How to Make the Poor and Middle Class
Pay for Almost Everything
By Steve Gillman
The rich and middle class will probably always pay the most
in taxes at every level of government in the United States, especially
if large government remains the norm, since the productive output
of the poor alone could not support the system. And though the
poor do not have a powerful voice politically, people in the
middle class do, and they can be expected to regularly vote for
politicians who support taxing the wealthy at rates higher than
themselves.
But the wealthy have their ways to avoid higher taxes, thanks
to their own political power, which arises in large part from
their economic power. Add to this the fact that most politicians
are a step above middle class and will generally protect themselves,
and it's easy to imagine that the rich will never be made to
pay too much, even in a democracy. In fact, at the moment some
minimum wage workers pay a higher tax rate than some of the wealthiest
people in this country, thanks to various laws and tax loopholes.
(Not sure you believe that last statement? See the page: The
Working Poor Do Pay Taxes)
In any case, the following is an exercise in imagination,
showing how our tax systems might be designed to leave the wealthy
almost entirely untaxed and receiving all sorts of money while
the poor and middle class pay for the whole scheme. Unfortunately,
as you will notice, some of these methods do not need to be imagined,
since they already are a part of what we have.
No More Social Security Tax
Currently Social Security and Medicare taxes add up to 15.3%
of wages. Unlike other taxes, there are no deductions or other
ways to reduce this legally. They are true taxes, not an investment
contributions, since they have never been set aside. Calling
government loans to itself "investing" is as silly
as if you claimed you have a million dollar retirement account
because you wrote yourself an IOU for million dollars and then
put it in your 401K. This is a tax that is used to pay current
costs of government, which includes the payments to current Social
Security recipients.
In our new plan to make the poor and middle class pay for
everything, we'll raise the Social Security tax to 20%, but make
the employer pay it all. Since no individual will pay directly,
this change could be easy to sell politically. The current income
cap will be about the same - say $100,000. Employers will pay
on an employee's income up to that level.
What most don't understand is that all costs for an employer
to have an employee have to be passed on to the employee directly
or in the form of lower wages. Suppose the maximum a restaurant
can afford for a dishwasher is $30,000 annually. They could pay
the whole $30,000 to the employee if that were the only part
of the cost, but if various taxes they pay amount to $12,000
per employee, then only $18,000 can be paid directly as wages.
It is clearly the labor of the employee that pays for these taxes.
Now, notice what this does in terms of distribution of taxes,
due to the cap on wages taxed. The man who pays himself a salary
of ten million dollars from his corporation pays $20,000, or
just a fifth of one percent of his income for this tax. Meanwhile
all who make less than $100,000 - even those who make just $10,000
per year - pay 20% of their income towards this tax.That tax
rate is 100 times higher, by the way. Isn't that a neat trick?
No More Personal Income Tax
Nobody likes to pay income tax, so this is another easy sell.
Make businesses pay all income taxes! We can do it the same way
as with the Social Security taxes, with employers paying perhaps
20% on the wages of all employees. Of course as we saw above,
this really doesn't mean that employees don't pay any taxes,
since lower wages result. It is just a nice way to hide who pays.
We could do the same thing as at the state level; make the employer
pay those income taxes too.
No Taxes on Investment Income
Removing taxes on investment income is a tough sell, but can
be justified as "encouraging investment" and therefore
job growth. Of course, at the moment the average single worker
pays out over 30% of his income in taxes (Social Security, Medicare
and income taxes), without noticing or complaining that the rich
pay just 15% on their dividend and long-term capital gains income,
so maybe this isn't such an impossible change.
The truly wealthy do not get their money primarily as wages,
but as returns on investments, so this naturally shifts even
more of the tax burden to the poor and middle class.
Tax Profits
To make the uninformed masses happy, we'll go after "profits"
with at least 20% taxes. This rate can't go too high or it will
hurt the competitiveness of companies in this country versus
others. On the other hand, it does nothing to hurt their positions
within the country if all are taxed the same. Furthermore, prices
of products and services will be raised across the board to maintain
an after-tax return that attracts investors, thus passing on
the true costs of these taxes to the consumers. Obviously this
effects the poor and middle class the most, since a much higher
percentage of their income goes towards consumption.
Sales Taxes
At a state and local level, a sales tax is a great way to
get the poor and middle class to pay the bulk of the costs of
government. For example, if a state has a 6% sales tax, with
exemptions for food and medicines, a poor family may pay out
as much as 3% of their total income towards sales taxes. On the
other hand, the things the wealthy buy, like big boats, houses
and paintings, are investments, and so not subject to taxes on
"consumer items." A family that makes ten million dollars
per year would be unlikely to spend more than $50,000 of it on
taxable items, meaning they pay out only 1/30 of 1% of their
income on this tax.
No More Homeowner Property Taxes
No taxes on the home you own? How do we pay for the schools
and local services that these taxes support? Double or triple
the property taxes on all property that is for commercial or
investment purposes. Make the businesses and investors pay!
Of course an investor pays no part of those taxes in the end.
All property taxes on rental real estate is of course passed
on to the renters and always has been. If a landlord is breaking
even on his little rental house and we add $100 per month to
the taxes, he will naturally just raise the rent. And he doesn't
have to worry about the renter leaving for cheaper rent if all
landlords are now paying the higher rates and passing them on.
Few understand this, but all costs have to be passed on to
the final consumer, even in the business of rental real estate.
The same is true of the higher taxes on the local property owned
by a restaurant or clothing store. Prior to making a profit -
without which neither you nor I nor anyone else would want to
be in business - all costs must first be covered by what customers
pay.
With this new system, all those who own their own homes pay
nothing in property taxes. Meanwhile the poor and lower middle
class who make up the bulk of renters pay most of the costs of
education and local services, through the higher rent that is
required to pay those taxes. They may or may not catch on to
this game, but initially they might love the idea of "making
the businesses and investors pay."
Mission Accomplished
Okay, let's review what we've done:
1. No property taxes for home owners. This allows the wealthy
to escape one of the largest taxes they have at the moment, by
shifting the burden to the poor unsuspecting renters. With no
tax forms to fill out and total assurance that it is the owners
of their apartment buildings who pay, tenants will not notice
for generations that they are paying for the local police who
protect the estates of the wealthy, and for local roads the rich
take to the malls.
2. No taxes on investment income or capital gains. This removes
the largest tax that the wealthy pay. This change alone will
bring most billionaires' taxes to less than 1% of what they make
each year. The public will be told that it is necessary to keep
investment and job growth strong.
3. No Social Security or income taxes. Hiding these taxes
is the master stroke of the whole plan. Few workers will know
that wages are far lower as a result of these taxes paid by employers.
Even fewer will connect the dots to figure out that this means
they are the ones really paying. We can take 40% of their incomes
in this way to fund the government.
4. Other hidden taxes. Taxes on corporate profits and other
revenue collections at the business level will be passed on in
higher costs of goods and services, meaning they are paid largely
by the poor and middle class.
We will have reduced the taxes paid by the wealthy to less
than 1% of income for our family that makes $10 million annually.
The poor and middle class will be repeatedly reminded that now
businesses and investors pay the bulk of all taxes. They'll see
that apart from a small sales tax, they pay no direct taxes,
so they may think this is a great system.
I suspect it would be a couple generations before workers
start to realize that half of the income they actually produce
(much of which they never see) is taken from them. This is how
we can get the poor and middle class to pay for almost all the
costs of government at all levels.
The Truth
Beyond being a huge tax cut for the wealthy, the system suggested
above is a massive transference of money to the wealthy from
the rest of the population. Why? First, because the rich receive
services such as military protection, police and courts, yet
the they will have their share paid for by others.
Secondly, it is already true that far more government money
is given to the wealthy than to the poor, through corporate welfare,
agricultural subsidies, Social Security for the rich, subsidized
insurance, and "special" investment opportunities (the
federal reserve system for one). The rich currently cover much
of this through the taxes they pay, but with the system suggested
here, we can get the poor and middle classes to pay for all of
this welfare for the wealthy.
Obviously this is meant to be ironic, but of course many of
the changes suggested are partially enacted already. This is
why Warren Buffet really does pay a lower percentage of his income
in taxes than many burger flippers (see the page: The Working Poor Do Pay Taxes). You do not need
to be against the wealthy (I am not) to feel that this is unfair.
The key to understanding how the laws favor the wealthy and
hide the true costs to others is to see that only the efforts
of people create value, and so only the efforts of people can
be taxed. Taxing "profits" and "corporations,"
and calling part of the Social Security tax an "employer
contribution" are just some of the ways we hide this fact.
Look to see whose efforts are actually used to pay the tax, and
remember that before any profit is possible all costs of business
must be passed on, whether to renters, employees or consumers.
The Alternative?
If we want to actually have something approaching a fair tax
system, and we want it to be based on income (I happen to think
a flat rate paid by all would be fair), we have to tax at the
level of the individual. This means that instead of taxing a
corporation, for example, we are better off taxing the individuals
who receive the profits as income.
To help create the political impetus for this, we could make
employees pay taxes openly. For example, a law could make employees
pay the whole 15.3% social security tax (employers currently
pay half) as well as unemployment taxes, and any other taxes
or government mandated costs that employers currently pay on
a per-employee basis. If the law also made employers raised wages
by an equal amount, nothing would actually change financially
for the employer or employee. But what a difference it might
make politically if middle class employees started to see that
almost half of their income was going to taxes.
Note: To read my entire series on how money is transferred
from the poor and middle class to the wealthy, see the page:
The
Redistribution Of Wealth To The Wealthy on 999ideas.com. |
