Posted on 03/25/2003 3:59:48 AM PST by rhema
Members of Minnesota's liberal elite are jumping all over a new report from the state Revenue Department allegedly showing the rich getting off easy when it comes to measuring the state and local tax burden as a percent of income.
But deliberately confusing disposable income with the true tax burden (also revealed in the tax incidence study, but routinely ignored in the press) isn't really very convincing.
Measuring taxes as a percent of income is problematic in the extreme if you care at all for economic liberty. Is it really newsworthy that the rich have more after-tax income than the poor? They have more money left over after they buy groceries, too. Does that mean the baker should charge the wealthy a higher price for the same loaf of bread based on their ability to pay? Gee, the tailor could have three prices for the same suit —one for the poor, a higher one for the middle class, and of course, even higher for the well dressed.
No, the best measure of the tax burden is the percent of total taxes paid. If you don't believe me, consider this when deciding just who is actually shouldering Minnesota's punitive tax burden: If the top 10 percent of income earners (the rich) withheld their tax contributions, how long could the government run? Not very long, according to the Revenue Department report.
In fact, the fortunate top 10 percent of Minnesota households (those making $102,412 or more) pay 39 percent of the total state and local tax burden and a whopping 55 percent of the individual income tax collected.
Now, how long could government function if the bottom 10 percent of earners (the poor) decided to quit paying taxes? Given the total amount of state and local taxes paid by this group (they are actually net income tax recipients, not payers) amounts to just 1.6 percent of revenue collected, well…you get the point.
Those so wedded to the politics of envy should explain that in order to erase the $4.2 billion deficit by just soaking the top 10 percent of households — many of which include entrepreneurs filing as sole proprietorships — the state would have to raise their effective tax rate by over 73 percent. Now that's a great way to keep business in Minnesota.
The problem with all this income analysis, be it quintiles or deciles, is its failure to account for the fabulously wealthy mixed in with the top 10 percent, which pushes the effective tax rate down for the entire group and then some. For instance, raising Minnesota's top income tax rate of 7.85 percent would hit single earners with an income of just $61,461 and whose total effective tax rate is already 12 percent. Are these the folks who need a tax hike?
By almost any analysis, Minnesota remains an extremely high tax and spend state, anywhere from third highest in the nation per capita to sixth, depending on whether you're quoting the Census Bureau, the Revenue Department, the Tax Foundation or the National Conference of State Legislatures.
A few dedicated leftists may not think that Minnesota's high taxes on the so-called wealthy matter, but most other states do. Perhaps that's why newly elected Gov. Bill Richardson of New Mexico is cutting that state's top income tax rate.
The fact is Minnesota's tax code is already less "regressive" than other states. But that's apparently not good enough for the class warriors, such as Rep. Joe Atkins of Inver Grove Heights, who recently quipped, "We're not even proportional. We're not even close to a flat tax."
Therefore, so the argument goes, Minnesota must keep — even raise — its "progressive" income tax to offset the "regressive" sales and property tax. Their new-found advocacy of the flat tax, however, would be a bit more credible if they were willing to apply it to the federal income tax code, where, according to the IRS, the top 0.5 percent of earners pay more than 31 percent of the federal tax (larger than their share of adjusted gross income). In fact, the 400 wealthiest taxpayers pay nearly as much in federal income taxes as the 40 million ratepayers at the bottom of the income scale.
Even a so-called "regressive" tax scheme elicits a higher burden for the well-to-do. The only way it wouldn't is with an equal distribution of income. Which is, by the way, what this debate is really all about.
The economic left dislikes "regressive" taxes because they really seek to equalize income. But, of course, income is not distributed; it is earned. Economist Thomas Sowell once opined that if the country could somehow double everyone's earnings tomorrow, a few Democrats would be against it because the rich would get more. How true. Let us dispense with the niceties, the problem for the modern day liberal isn't with tax policy —it's with capitalism.
Lewis (e-mail: jason@am1500.com) hosts a weekday talk show from 5 to 8 p.m. on KTSP-AM Radio.
"To each according to his need...
From each according to his ability."
Sound familiar? The Communist/Socialist approach to economic justice collapses every time it is tried.
I wonder why?
The current "Progressives" hide the fact that their approach to taxation is identical and indistinguishable from Communism, and constantly express surprise that it is resisted.
The politics of envy is simply one expression of the social war between the social producers and the social parasites.
Top 50% of Wage Earners Pay 96.09% of Income Taxes.
This, of course, at the federal level, not the state level.
I'm not sure, but you could check out AM 1500 to see if he does.
"Does that mean the baker should charge the wealthy a higher price for the same loaf of bread based on their ability to pay?
Well, they already do!
In my neck of the woods (Northern Virginia), consumers can purchase a loaf of bread for $1.00 when it is on sale at the Giant. So, to ease the math burden, let us use a $1.00 loaf of bread.
Now, for someone who does not pay any (lets just use the federal) income tax, the loaf of bread costs $1.00.
HST, there are many Americans who actually have a negative tax rate -- having paid no taxes in the first place they get a check FRom the feds, courtesy of the taxpayers. Therefore, their cost for the loaf of bread is actually less than $1.00.
The next federal tax rate (above the zero rate) is 10%. A consumer whose marginal tax rate is 10% will pay $1.11 for that very same loaf of bread.
A consumer whose marginal tax rate is 15% will pay $1.18 for that very same loaf of bread.
A consumer whose marginal tax rate is 28% will pay $1.39 for that very same loaf of bread.
A consumer whose marginal tax rate is 39% will pay $1.64 for that very same loaf of bread.
My example only demonstrates the hard truth about the federal progressive income tax system. On top of that evil, you have to add in your respective states' income tax.
So, what to do?
Replace the income tax with a fair, simple flat rate National Retail Sales Tax and abolish the IRS, thats what!
That way, everyone living in America would pay taxes at the exact same rate, and they would gain the ability to control the amount of taxes they pay by controlling their consumption.
For more information about the National Retail Sales Tax, click here.
...no, you would reduce spending on taxables...
If you wanted to reduce your tax burden, you could do so. You could choose to buy a used car or live in a pre-owned home for example.
That being said, you may not desire a used car or pre-owned home. So, you have to choose. Choice.
Keep in mind that today you have no choice.
And there is no connection between taxability and quality. I understand that it doesn't make sense to inhibit spending in a consumer driven economy. If indeed you wanted to design a tax system that would cause the most damage to a consumer driven economy, you would design a progressive income tax on business and individuals... a subtraction method value added tax. EGADS! That's what we have now!!!
Wonder what the number be if we included all the non-wage earners in this statistic...
I'm not sure what you mean. Do you think that statistic leaves out those who live on interest from "old money" or leaves out those on Social Security, etc.? Please explain.
Never mind.
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