Tax the Rich, NO, Tax the Poor

Many politicians are hell bent on solving the United States’ financial dilemma by changing the nation’s income tax structure, all of which result in an overall tax increase. Most Republican presidential candidates have a strong desire to make the poor pay more and reduce the burden of the wealthy. Democrats want the wealthy to pay more while maintaining questionable tax programs for lower income households. Too many Americans are quick to point out that the rich don’t pay taxes because of loopholes while other Americans insist that all the poor live on taxpayer handouts. Before proceeding, let’s put things in perspective. According to the Citizens for Tax Justice, America’s rich, the top 1 percent, earn 20.3 percent of the total personal income in the country and pay 21.5 percent of all federal and state income taxes. The middle 20 percent of households earn 11.6 percent of American wages and pay 10.3 percent of taxes. The bottom 20 percent account for just 3.5 percent of income, and only pay 2 percent of all taxes. Viewed according to the numbers published by the Institute on Taxation and Economic Policy, the lower 20% pay taxes on 16% of their income. The top 20% pay taxes on 30% of their income.

Since the rich have considerably more disposable income than the poor, the argument can be made that the rich should pay a larger percentage and the poor should pay less. However, the argument being presented in this article is not about taxation of the rich or poor wage earner. Looking at the corporate tax structure is a very enlightening activity since 280 of the United States most profitable corporations shelter half their profits.

According to Citizens for Tax Justice and the Institute on Taxation and Economic Policy, over a three year period, 30 corporations with earnings exceeding $160 billion benefitted from a negative effective tax rate. A highly profitable Mid-Atlantic utility company enjoyed a tax rate of negative 57%. These companies are not doing anything illegal. They are merely taking advantage of federal tax acts and policies passed by short-sighted lawyers that have little or no knowledge of the effects of their financial policy-making decisions.

A report authored by Robert McIntyre of the Citizens for Tax Justice states that 280 corporations got $224 billion in income tax subsidies. Banks and financial institutions received the most tax subsidies. Besides banks, utilities, oil, gas, and telecommunication companies were the biggest beneficiaries of the tax subsidies. Although many of the income tax breaks were created by the Bush administration, Obama extended the credits through 2012. A review of all the tax acts and policies benefitting rich and poor that have wreaked havoc on the country’s tax structure cannot be blamed on one party or the other. Blame can be equally shared by both political parties.

A few politicians love to talk about keeping jobs in America while they pass tax laws that encourage corporations to move jobs overseas. The American tax structure states that profits earned overseas can be deferred until they are brought into the United States. This policy encourages American companies to move jobs to overseas tax havens. It is beneficial for companies not to repatriate profits and government income taxes can be deferred forever. The law also provides an incentive for companies to create transactions that shift profits to an overseas subsidiary thereby lowering their American tax obligation. The United States does not need a new federal tax structure. American politicians need to remove all the ridiculous tax credits and incentives that make a farce of the current tax system. The corrections would increase revenues substantially. The tax system needs to be corrected, not changed.

The biggest problem we face is not how much tax money is collected but rather how the funds are utilized. The Obama Administration's Office of Management and Budget stated they will spend $30,958 per household, tax $17,576 per household, and borrow $13,392 per household. Spending more than we make does not sound very prudent especially when we scrutinize the expenditures. The American Spectator listed the following on September 14, 2009. $16.1 million dollars was spent to protect an endangered species of mice in the San Francisco Bay. $3 million dollars were used to build a tunnel for turtles to pass under a highway in Florida and $219,000 went to study the sexual habits of college students at Syracuse University. Another $1.6 million dollars purchased water taxis in Baltimore. These expenditures might have been for great purposes but they should have been funded by private entities, not by public funds.

These amounts are substantial but pale in comparison to the billions wasted by government agencies. Consider the Dept. of Energy that was created in 1977 to lessen our dependence on foreign oil. At that time, the United States was importing 30% of its oil.In 2010, the budget for this department was 24.2 billion dollars, had over 16,000 federal employees, over 100,000 contract employees, and had successfully managed to INCREASE our dependence on foreign oil to 70%. Our politicians should not be asking for more money. With so many overpaid elected officials, has any one of them ever seriously considered that the solution might be spending less money and living within our means?