Journal Entry – Who Pays Taxes?
- By J. Wesley Fox
- Published 10/15/2011
- Politics
- Unrated
Just like all other human beings, Young Americans hate talking about taxes. That is why I dread writing this article, but it has to be done. The American tax system is ridiculously complicated, it is invasive, and is in desperate need of reform. Of course, politicians have refused to do anything when it comes to reforming the tax code. They continue to add hundreds of pages to the regulations, adding complexities that only an accountant or tax attorney can understand. The federal tax system is also extremely progressive, punishing success. The system discourages growth and investment, which are essential to creating jobs. Until the federal government cuts taxes and reforms the tax code, Young Americans as well as the rest of the country will continue to face tough times.
Unfortunately, most support the principle that the rich should pay more taxes but what few realize is that the rich account for nearly all taxes that are paid to the government. Democrats have convinced Young Americans that the rich somehow evade federal taxes while the middle class gets screwed every year. Some even argue that we have a massive budget deficit because the rich don’t pay their fair share.
But, as John Adams said, “facts are stubborn things”.
Who pays taxes? When it comes to income taxes, about 47% of Americans pay none at all. Most Americans with jobs pay the FICA tax, which includes the Social Security and Medicare taxes on their W-2s. Corporations also pay taxes on their profits. Finally, the federal government taxes inheritances, capital gains, dividends, and a host of other things. The two biggest taxes are the individual income tax and the FICA tax, which combine for 85% of all revenue.
When it comes to individual income taxes, the American system is unfair because half the country pays zero. Although there are individuals and families that cannot afford to pay taxes, there are many middle income individuals and families that no longer have to pay income taxes either. According to the Heritage Foundation, a typical family of four that earns a total of $51,000 will pay no income taxes.
Under this system, the rich pay virtually ALL of the income taxes collected. In 2007, over 71% of the income taxes collected by the federal government came from the top 10% of income earners ($113,000 and higher). It has not always been this unbalanced. In 1990, the 10% of income earners paid 55% while in 1980 they paid 49%. The rich Americans pay a massive share of income taxes and it is only getting bigger
What is bizarre is that the IRS distributes checks to millions of Americans that haven’t paid a dime in federal income taxes. Heritage Foundation found that many Americans that don’t pay income taxes received cash payments through “refundable” tax programs such as EITC, or the child tax credit. The federal government paid out $72 billion in these refundable tax credits in 2008.
This is “redistributing wealth”. The top half pay taxes while many in the bottom half get checks. This may sound acceptable to some, but it does not create jobs or economic growth.
This idea is best expressed through the Chinese Proverb: “Give a man a fish, feed him for a day. Teach a man to fish, feed him for a lifetime.” President Obama and the Democratic Congress seem to think that handing out fish is the way to go.
The FICA Tax is imposed on employees and employers. The employee pays 7.65% (6.2% for Social Security, 1.45% for Medicare). The employer pays the same rate as well on wages. The FICA Tax is usually the only federal taxes lower income workers have to pay. According to the center on Budget and Policy Priorities, about 75% of taxpayers pay more in FICA taxes than they do in income taxes. A big reason being 47% do not pay income taxes at all.
To make matters worse, the taxes on capital gains, dividends, corporate profits, inheritance, and other areas hurt the economy and provide very little revenue to the federal government. These taxes account for only 15% of all revenue the government collects. The economic growth that would result from cutting these taxes would easily offset the revenue lost, but more importantly it would create jobs.
Young Americans also tend to accept the notion that corporations use loopholes to get around paying their fair share in taxes. This is also not true. First, the corporate tax does not target rich executives, wealthy shareholders, or other unsympathetic victims. When the government taxes a corporation, it is indirectly taxing all of its employees, shareholders, and creditors. The U.S. corporate tax rate is the second highest in the developed world (35%). The average corporate tax rate among developed countries is approximately 24.2%.
The high U.S. rate puts American corporations at a major disadvantage against foreign competitors. It is an unnecessarily high tax that weakens American companies.
It is important that Young Americans realize that many of the things they hear from Democrats and pundits concerning taxes are inaccurate. Our economic struggles will not be solved by taxing the rich more or redistributing wealth to low income workers. These policies have never worked before and will not work now.
It is no mystery what government policies would help the economy. What is missing is the political will to implement them. If the U.S. Government wanted to encourage American businesses to expand and begin hiring again, they would eliminate the unnecessary taxes on capital gains and dividends as well as cut the FICA tax and the corporate tax.
Young Americans have a strong interest in economic growth and job creation. Reforming the tax code would be an excellent means of promoting both. Cutting taxes has always led to higher economic growth and job creation. However, President Obama and the Democratic Congress have raised taxes and attempted to redistribute wealth. It is no wonder the U.S. continues to struggle economically under their leadership. Free market policies are needed if we are to turn the U.S. economy around.
Unfortunately, most support the principle that the rich should pay more taxes but what few realize is that the rich account for nearly all taxes that are paid to the government. Democrats have convinced Young Americans that the rich somehow evade federal taxes while the middle class gets screwed every year. Some even argue that we have a massive budget deficit because the rich don’t pay their fair share.
But, as John Adams said, “facts are stubborn things”.
Who pays taxes? When it comes to income taxes, about 47% of Americans pay none at all. Most Americans with jobs pay the FICA tax, which includes the Social Security and Medicare taxes on their W-2s. Corporations also pay taxes on their profits. Finally, the federal government taxes inheritances, capital gains, dividends, and a host of other things. The two biggest taxes are the individual income tax and the FICA tax, which combine for 85% of all revenue.
When it comes to individual income taxes, the American system is unfair because half the country pays zero. Although there are individuals and families that cannot afford to pay taxes, there are many middle income individuals and families that no longer have to pay income taxes either. According to the Heritage Foundation, a typical family of four that earns a total of $51,000 will pay no income taxes.
Under this system, the rich pay virtually ALL of the income taxes collected. In 2007, over 71% of the income taxes collected by the federal government came from the top 10% of income earners ($113,000 and higher). It has not always been this unbalanced. In 1990, the 10% of income earners paid 55% while in 1980 they paid 49%. The rich Americans pay a massive share of income taxes and it is only getting bigger
What is bizarre is that the IRS distributes checks to millions of Americans that haven’t paid a dime in federal income taxes. Heritage Foundation found that many Americans that don’t pay income taxes received cash payments through “refundable” tax programs such as EITC, or the child tax credit. The federal government paid out $72 billion in these refundable tax credits in 2008.
This is “redistributing wealth”. The top half pay taxes while many in the bottom half get checks. This may sound acceptable to some, but it does not create jobs or economic growth.
This idea is best expressed through the Chinese Proverb: “Give a man a fish, feed him for a day. Teach a man to fish, feed him for a lifetime.” President Obama and the Democratic Congress seem to think that handing out fish is the way to go.
The FICA Tax is imposed on employees and employers. The employee pays 7.65% (6.2% for Social Security, 1.45% for Medicare). The employer pays the same rate as well on wages. The FICA Tax is usually the only federal taxes lower income workers have to pay. According to the center on Budget and Policy Priorities, about 75% of taxpayers pay more in FICA taxes than they do in income taxes. A big reason being 47% do not pay income taxes at all.
To make matters worse, the taxes on capital gains, dividends, corporate profits, inheritance, and other areas hurt the economy and provide very little revenue to the federal government. These taxes account for only 15% of all revenue the government collects. The economic growth that would result from cutting these taxes would easily offset the revenue lost, but more importantly it would create jobs.
Young Americans also tend to accept the notion that corporations use loopholes to get around paying their fair share in taxes. This is also not true. First, the corporate tax does not target rich executives, wealthy shareholders, or other unsympathetic victims. When the government taxes a corporation, it is indirectly taxing all of its employees, shareholders, and creditors. The U.S. corporate tax rate is the second highest in the developed world (35%). The average corporate tax rate among developed countries is approximately 24.2%.
The high U.S. rate puts American corporations at a major disadvantage against foreign competitors. It is an unnecessarily high tax that weakens American companies.
It is important that Young Americans realize that many of the things they hear from Democrats and pundits concerning taxes are inaccurate. Our economic struggles will not be solved by taxing the rich more or redistributing wealth to low income workers. These policies have never worked before and will not work now.
It is no mystery what government policies would help the economy. What is missing is the political will to implement them. If the U.S. Government wanted to encourage American businesses to expand and begin hiring again, they would eliminate the unnecessary taxes on capital gains and dividends as well as cut the FICA tax and the corporate tax.
Young Americans have a strong interest in economic growth and job creation. Reforming the tax code would be an excellent means of promoting both. Cutting taxes has always led to higher economic growth and job creation. However, President Obama and the Democratic Congress have raised taxes and attempted to redistribute wealth. It is no wonder the U.S. continues to struggle economically under their leadership. Free market policies are needed if we are to turn the U.S. economy around.
J. Wesley Fox
J. Wesley Fox is the Chairman of Restore America's Legacy PAC. He is a recent graduate of DePaul University College of Law and has been active in local and national politics for several years. He currently lives in New Jersey after growing up in the Chicago suburbs.www.restoreamericaslegacy.com
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