwashed Americans believe the wealthy do not pay their fair share. The bottom 50 percent of taxpayers contribute 2.8 percent of federal tax revenue. Talk about unfair.

If the object of the tax code is to inflict pain on the wealthiest Americans, then perhaps it would be better to just toss the filthy rich in jail and confiscate all their wealth. (Insert tongue in cheek here.) Under a flat tax or virtually any other system, the wealthy will always pay the largest share of taxes.

Once Congress passes a flat tax, then it must address payroll taxes.  For many Americans, payroll taxes ( Medicare, Social Security, etc.) take a larger bite out of their paychecks than federal income taxes.  All but the top 20 percent of Americans are in this tax pickle.

That would crack open Pandora's box because Congress would have to wrestle with fixing Medicare and Social Security.  Too many seniors would howl.  For similar reasons, Congress avoids dealing with the tax code.  Accounts, lawyers and tax preparation firms would throw a tantrum. 

Real tax reform requires political courage and a honest debate instead of political grandstanding.  For that reason, it won't happen.  Not in Washington.  Not this year.  Not ever.  Swamp creatures prefer tax favoritism over fairness because that's what the lobbyists and special interests want.

And these same deep-pocketed lobbyists and special interest groups pay for the re-election campaigns of those who inhabit the swamp. They are the masters most lawmakers serve, not average American taxpayers.    

Taxing the IRS Out of Existence

As scandal engulfs the Internal Revenue Service, there is a growing chorus of Americans calling for the abolition of the oppressive tax agency.  However, trying to rid the country of the entrenched IRS bureaucracy will be harder than finding one enlightened Democrat willing to support the idea.

There is one sure way to loosen the choke-hold the IRS has on Americans.  Pass a law instituting a flat tax that simplifies the tax code, dissolves payroll taxes, erases loopholes and levies taxes more fairly.  By streamlining tax law, the IRS will effectively be neutered.

No longer will there be contentious IRS audits over arcane deductions. There won't be any.  IRS agents won't quibble with taxpayers over progressive tax rates.  There will be a single rate.  The IRS won't spend all its time investigating loopholes.  Tax gimmicks won't exist.

Under a flat tax, the IRS would be reduced to a simple collection agency.  Their power to bully, harass and coerce will vanish because their jobs will be administrative in nature.  Gone will be their broad sweeping regulatory authority to act as brown-shirted snoopers.

It's an issue that has enjoyed broad public support, even before the latest IRS brouhaha.  In 2011, Pew Research found that 6 in 10 Americans (59%) believe the current tax system is so flawed that Congress should completely change it.  Most Americans (51%) hold a negative view of the IRS, Pew reported last year.  Imagine if the survey were done today.

A flat tax which renders the IRS impotent is a winning issue that Republicans should shift to the top of their mid-term agenda. A flat tax plan has received some support in both the House and Senate.  But the nascent attempts have often been only slightly less complex than the current tax code.

To gain wide public support, the flat tax proposal should be straightforward.  The plan should exempt the first $20,000 of earned income to insure the very poor will pay no taxes.  There would be no tax brackets.  Every tax payer would pay an equal percentage on their earnings.

Tax breaks or deductions would be ended.  At the same time, the tax policy would eliminate all double taxation, including the dissolution of the death tax, capital gains tax and taxes on dividends.  There would be no levy on savings, since individuals would have already paid the tax when it was earned.

There have been a myriad of ideas about a flat tax percentage.  Some, including Kentucky Senator Rand Paul, have suggested 17 percent. Other tax policy organizations have recommended rates in the 20-25 percent range.  Arguments over the percentage shouldn't derail the drive for tax reform.

The only serious opposition would spring from the 47 percent of individuals who pay no federal income tax and the Democrats who want to enlarge that number.  These scalawags prefer to let the rest of their fellow Americans carry the tax burden while they contribute zero to running their government.

The benefits of a flat tax far outweigh the downside.  The plan would offer Americans a transparent tax policy they can understand.  It would generate economic growth, boost the economy and encourage investment.  These are all tangible benefits that could be measured.

Republicans have a window of opportunity to make a heroic effort to institute a flat tax.  The disgraced IRS is widely unpopular and tax reform has enthusiastic support.  This is an winning issue that Republicans need to seize before its too late.