A Look at Personal Income Tax

The cliche says that the two certainties in life are death and taxes.

The Federal Government produces no goods to sell. They do get a minor income from leasing out federally owned (meaning owned by us citizens) land. Every other penny they spend must come from taxes.

The taxes are labeled as taxes, fees or tariffs. They might be on imported products, services, business income, personal income, fees to access citizen owned land (like national parks), the temporary but still in force WWII rubber tax on tires (which don't use rubber any longer) or the temporary but still in force WWII tax on telephones. And pretty much anything else you can think of.

Despite planning on collecting $2.7 Trillion in 2009 from Personal Income Tax, payroll taxes, corporate income tax, excise taxes, customs and duties, estate and gift taxes and "other", Congress planned on spending $3.1 Trillion. With our economy in the dumps and unemployment officially at over 16% (16.7% actually if you count those on unemployment as well as those who no longer qualify for benefits), the 2010 Budget is slated to be $4 Trillion! By the way, the expenses for the wars in Iraq and Afghanistan are not counted in the budget. Those expenses are appropriations not budgeted items.

In 2009, the majority of projected income comes from (in ranked order): Individual income Tax, Payroll taxes (think social security) and Corporate income tax with the Individual tax totaling $1.21 Trillion. That is almost $4,000 from every man, woman, child and infant in the United States.

Now when times are tough, one of the "stimulus" measures is to lower taxes on a group be it to lower taxes on those who create the jobs (Reagan's "Trickle Down Theory") or those who work the jobs (if the jobs still exist). So if lower taxes are so good for the country, why do it only on a temporary basis?

Now the Federal Income Tax was created to provide services that the state and local government can't provide. I guess that there must be a lot of them.

This leads us to the sometimes raging debate over the fairness of personal income taxes. The current individual income tax system has only been in effect for the last 93 years or so, just about the last 40% of this country's history. Amazingly enough, the Federal Government managed just fine the first 60% of this country's existence without taxing personal income. I guess that is a forgotten skill.

There are four ways to tax individual persons:

1. Don't tax them. It was proven several times around the Reagan years that the Federal Personal Income Tax wasn't necessary; That by cutting waste at the Federal Level, the personal income tax could be eliminated and the National Debt paid off within ten years or less. That was the result of the Grace Commission report, the report that the Congress ignored and didn't tackle even one single issue or problem found by the commission.

2. Tax a person's income. In Capitalist theory, the harder we work, or the more we produce, the more money we make. Taxing a person's income penalizes them for being more productive or working harder. The harder you work/more you produce, the larger percentage taken by the Federal government. The less you work or produce, the smaller the percentage taken by the Feds.

3. Tax a person's income part 2. Use a flat rate percentage of tax on income. If it is say 10%, then the person making $20,000 a year, is taxed $2,000. The person making $100,000 would be taxed $10,000 and the person making $1,000,000 a year, would be taxed $100,000. No fancy tax laws needed, no fancy tax attorneys needed and very simple accounting. Even a moron can move the decimal point one place to the left to figure out their taxes. However it still penalizes us for how hard we work or how much we produce.

4. Tax a person's expenditures. Those who produce little, will spend less than one who produces a lot due to the difference in discretionary income. Therefore, the low producers will pay less in taxes than the rich. Treat it like state sales tax, you don't tax rent, food, labor, personal real estate or medical costs. I.e. the basics of life are tax-free. You DO tax material goods. So the drug dealer, welfare recipient, bank teller, millionaire and politician all pay the same tax dollars when they buy the $1,000 flat screen TV. The person that buys the $10,000 Nissan Versa (cheapest car in America for 2009) pays less in taxes than the person who buys the $106,000 Corvette ZR1.

Just to give you an idea of the numbers I'm talking about, eleven years ago in 1998, retail sales in the United States were $2.7 Trillion! The Census department estimates 2009 retail sales to be an annualized $3.6 Trillion, even in this tanked economy. With a 10% VAT, that'd bring in $360 Billion in income, about the same as corporate tax income but only 1/3 of the current individual tax system. So cutting Federal waste would still be a priority.

There ARE however two problems I see with the VAT tax.

#1, the European countries who've gone with it as a Value Added Tax, tax everything, food, water, labor... and the VAT runs from I think 17% to 27% depending on which country of the EU you are in.

#2, The Federal Government would add this in addition to state and local sales taxes. And they'd keep the personal income tax as well.

The only GOOD answer is #1. But the pigs at the trough will never go for it.