Our tax system, and what is the “fair share” for the rich?

January 21, 2025

Looking a bit deeper into the tax situation in the United States, the subject of the rich “paying their fair share” is a common point of discussion. It is especially popular with those who want to score points with voters by attacking the rich.

In his farewell address to the nation last week, and at other times, President Joe Biden made claims that are misleading or in need of context.

For example, he claimed that billionaires “paid an average of 8.2 percent in federal taxes.” Without further explanation, that figure is certifiably false. The truth is that under the current tax code, the top 1 percent of taxpayers pay an effective tax rate roughly three times that amount, about 25 percent on the income the government counts.

Whether Biden doesn’t actually know any better, or whether he just doesn’t care about the facts, is an open question. And, there is the theory that he just reads what he is given by the White House staff.

In general, Democrats think the lower income earners pay too much in taxes, and the wealthy pay too little. They are in support of an overhaul to the tax code and the tax system. They believe the country needs a tax code that rewards work and creates wealth for more people, which is certainly a positive goal. But they think we currently have a tax code that “hoards wealth for those who already have it,” and that we cannot afford to have tax cuts for the wealthiest Americans.

The Biden-Harris administration had proposed the following changes to the tax code:
* Raising the top income tax rate on the top 1 percent of earners from 37 percent to 39.6 percent
* Increasing the corporate income tax rate
* Taxing capital gains and dividends at ordinary income tax rates
* Increasing refundable tax credits for individuals

In response to the administration’s proposals, the Tax Foundation had estimated that the major tax increase proposals in the FY 2025 budget would reduce economic output by 1.6 percent, and reduce employment by 666,000 full-time jobs. Vice President and presidential candidate Kamala Harris had previously proposed to take the tax increases further, which would have made the economic losses even greater.

A look at the tax situation on The Balance website published last September cited these facts about the tax system in 2021:
* Most of the government’s federal income tax revenue comes from the nation’s top income earners. 
* In 2021, the top 1 percent of earners paid 45.8 percent of income taxes.
* The top 5 percent of earners — people with incomes $252,840 and above — collectively paid over $1.4 trillion in income taxes, or about 66 percent of the national total. 
* If you include the top 10 percent — everyone who made at least $169,800 — that figure rises to $1.7 trillion, or 76 percent of the total.
* The top 50 percent of earners contributed 97.7 percent of federal income tax revenue.

The unpopular and unfairly demonized “rich” carry the tax load for the rest of us. The top 10 percent of earners pay three-fourths of the tax revenue, much more than the relatively miniscule amount that some of the Democrat politicians would have everyone believe was the truth. And, the bottom 50 percent of earners contributed just 2.3 percent of income tax revenue.

It seems likely that given this information, any reasonable person would discount the old saw that the rich are not paying their fair share, with the wealthiest 1 percent paying nearly half of all income tax revenue.

There are seven different tax rates that an individual taxpayer, or taxpayers filing jointly, may pay, based upon their earnings: 10 percent; 12 percent; 22 percent; 24 percent; 32 percent; 35 percent; and 37 percent.

And taxes are collectable from a long list of income areas:
* Wages, salaries, and employee benefits
* Rental income
* Goods or services sold or bartered
* Royalties (e.g. from copyrights and patents)
* Business entities
* Capital gains (e.g. stocks and bonds)
* Digital assets (e.g. cryptocurrency)
* Government benefits (e.g. unemployment, Social Security)
* Tax refunds, reimbursements, and rebates
* Court awards and damages
* Gambling winnings
* Prizes and awards

Yes, we Americans — the citizens of the land of the free and the home of the brave — need to support our government’s functions. But Americans also deserve to keep as much of the money they work for as possible. And the government has a solemn duty to operate as efficiently and inexpensively as possible.

Our government is not living up to its economic responsibility. Those elected by the people, and the others who are hired to work in government, are there to serve the best interests of the American people. But they seem unconcerned about that duty. Rather than seek ways to economize, they seek expansion, which is both costly and infringes on the freedoms our Founders worked so hard to create for us.

We must hope that President Donald Trump’s incoming administration focuses on this duty, and that the opposition party is willing to help them.

“Taxation with representation” isn’t working so well, either!

January 14, 2025

These days, there are few things that Americans agree on. If there is one that has broad agreement, it is that we feel pretty much the same about taxes. Nobody likes paying taxes, although people do it with the understanding that it is necessary for the nation to survive.

Taxation has been around about as long as civilizations have existed. We know that taxation existed in Mesopotamia more than 4,500 years ago. And taxes here in the U.S. go all the way back to the colonies, when Great Britain taxed about everything that existed. The colonists objected, eventually creating the now well-known phrase "no taxation without representation." But the English king ignored them and this led to protests, the best known of them being the Boston Tea Party.

Even after the revolution and the creation of the United States of America taxes have been an important part of the lives of Americans. 

While understanding that they are necessary, there always has been much controversy about the system of taxation. One major issue is the length and complexity of the current tax code.

The tax code’s growth over the last century or so is hard to swallow. In 1913 the tax code was a relatively tiny 400 pages. Today, it is about 6,000 pages. But when you add in the IRS guidelines, with its nearly 10,000 sections it is 75,000 pages of regulations, instructions and guidance. Someone estimated that in order to read the entire code, it would take nine days of 24-hour reading. 

As explained by eFile.com, the code includes “categories for employment taxes, financing of election campaigns, coal industry health benefits, and the trust fund code. This incredible growth can be attributed to both expansions and revisions that are made to patch up tax loopholes. Over the past 10 years, it is estimated that the tax code has been amended or revised over 4,000 times.”

In the not so distant past, several changes were made to the tax code. President Ronald Reagan made two reforms, in 1981 and 1986, including the largest tax cut in our history, at the time. President Bill Clinton lowered taxes on the middle class in the 1990s, and President George W. Bush also cut taxes substantially in 2001.

President Donald Trump put forth the Tax Cuts and Jobs Act in 2017, which helped people with lower incomes and it also lowered the corporate tax rate. His efforts are regarded as the largest overhaul of taxes in the 30 years prior to its passage.

Even so, these actions did not actually make the tax code any shorter or easier to understand and deal with.

Our tax code is so large and complex that the Tax Foundation estimates that 6.5 billion hours are needed each year to get all the tax work done. That works out to the equivalent of 3.1 million full-time workers. And the wages of these folks total $313 billion. In addition, there are 83,190 people working as tax preparers, as estimated by the Bureau of Labor Statistics.

And then there is the issue of tax rates. If there is to be a tax on personal income, why should there be different tax rates depending upon how much you make? The old saw that “the rich ought to pay more” works with everyone paying the same rate. At 10 percent of wages, earnings of $30,000 = $3,000; $75,000 = $7,500; $500,000 = $50,000; $1,000,000 = $100,000.

Why do higher income earners have to pay a higher tax rate? When wealthier people pay higher tax rates, they have less money to spend on the things they need and want, like homes and things in them, autos and other personal items, investments, donations to charity, etc. 

Lower rates give them more money to spend. Having more of their money in the economy is a very good thing. It increases sales of items and services, and that creates jobs and prosperity. Lower tax rates also reduce or eliminate the need for tax loopholes.

People with incomes at or below a certain point cannot afford to pay taxes on their income, so they should continue to get a break. And those in the income area just above that point might need a lower tax rate than others. But we shouldn’t need more than two rates.

Taxes must be sufficient to pay for the actions of government. But the actions of government must for this and other reasons be only as expensive as is absolutely necessary to provide for the safety and well-being of the people. A smaller, more efficient government would require less income from taxation to pay the bills.

The tax code should not be thousands of pages long. And it should not be so complicated that the average American cannot understand it and comply with it without having to seek help from professionals.

Increasing government efficiency at the same time as we are reducing excessive regulations, eliminating unnecessary or unconstitutional departments and agencies, and establishing sensible and fair income tax rates is long overdue.

Hopefully, the incoming Trump administration will address these problems and take steps to fix them.

Biden’s “Building Back Better” is really “Biden Boldly Blunders”

President Joe Biden’s early days in office do not bode well for the next three-plus years.

Changes to successful illegal immigration measures have created a true border catastrophe. This is readily demonstrated by record-breaking numbers of illegal aliens entering the country. 

Some of those seeking asylum surrender to the Border Patrol; other illegals avoid capture when Border Patrol officers are moved from the border to tend to illegal aliens that overwhelm housing facilities, allowing illegals to stream into the country unimpeded.

Why not keep the Trump administration’s “Remain in Mexico” policy for those seeking asylum? That would reduce the number of people overloading holding facilities by temporarily returning the asylum seekers to Mexico while their cases are adjudicated. 

Some of those avoiding Border Patrol are criminals, gang members, drug dealers, and some are on the terrorist watch list. And, there are significant numbers of all illegals that test positive for the coronavirus. 

And the administration is considering a conditional cash transfer program to help address economic problems that encourage Central Americans to head north. A New York Post story said the administration is “considering sending cash payments to Central Americans in order to dissuade them from making the journey to the United States,” actually paying people not to come to the United States. Like that is going to work.

Illegal immigration is Biden’s most visible and dangerous calamity. So far. 

And then there is the idea of “packing” the Supreme Court.

Biden has said in the past that he is not a fan of Court packing, and called it “a bonehead idea.” Packing would involve adding activist justices to the Court who would apply their personal political and ideological philosophies to their legal rulings.

However, despite his not being a fan, Biden has appointed a commission of mostly liberals to look into various aspects of the Court, including adding justices and placing term limits on justices.

However, in addition to Biden, many other people oppose the idea of packing the Court, including former Associate Justice Ruth Bader Ginsburg, who passed away last September, and current Associate Justice Steven Breyer.

During an interview on National Public Radio in 2019, liberal Justice Ginsburg made it clear that she opposed such proposals. "If anything would make the Court look partisan," she said, "it would be that — one side saying, 'When we're in power, we're going to enlarge the number of judges, so we would have more people who would vote the way we want them to.'" She added that it "was a bad idea when President Franklin Roosevelt tried to pack the court" in 1937.

In remarks prepared earlier this month for delivery at Harvard Law School, liberal Justice Stephen Breyer said, in what ABC News termed a stark public warning, that "It is wrong to think of the Court as another political institution," he continued, "And it is doubly wrong to think of its members as junior league politicians."

Prior to being elected, Biden campaigned on repealing the tax cuts made by then-President Donald Trump as one of his highest priorities, if elected.

In order to defend tax increases, Democrats play down the effects of the Trump reductions in tax rates. The Washington Examiner noted last October that “House Speaker Nancy Pelosi has dismissed any benefit to the middle class as ‘crumbs,’ while presidential candidate Joe Biden has said that $1.3 trillion of these tax cuts went to the top one-tenth of 1 percent of wage earners.”

The Washington Post fact-checker gave Biden’s claim that the middle class did not see a tax cut its highest rating of four Pinocchios for being factually deficient.

The Trump economic policy changes resulted in the unemployment rate dropping to a 50-year low 3.5 percent in 2019. And, median household income rose by $4,440 or 6.8 percent, which is the largest one-year wage growth in history. 

Taxpayers in Pennsylvania and Colorado earning between $50,000 and $100,000 saw their tax liability drop by over 14 percent and 13 percent, respectively, while households with incomes over $1 million saw their tax liability drop by just 3.1 percent and 4.5 percent, respectively.

The Examiner also reported that the doubling of the child tax credit from $1,000 to $2,000 not only reduced taxes for families, “but the number of households claiming the credit increased from 22 million to 36 million.”

When Trump cut tax rates, it helped generate an economic upswing and benefitted millions of not-wealthy families and individuals. 

Biden, however, wants to raise more than $2 trillion over 15 years by increasing the corporate tax rate to 28 percent, the global minimum tax to 21 percent, and placing a 15 percent levy on book income for the largest corporations, and corporate inversion.

Will that money be used to pay down the enormous $28.1 trillion national debt? No, it will be used to support so-called infrastructure, most of which is not what is considered infrastructure, such as manufacturing, $300 billion; electric vehicles, $170 billion, et al. These are corporate subsidies, not infrastructure. 

Where will that additional tax money come from? Higher prices, lost jobs and other undesirable actions.

This is bad spending policy funded by bad tax policy.

Americans and business being driven away by taxes and regulations

It is frequently said and generally true, especially well into the 1900s, that America is a land of immigrants, due to the huge numbers of people that have flocked to the United States since the early 1600s when the Pilgrims began the process, crossing the ocean in a long and perilous journey seeking religious freedom. A major wave of immigrants arrived here during the colonial era, during which the United States of America was born, and another wave occurred from 1880 to 1920, as thousands arrived seeking greater economic opportunity.

While these periods saw immigrants voluntarily traveling to America, thousands of African slaves reached our shores, brought here against their will from the 17th century well into the 19th century.

Four hundred years after the Pilgrims sought freedom of religion, America is still a favored destination for people from many other nations, and many or most of them come from highly troubled circumstances in their home countries and seek a better life, and as we have seen more recently, many sneak across the borders, and some come here to cause trouble and pain.

Curiously today, we also find thousands of Americans voluntarily giving up their U.S. citizenship for that of other countries. This is a trend that has seen surprising growth over the last several years.

Looking back to 1998, 398 Americans gave up their citizenship, and through 2009 the number of American expats ranged from a low of 231 in 2008 to a high of 762 in 2005, which was the end of a slow but steady seven-year increase in expatriate activity, according to data from the U.S. Treasury Department. After that, the numbers bounced around below the 2005 high, but then in 2010 that number nearly doubled, with 1,534 Americans giving up citizenship. This was the start of a period of increasing numbers of expatriates for every year except one, until it peaked last year at 5,411.

Interestingly, more than one-third of those expats in 2016 took this step in the last quarter of the year when the presidential campaign ended and the election was held. This raises the question of whether so many did so in the last three months of the year because they feared Hillary Clinton would win the election, or whether they decided to split after Donald Trump defeated her to become president?

During the run-up to the election a long list of recognizable names threatened to leave the country if Trump won, including one Associate Justice of the Supreme Court, Ruth Bader Ginsberg. It is worth noting that Ginsberg and many, or perhaps all, of the others threatening to leave are still here.

As these personalities were advertising what turned out to be their idle threats, countries like Canada and New Zealand advertised themselves as desirable destinations for Americans ready to abandon ship. As it turns out, New Zealand is the third most popular destination for American expatriates after Malta and Costa Rica, and followed by Mexico.

Why are people who are citizens of perhaps the most sought-after destination for people leaving other countries willing to give up U.S. citizenship to live somewhere else?

There are several reasons, such as that some of them fell in love with the culture and history of another country while on a trip abroad, and decided to move there. Or perhaps some may be immigrants who came here, became citizens, and want to return to their native land.

But another reason explains expatriation: The escalation of offshore penalties over the last 20 years is likely contributing to the increased incidence of expatriation, in the judgment of the tax attorneys who track expatriate data on their International Tax Blog. And US News adds that “The U.S. is one of a very small number of countries that tax based on nationality, not residency, leaving Americans living abroad to face double taxation.”

The U.S. tax code once again rears its ugly head. Its irrational design not only encourages businesses to move to other countries, but encourages individuals with earnings in other countries to abandon their citizenship, as well. However, President Donald Trump has pledged to overhaul the tax code, reducing tax rates on businesses and individuals, among other changes, and that may make a difference for these people.

Inside the tunnel where the Left lives, peering out on the world with their narrow view of things, everyone that makes a lot of money and every large company is an evil thing that threatens survival, so tax breaks that help the wealthy and the rich corporations are a bad thing.

But moving past the liberals’ tunnel vision, removing tax provisions and regulations that punish businesses and creating an environment that invites businesses, will encourage those that left to return and will help domestic businesses to expand and produce the jobs the country so badly needs.

Lowering personal tax rates and raising the standard deduction will leave more hard-earned income in the hands of regular people, who will then spend and/or invest it, both of which help the economy grow. And doing away with taxing foreign income will remove a factor encouraging people and their money to seek greener pastures elsewhere.