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January 13, 2009

The "Tax Freedom Day" Trick

-- by Dave Johnson

This post originally appeared at Speak Out California

It takes a 2/3 vote to pass a budget in California. As we have seen this means any budget that does not completely meet the hard-core anti-tax, must-cut-government position of the Republicans in the legislature is voted down. Even though there is enormous public support for government - schools, roads, firefighters, etc. - they will not compromise at all. They demand that we gut the government, lay off tens of thousands of workers, or nothing. So California races toward economic ruin.

What do your taxes buy you? The average person benefits greatly from strong government. By gathering together into a community that is jointly managed (i.e. government) people can pool their resources and accomplish great things that cannot be accomplished by people who are on their own. Roads and bridges are examples of things that people cannot accomplish individually. Police, firefighters, public schools are other examples. Law and courts and a monetary system are still more. And then there are benefits like Social Security and the "safety net" of programs for people who lose jobs to food programs for those of us without enough to eat.

The reason we have almost everything that we value as a society, our education and (until recently anyway) jobs, the internet, buildings that don't easily burn down or blow away, drinkable water coming to our houses and sewage systems leaving them and (until fairly recently, anyway) a health care system that stops epidemics is our government. All of the businesses we see around us exist because of our government -- a corporation cannot even exist without the government that establishes it and the legal system that maintains it.

But there are some who would personally benefit more in the absence of government than in its presence. History has taught that there are some who would organize themselves to take what others have worked to build rather than do that work themselves. One need only look at the walls built around cities in the past to understand this. There have also been organized gangs and other criminal enterprises that take rather than build, and more recently we have seen that organized predatory enterprises also find ways to victimize and prey on people. Fraud, confidence and ponzi schemes, consumer scams and all manner of trickery prey on people who are left unprotected by their community. Government is what has always protected regular people from such predators.

Government -- the people banding together to guard and accomplish their interests -- serves to protect people from those who would just take rather than work with the rest of us to build.

So why did Ronald Reagan famously say "government is the problem" in his first inaugural address and he loudly and repeatedly attack the idea of taxes? The foundation and strength of government is the taxes it collect. Taxes are what provide government with its strength to do all of the good things described above. This is why anti-government ideologues reason that the way to cut government (and thereby bring in its alternative) is to cut taxes. They say that if they can just cut out the foundation of government, it will fall. Or, more famously, that they can "drown it in a bathtub."

One way that anti-government ideologues have worked to accomplish this is to turn people against their own government, tricking people into misunderstanding how taxes work and what government does for them. last week, in What Are Tax Brackets, I explained how one of these tricks works -- that you only pay bracket rates taxes on income that falls in that bracket, not on all income earned up to that bracket.

Another way they turn people against taxation and government is to misrepresent how much is collected and how it is used. Exaggerated statements like, "We pay half our income in taxes" are commonly heard, along with under-representation and misrepresentation of the benefits we receive from government.

"Tax Freedom Day" is one example of this technique. Tax Freedom Day is a product of The Tax Foundation, which is funded by the very same collection of right-wing donors that fund the Heritage Foundation, Cato Institute and so many other components of the anti-government "conservative movement."

Tax Freedom Day is widely publicized by corporate media, and usually described as being when "the average American" has earned enough income to pay their taxes. Tax Freedom Day for 2008 is April 23. To calculate Tax Freedom Day the The Tax Foundation adds up all the taxes paid to the government from all sources, but it only includes certain forms of income. It doesn't include capital gains income, for example, yet includes capital gains taxes on the tax side of the calculation. These misleading calculations of course result in a much higher tax amount than "the average America" really pays. So while they say that 30.8% of "our" income went to pay taxes in 2008, anyone reading this who looks at their own tax bill can see that their taxes are substantially lower than this figure.

So the next time you hear about Tax Freedom Day, keep in mind who is making this claim, and why.

Click through and join the discussion at Speak Out California

Posted by Dave Johnson at January 13, 2009 4:26 PM


Comments

Nicely said. Thanks.

Posted by: RoadieIL [TypeKey Profile Page] at January 14, 2009 11:04 AM

It has been one of my major gripes over the years, that people who should know better think (or perhaps tell us) that when we enter a new tax bracket, our taxes vault up.

I (modestly, perhaps) propose taking advantage of that miscomprehension. At around $150,000 (I'm not at all sure about this number) income, insert a $500-wide tax bracket at about 5%. See how often people twist and contort their income to put it in that bracket. Since many more incomes are lower than that amount, they will try to inflate it somehow or other, giving the government more taxes.

Posted by: John M 307 [TypeKey Profile Page] at January 14, 2009 4:52 PM

You propose earlier to increase the highest marginal tax rate to 90%. That makes you the outlier in compared to EU nations. They have moved emphatically in the supply direction and moved the highest rates to below 50%. Russia all the the way down to about 17%.

As to your tax plan, in theory there is no difference between theory and practice...in practice there is. Coach Berra.

Posted by: Mace [TypeKey Profile Page] at January 14, 2009 5:33 PM

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