“A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high. … The term is frequently applied in reference to personal income taxes, in which people with lower income pay a lower percentage of that income in tax than do those with higher income. … Progressive taxation is often suggested as a way to mitigate the societal ills associated with higher income inequality, as the tax structure reduces inequality, but economists disagree on the tax policy's economic and long-term effects.” Source: https://en.wikipedia.org/wiki/Progressive_tax
What does this formal definition mean? Simply stated, a ‘progressive tax’ is a scheme designed to take more money from the rich while allowing poor people to escape having to pay taxes. In the example used in Figure 1, a person earning $29,000 per year would not have to pay taxes; a person earning $100,000 per year would pay $40,000 in taxes; and a person earning $1,000,000 per year would pay $800,000 in taxes.
Is this fair? Wow, that question has two answers! First of all, the term ‘fair’ is a qualitative term; not a quantitative term. By this I mean you cannot measure what is fair. There is no math equation, set of scales, measuring cup, or tape measure which would let you know when something is fair. Taking money from the rich and using it to benefit the poor is fair according to many Americans.
Other Americans believe that everybody should have the same percentage of their earnings taken as taxes. These are the conservatives. They believe that people who work hard and earn more should be able to keep what they earned.
How did we get into this argument over what is fair? I believe we should go back in history and review a famous philosopher’s contribution to this subject.
“Marxism is a form of socioeconomic analysis that analyses class relations and societal conflict using a materialist interpretation of historical development and a dialectical view of social transformation. It originates from the mid-to-late 19th century works of German philosophers Karl Marx and Friedrich Engels. … Marx hypothesized that socialism would eventually give way to a communist stage of social development, which would be a classless, stateless, humane society erected on common ownership and the principle of ‘From each according to his ability, to each according to his needs’.” Source: https://en.wikipedia.org/wiki/Marxism
Many people today refer to themselves as ‘progressives’ but years ago they were known as liberals, socialists, or communists.
In today’s political climate, the Democratic Party’s membership is a mixture of liberals, socialists, and communists while the Republican Party’s membership is a mixture of conservatives and liberals. (Note: liberal republicans are known as ‘RINO’s; “Republican in Name Only.” Source: https://en.wikipedia.org/wiki/Republican_In_Name_Only)
In 1968, George Wallace ran for President of the United States as a third party candidate. He proclaimed, "There's not a dime's worth of difference between the Democrat and Republican parties." Source: http://idioms.thefreedictionary.com/dime%27s+worth+of+difference
In 2017, there are some differences between democratic and republican party members. Believing in regressive taxation is one difference. Republicans believe that paying taxes should be a responsibility of all Americans. Democrats believe that progressive taxation is fair. Each viewpoint has some merit.
In my opinion, our tax law is far too complicated and is made so because of a myriad of special interest groups. Each special interest group wants tax relief or an exemption from having to pay taxes. Let's start with some facts: The poverty threshold in the United States is below $24,250 and the median income is $51,272.
Why not make our tax burden both simple and fair? Here is my proposal:
- “In 2015, in the United States, the poverty threshold for a single person under 65 was an annual income of US$11,770; the threshold for a family group of four, including two children, was US$24,250.” Source: https://en.wikipedia.org/wiki/Poverty_threshold
- “While income varies considerably in the U.S., depending on location and industry, Glassdoor's latest local-pay report finds that the median salary for U.S. employees is $51,272.” Source: https://www.fool.com/investing/2017/03/24/whats-the-average-income-in-the-united-states.aspx
Who could object to this simple method of calculating federal income taxes? Here is my list:
- Everybody pays taxes; no exception.
- Everybody gets the same deduction. For example, $25,000. This means that people earning below $25,000 would pay no federal taxes. People earning above $25,000 would also get the maximum $25,000 deduction. All earnings above $25,000 would be taxed at the same rate. For example, let’s assume a 12% federal income tax rate.
- The tax for an individual earning the median wage would be: $51,272 - $25,000 = $26,272 x 12% = $3,152.64 annual federal income tax.
- An NFL football player earning $15,000,000. His tax would be: $15,000,000 - $25,000 = $14,975,000 x 12% = $1,797,000 annual federal income tax.
- A corporation earning $6,000,000,000. The taxes paid would be $6,000,000,000 - $25,000 = $5,999,975,000 x 12% = $719,997,000 annual federal income tax.
Will members of Congress ever pass this type of tax law? Not on your life! Remember, their primary objective is to get re-elected.
- Wealthy people and corporations currently using every legal deduction to minimize their tax burden would scream the loudest.
- People earning less than $25,000 per year – would complain that they should be entitled a tax refund because they earned less than $25,000.
- Charities and churches whose donations are currently tax deductible.
- Mortgage companies whose customers could no longer deduct interest on mortgage loans.
- Financial institutions whose members could not shelter their earnings in tax exempt accounts.
- Thousands of people currently employed to calculate taxes owed.
- Hundreds (maybe thousands) of lawyers hired to represent people who owe taxes.
Joe R. East, Jr.