WASHINGTON: April 15th, Tax Day, is upon us (actually it’s tomorrow as today is Sunday). That means our Federal Income Tax liability must be determined. Our hope is that over the last calendar year, we withheld enough, maybe too much, leading to a refund. Do we need a tax software package to confirm what we have paid, should pay or overpaid? What about state income taxes. How much tax do I actually pay, to whom? Is it time for simple tax reform?
The very complicated federal and state tax forms help, after machinations, to determine what we owe, or are owed, to the state and the federal government. Most of us also pay taxes to the local government too. If we ever added it all up, Americans who work and contribute to the economy may be shocked. If you live in a state with retail taxes, from food to whatever it is that you buy, it’s a considerable amount
One tax payment may be a better idea.
On the federal level, anyone who earns income must pay federal income taxes. If most of the income is earned through wages, then there are additional taxes. Wage earners must also pay Social Security tax, Medicare tax, and unemployment insurance tax. Wage income ends up being taxed twice.
According to the Tax Policy Center, about 80% of taxpayers pay more in payroll taxes than income taxes. The figure is higher than 80% when added to the Social Security tax your employer pays on your behalf.
The federal government then collects estate taxes and various hidden excise taxes on things like gasoline and alcohol. It is very difficult to determine exactly how much an individual pays to the federal government.
Perhaps there is a better way to tax. Is it time for Tax Reform?
Suppose the federal government collected just one tax. In other words, combine all of the taxes currently collected and charge each person just one tax bill. The government could determine the rate and the progressivity. Still a single tax payment to the federal government would instantly tell us exactly what we are paying.
Since I live in New Jersey, I pay a state income tax and a sales tax on almost everything I purchase. Then there are taxes on real estate transfers and excise taxes on gasoline, alcohol, and cigarettes. In total, taxpayers don’t know how much they pay to the state.
If all of the taxes were replaced by a single state tax, then each taxpayer would know exactly how much taxes are paid.
Our elected officials will strongly oppose this idea.
Congress and state legislators will not like this idea, primarily for two reasons. First, they will say that certain tax revenue is targeted for a specific program. The Medicare tax is only allowed to be spent on Medicare payments. The Social Security tax is only used to fund Social Security payments.
The response to that would be that to the taxpayer, our primary concern is how much money the government is taxing each of us and how much the government is spending. Taxpayers just want to know the total cost of government. Let our leaders figure out how to allocate the dollars. If they say we must have sufficient funds for social programs, then put the programs at the top of the list.
The second reason is a bit more compelling. Through the election process, Congress should enact programs supported by the majority.
Often though, the majority favors a program but doesn’t necessarily favor paying for it. Congress solves this dilemma by creating a special tax that is small.
For a new program, they could increase your single tax payment from the already high 24% to 26%. That would be a hard sell. But instead, they simply say that this program will cost only a 2% tax. That is easier to sell to the public.
American pay enough in taxes already.
The US has always been a country that thrives when tax rates are low. This is especially true today when the majority of our GDP relies on capital-intensive industries. The US almost always encourages individual responsibility while recognizing a social obligation. As such we are unique in the world.
Almost a decade ago, many Americans thought that we were Taxed Enough Already. Although the TEA party moved to broaden its scope, the initial formation was geared to stop higher taxation. Many more Americans would likely join this movement if they truly knew exactly how much taxes they paid. Exactly how much was paid to the feds and how much to the state is what Americans should know.
Let’s push this idea.