Sunday, October 24, 2010

8. Taxes are necessary.

Taxes really are necessary, our government could not exercise its many obligations without funds, which taxes provide. So, what are many of us complaining about when we complain about taxes?

The answer really does depend on many factors.

First of all, full disclosure. My wife and I are both retired. Most of our income is from Social Security, augmented with a small private pension. Yet the issue of having more taxes on income affects us greatly too. Without a continued inflow of collections from wage earners, Social Security will dry up; how fast will that happen and will it affect me, don’t know; of course, if Social Security were a private venture, it would be considered a Ponzi Scheme and its malefactor organizers would be hauled off to prison. Just to close this off, we live reasonably well, we eat well, so we’re doing Ok. What’s to complain about anyway, except for the ever increasing burden of income tax on folks.

TEA Partiers, in part, complain about additional taxes resulting from the new healthcare law and from the possible legislation on energy consumption because they see the waste and fraud that seems to be rampant in many government works. The much discussed VAT seems destined to be imposed on top of existing taxes, which greatly reduces the ability of citizens to improve their lot. They also hear, and understand, that the current tax code is very complex, to the point that several of President Obama’s key appointees had tax problems. The new head of the Treasury Department blames his tax errors on tax preparation software, plus his own human error of forgetting about certain portions of his income; so easy to forget to declare that income.

In 1942, so I’m told, FDR instituted payroll withholding for income tax, greatly speeding up federal revenue streams during World War II. What matters for many of us is our take home pay. Of course, if we’re one of those working for an enlightened company, we can also deposit money into a savings plan, 401k, or buy health insurance for our family, all of which affect our take home, or make other payments on other desired benefits. We now don’t typically notice the impact of taxes, or other deductions, unless we take care to examine our pay records; out of sight, out of mind. One last point is that until payroll withholding began, Americans wrote a check to cover paying their income taxes and generally Americans paid their taxes. But not all! I was told, as a very young boy, that one of my great Uncles never paid taxes; he was kind of the black sheep of the family. Fortunately, he was an uncle by marriage so his tainted bloodline didn’t contaminant the rest of the family. Told never to mention this, which should not be a factor now, since so many long years have passed. Uncle who?

Still, people complain about taxes. Much of that seems to be related to the complexity of filing the annual income tax forms. Many people today either use a tax preparer or use tax preparation software on the home computer. And, many of us have made mistakes. Few of those mistakes involve more than a slap on the wrist or serious other penalties, which also have seemed to escape Obama’s appointees who also made mistakes; such an example they’ve set.

Many tax payers really are reasonable sorts, willing to pay a fair share but not to pay good money for purposes of funding massive loosely defined give-a-ways or other such fraud ridden programs. We really don’t understand when people who couldn’t afford to buy a house under the older rules, bought that house under the newer rules. We don’t understand why to satisfy what some said were the 15% who didn’t have health insurance, the 85% who felt they’re in good shape medical coverage wise had to take a financial hit. We don’t understand why the government has to fire a scatter shot at multiple targets rather than focusing in on specific needs. What it gets down to is trying to comprehend why a new tax is needed?

The issue of reducing spending rather than increasing revenues is one of balance and more to the point of policy. Too many times, our politicians say that a new tax is needed to raise revenues for a specific purpose and then we find that the dollars raised are not enough.

From my point of view, taxes need to be simplified and fair. If the rich need to pay more, percentage wise, than the poorer, then let that be a reasonable difference. Recall that when South Sea Bubble burst or the Dutch Tulip Bubble burst, when the better off citizens lost their shirts, the poor suffered their loses and that hurt more too. When tax policy can be used to try to punish some for their political beliefs, like Nixon of accursed memory did to his “enemies,” then our tax collection practices needs changing.

So, is our federal tax policy meant to punish the rich or reward the poor or something else? If tax policy is meant to raise revenues for justifiable expenditures, then make that tax policy fair, trustworthy, and supportable. Making tax policy to save the “children” doesn’t work all the time or for many more times either.

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