Taxing The Poor: How To Squeeze Blood From A Stone
The Republicans generally argue that 50% of Americans don’t pay any tax, and that this should change. They complain about the significant cost of entitlement spending and welfare, insist that these are the root of America’s financial troubles and demand reform.
The Democrats tend to argue that the wealthy have more, can afford to pay more, and don’t actually pay the standard rates. They say there are too many tax breaks for corporations, and that we need Social Security, Medicare and low-income assistance programs, because people count on them.
If we look at the facts, it’s not terribly difficult to determine which argument makes more sense.
According to the IRS, 1,479 millionaires/billionaires paid zero federal income tax in 2009.
Citizens for Tax Justice [CTJ] reports that from 2008-2010, 12 major U.S. corporations not only paid zero federal income tax--despite posting a combined $171 billion in profit and collecting a combined $62.4 billion in federal tax subsidies--but actually had a negative federal income tax balance of $2.5 billion. Far from paying the 35% corporate tax rate, even the most highly taxed corporation paid tax at only 14.2% over that time period--60% lower than the standard rate--and was taxed at a miniscule 0.4% rate in 2009-10. Had they been taxed at the standard corporate rate, total federal tax revenue would have added another 12%. The Government Accountability Office [GAO] reported that two-thirds of all large U.S. corporations and large corporations controlled by foreign entities operating in the U.S. paid zero federal income tax on $2.5 trillion in sales during 1995-2008.
The poorest 50% of Americans do pay tax, just not federal income tax. But they pay sales tax, gas tax, Social Security and Medicare tax, property tax, school tax, the plethora of taxes on landline and/or cell phone service, etc.…many, many taxes. The amount they pay in various taxes adds up to a much more significant portion of their income than the proportion of income a wealthy person pays in taxes.
There is a very good reason the federal government--an entity that is extremely fond of separating residents from their cash--does not require low-income people to pay federal income tax: they simply cannot afford to pay any more. When the family budget is already pared down to the bone, an increase in expenses means that something has to go; “luxury” items like cable and phone services first, but eventually eliminating things like electricity and running water, then maybe transportation [resulting in job loss, and therefore, income loss], and finally, shelter. Requiring them to pay federal income tax might well mean creating a very loud, very visible group of homeless, starving families, which would certainly affect America’s international image in a very negative way. It wouldn’t be hard to correlate the timing of a sharp increase in the utilization of welfare programs, homeless shelters and food banks/pantries to the time of imposition of the federal income tax upon these families--statistics that would not be ignored. And this results in additional expense for everyone, via additional welfare spending to cover the additional load, and that wouldn’t be ignored, either.
There is a logical solution, which would benefit the vast majority of Americans. Rather than just taxing the wealthy, why not share the increased tax burden with the entities responsible for maintaining many Americans at an income too low to tax, in a manner that allows us to tax that 50% as well? Almost every working citizen would be paying federal income tax, along with almost every wealthy person and almost every corporation. We would all share the burden.
Sharing the burden involves ending federal corporate subsidies, and most deductions. It involves ending tax breaks that solely benefit the wealthy. [As a bonus we could even eliminate tax breaks that solely benefit the working poor and middle class.] And it involves substantial reform of the minimum wage.
Truly sharing the tax burden in this way would require either the mandate of corporations to pay every adult employee a living wage, or the offering of substantial tax considerations to corporations that voluntarily do so. This would improve the financial situation of adult Americans who work hard but don't have high-paying positions to a level at which they don’t need government assistance and could reasonably be taxed. America gains substantial additional tax revenue, spending on entitlements and social programs could be slashed dramatically with no ill effect, the elimination of complex and expensive tax deductions and credits would allow us to set new, lower tax rates, and the expense is directly applied to those responsible for the situation in the first place: corporate employers and, indirectly, the wealthy, who enjoy the financial benefits of owning or holding stock in these corporations, and whose desire for increased dividends and financial worth greatly influences a decrease in corporate expenses--like payroll and benefits. Exceptions could be made for small businesses, possibly based on number of employees and annual profit.
For this plan to work, we'd need to first develop a new and accurate cost of living [CoL] measure, customizable to locale. Real, necessary and widely varying costs would be taken into account, such as the cost of transportation to work, the vast difference in housing and nutrition costs from area to area, property and school taxes, the cost of retirement, etc. This CoL could then be used to determine a Living Wage [LW] for each locale. The LW would include items our government tells us are necessary--like health insurance, retirement funds, and emergency savings that cover at least 3 months worth of expenses--and would be based on the location of one’s workplace.
Our government and its citizens need to face the facts. We can either ensure that corporations pay their adult employees enough to actually live on, or we can directly bear their burden by funding health insurance programs, retirement programs and low-income assistance programs. Corporations aren't hurting; the record profits they continue to post proves that. In essence, working class America is paying for those profits, not just via ridiculous tax breaks and subsidies, but also by funding these programs that are necessary because corporations aren't pulling their fair share of the load. We can all be a part of changing that, just by passing on the facts.