Originally Published: January 29, 2014 6 a.m.
The former editor of this paper, Ben Hansen, had an opinion piece in Saturday's edition. Good to see that he's as curmudgeonly as ever. Me too.
I have to disagree with him on one small point and one bigger point.
I agree with him on some things. That laws should apply equally to representatives and senators as they do to everyone else. That there should be "a comprehensive audit of the entire government to identify and eliminate waste and duplication." I'll go one better. That shouldn't be a one-time or occasional project, it should be a constant process.
My smaller disagreement is with his suggestion of a balanced federal budget. The idea was also brought up in the announcement of Paul Gosar's reelection bid, and it's a silly idea from our representative who must live in some other universe. No one operates on a balanced budget. Your family probably took out a mortgage for your home. You may have taken out loans for college education for yourself or your kids. You see those as investments. Few growing businesses do so without borrowing. It is seen as more than paying for itself. For the country, deficit spending can be a good investment if, just as in a business, it's done smartly, whether it's for the moonshot or the national highway system. Deficit spending in a recession is essential to revive the economy. We have almost always run a deficit and have almost never paid down any of the principle because, like a growing business, we simply outgrow the debt. (Reference links are with this column online.)
But that's not the big thing. Ben wrote, "Currently more than 40 percent of Americans pay no income tax. The reform should require every citizen to pay some taxes - be it a fair tax, flat tax, national sales tax or some other system that makes sure everyone has skin in the game."
The idea that some low-income people have no "skin in the game" is thoroughly wrong, a fact that is absolutely clear from solid, available data. Of course they have skin in the game, in payroll taxes and in state taxes, and in both cases they pay proportionately more than do higher earners.
Are income and payroll taxes really comparable? And what do I mean by "more?" For higher earners, income tax takes more, whereas many hourly employees have a greater share of their income go to payroll taxes. Yes, but payroll taxes are nothing compared to income taxes, right? Wrong. The total volume of payroll taxes now approaches that of income tax.
Higher incomes get breaks on payroll taxes in two ways. One, most of the payroll tax cuts off at about $110,000.
For those with upper-middle income jobs, say $150,000 or more, the top portion of income is mostly payroll-tax free. For those whose wages reach into the stratosphere, payroll tax is a tiny percentage of income.
Also, most higher earners get all or most of their income from investment. There's no payroll tax on that, and the tax rate on investment often comes out lower to boot.
Then there is state tax. As I've covered in detail in previous columns, when you look at all state and local taxes combined (taxes on income, property, state and regional sales tax, excise taxes (on gasoline, utilities, and many other things) the lowest wage earners pay almost three times as much of their income as do the highest earners. Almost three times.
If that seems unbelievable, crazy, backwards, and couldn't be true, you're right that it is unbelievable, crazy, backwards, and shouldn't be true, but it is. Pull up those previous columns. They explain it in detail, and give links to the documentation from multiple, solid sources. It's not just one or two liberal think tanks making up stories either. Everyone familiar with state taxes knows it's true, from the legislators to think tanks of both liberal and conservative bent. State taxes are severely upside-down and are a giant theft from lower earners that goes on year after year right under our noses. Not just low-wage workers either but the middle income too. They pay about twice the portion of their income as does the top.
So payroll tax is growing close to the size of income tax and hits low-to-middle-wage workers more, and state taxes are severely upside down. So even though some people pay little or no federal income tax they are paying big on other taxes. Anyone who tries to make the case that lower-earners are getting some kind of a free ride on taxes is telling a complete fantasy that ought to abandoned, and ought to be pointed out any time it gets raised.
Tom Cantlon is a local business owner and writer and can be reached at comments at tomcantlon.com.