Monday, 14 July 2014 13:15

Why Not Five Percent?

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Tax Freedom Day came three days later this year (April 21) than last year (April 18). Calculated yearly by the Tax Foundation, it is “the day when the nation as a whole has earned enough money to pay its total tax bill for year.” The day falls much later than it once did (in 1900, the day fell on January 22 and the average American paid only 5.9% of his income in taxes). In 2014, Americans’ total tax bill (federal, state, & local) will come to about $4.5 trillion, or 30.2 percent of income.

Although some will pay in taxes a percentage of their income much less than that, others will pay much more. So much more that Representative David Jolly (R-Fla.) introduced a bill (H.R.4512), the “Alternative Maximum Tax Act,” on April 29 to “amend the Internal Revenue Code of 1986 to establish a maximum rate of Federal, State, and local tax imposed on taxpayers.”

The bill would limit any non-corporate taxpayer’s total effective tax rate to 50 percent of their adjusted gross income by amending part I of subchapter A of chapter 1 of the Internal Revenue Code of 1986 by the addition of a new section.

In section 3, subsection (b) of the bill, it specifically names 37 categories of federal, state, and local taxes that are included when calculating one’s maximum tax:

(1) Air transportation taxes.

(2) Biodiesel fuel taxes.

(3) Cigarette taxes.

(4) Medicare tax.

(5) Social Security tax.

(6) Estate taxes.

(7) Insurance taxes, including insurance premium taxes, excise taxes on comprehensive health insurance plans, and individual health insurance mandate taxes.

(8) Federal unemployment taxes.

(9) Garbage taxes.

(10) Gasoline taxes.

(11) Gift taxes.

(12) Hotel taxes.

(13) Import taxes.

(14) Income tax, including city, State, and county.

(15) Inheritance taxes.

(16) Interstate user diesel fuel taxes.

(17) Inventory taxes.

(18) Liquor taxes.

(19) Luxury taxes.

(20) Medicare taxes.

(21) Taxes enacted under the Patient Protection and Affordable Care Act, including the individual mandate excise tax and the Medicare tax surcharge on investment income of high earning Americans.

(22) Tangible personal property taxes.

(23) Real estate taxes.

(24) Sales taxes.

(25) Self-employment taxes.

(26) Service charge taxes.

(27) Sewer and water taxes.

(28) Special assessments (city and county).

(29) State unemployment taxes (SUTA).

(30) Tanning taxes.

(31) Telephone-related taxes, including telephone 911 service taxes, telephone Federal excise taxes, telephone Federal universal service fee taxes, telephone minimum usage surcharge taxes, telephone State and local taxes, telephone universal access taxes.

(32) Tire taxes.

(33) Use taxes (city, county, and State).

(34) Utility taxes.

(35) Vehicle registration taxes.

(36) Waste management taxes.

(37) Workers compensation taxes.

The good thing about this bill is that it draws attention to the tremendous number of taxes that Americans are forced to pay. This list is enough to make any taxes the American colonists paid to the British Crown seem rather insignificant. The two taxes that Americans are the most familiar with are the federal income tax and state sales taxes. Most states also have an income tax. Some states (Alaska, Delaware, Montana, New Hampshire, Oregon) have no sales tax. Those who pay attention usually also notice the Social Security and Medicare taxes that are taken out of their paychecks and the taxes listed on their phone bill. Most taxes are hidden, like federal, state, and local excise taxes on gasoline.

There are, however, a number of problems with the “Alternative Maximum Tax Act.”

First of all, some taxes are not listed, like taxes on rental cars and taxes on interest and dividends like one pays in the state of New Hampshire.

Second, the conclusion of this bill says that “the Secretary shall prescribe such regulations as may be necessary to carry out this section.” This bill would make the colossal and complex U.S. tax code even larger and more difficult to navigate as rules are developed and regulations are written about figuring one’s maximum tax.

Third, taxpayers would be required to compile the total amount of all the taxes they paid during the year to determine whether they reach the 50 percent mark. This would require extensive time and effort, as well as detailed record keeping to survive an IRS audit.

Fourth, H.R.4512 does not specify how taxpayers are to remain below a 50 percent effective tax rate. If the other taxes are already paid, then some kind of credit will have to be taken against one’s federal income tax owed. This would entail the addition of more arcane IRS rules to the already too complex federal tax code.

Fifth, and most important, why 50 percent? Why should Americans be happy that “the tax imposed under this chapter on a taxpayer other than a corporation for the taxable year shall not exceed the amount which when, added to the tax amounts described in subsection (b), bears the same ratio as 50 percent of adjusted gross income of the taxpayer for the taxable year bears to the adjusted gross income of the taxpayer for the taxable year.” Why not 5 percent?

The effect of a 5 percent maximum tax would be devastating to the federal government. Since the majority of Americans would reach or exceed their five percent threshold from either the Social Security and Medicare taxes that are withheld from their paychecks or by paying the myriad of state and local taxes that they are responsible for, they would not be obligated to pay any federal income tax.

Under a 5 percent maximum tax ceiling, only very wealthy individuals who are not employed or very high wage earners (because Social Security taxes are not collected on incomes over $117,000) would pay any federal income tax at all. And they wouldn’t pay anywhere near 5 percent once they calculated the amount of taxes they already paid under the 37 categories of federal, state, and local taxes that are listed in the “Alternative Maximum Tax Act.”

This would leave the federal government with very little money to spend. This is why the bill introduced by Rep. Jolly doesn’t dare say “5 percent of adjusted gross income.” Federal spending is out of control. Members of Congress have an insatiable desire to spend the taxpayers’ money.

But how could the federal government function with such a greatly reduced revenue stream?

Obviously, in the way in which the government functions now, it couldn’t. And that is precisely the way it should be. The vast majority of spending currently authorized by Congress is blatantly unconstitutional. As is the vast majority of departments, bureaus, and agencies of the federal government. Consider just the following examples:

There is no constitutional authority for the Department of Housing and Urban Development or any federal spending on housing.

There is no constitutional authority for any federal spending on foreign aid.

There is no constitutional authority for the Department of Health and Human Services or any federal spending on health care.

There is no constitutional authority for any federal spending on the war on drugs.

There is no constitutional authority for the Department of Agriculture or any federal spending on agriculture.

There is no constitutional authority for any spending on welfare programs like food stamps, WIC, Medicaid, EITC, TANF, SCHIP, SSI, the National School Lunch Program (NSLP), the School Breakfast Program (SBP), or the Low Income Home Energy Assistance Program (LEAP).

There is no constitutional authority for the Department of Education or any federal spending on education.

There is no constitutional authority for agencies like the EPA, SBA, FTC, FCC, SEC, FDA, TVA, HUD, NEA, NEH, CPB, NIH, and OSHA.

An “Alternative Maximum Tax Act” with a rate of 5 percent would limit the federal government to spending money on only that which is constitutionally authorized. It should be remembered that until 1913 there was no permanent personal or corporate income tax in the United States. All constitutionally-authorized functions of the federal government were funded by tariffs, land sales, excise taxes, and fees. The income tax could and should be abolished. But until such time that it is, why not limit taxes to 5 instead of 50 percent?


  • Comment Link Delia Reed Saturday, 19 July 2014 17:57 posted by Delia Reed

    Learn the IRC and what it really says;
    here's a hint;
    "An income tax is neither a property tax nor a tax on occupations of common right, but is an excise tax...The legislature may declare as 'privileged' and tax as such for state revenue, those pursuits not matters of common right, but it has no power to declare as a 'privilege' and tax for revenue purposes, occupations that are of common right."

    “The right to engage in an employment, to carry on a business, or pursue an occupation or profession not in itself hurtful or conducted in a manner injurious to the public, is a common right, which, under our Constitution, as construed by all our former decisions, can neither be prohibited nor hampered by laying a tax for State revenue on the occupation, employment, business or profession. ... Thousands of individuals in this State carry on their occupations as above defined who derive no income whatever therefrom. But, where an income is derived from any occupation, business, profession or employment, then the Legislature may lay thereon a tax...”

    Sims v. Ahrens, 271 SW 720 (Ark. S. Ct. 1925) (emphasis added)
    Right to work and earn a living

    Labor is property

    Flint v. Stone. 220 U.S. 107. Therefore our right to labor in a lawful occupation is an inborn and absolute prerogative and the government may not impose a charge or a fee for the exercise of such right.

    Butchers’ Union v. Crescent city, 111 U.S. 746, 4 S.Ct. 652, 28 L.Ed. 585 (1884), . It has been well said that 'the property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing this strength and dexterity in what manner he thinks proper, without injury to his neighbor, is a plain violation of this most sacred property. [emphasis added]

    Davis v. Boston & Maine Railroad Co. (89 F2d 368, 376) ruled likewise: "Working by an artisan at his trade, carrying on an ordinary business, or engaging in a common occupation cannot be subjected to a license fee or excise... The rights to labor and to do ordinary business are natural, essential and inalienable, partaking of the nature both of personal liberty and of private property.

  • Comment Link ter Tuesday, 15 July 2014 09:19 posted by ter

    good idea , but 30 years ago Harvard Proffesors of economy suggested that a 4% across the board tax would give the goverment more money than they would know what to do with . I'll go for the 5% , BUT all other means of taxation must be eliminated . State , Property , Personnal , Sales , user fees on Phones , utility bills etc. These were all deductable off the top if you saved all your reciepts .
    The income tax is a profitable industry ,,, I dont think we will ever get rid of it as too many jobs are involved .
    We must also remember that the income tax began as voluntary ,and that the IRS is NOT the LAW , only a collection agency using the law as fear to ensure ''voluntary complience ''.

  • Comment Link Nora Tuesday, 15 July 2014 02:09 posted by Nora

    Um, does anyone think 50% of their income--HALF of what they labor for-- should be "given" away to some bureaucrat that will waste it? What's the glaring thing wrong with this picture? Taxes are unconstitutional! Stop funding the demise of our country! Keep what you work for, yourself.

    Did you know that your taxes don't even get used to support the government agencies that oppress you, like the criminal EPA, FDA and the IRS? Nope, the money goes to the Crown as interest on the debt, which has been paid for hundreds of years, even though we claimed independence! The contract with the Crown was open-ended and we were supposed to pay for eternity even though the queen only funded the establishment of the colonies with a minimal sum.

    It's not a coincidence that the "war tax" came hand in hand with the central bank and the international bankers who think they rule the world. A few of them have recently figured out that their "fortunes" are as fiat as their currency, and those fortunes will evaporate when the stock market crashes. Those are the ones that jumped from the 59th floor, probably.

    They will never rule, and there is nothing they can do about it. They lose.

  • Comment Link Ibn Insha Tuesday, 15 July 2014 01:06 posted by Ibn Insha

    Most of the evil done by our Federal, Sate and local governments is due to the fact that they have authority to tax us in many forms such as income, wealth, consumption, etc. Take away the authority to tax people and government will automatically shrink to its constitutional level. Let president, governors and mayors raise money the way private charities raise money, by asking for it from citizens instead of taxing them. Once money supply shrinks the government will not be able to spy on its citizens or wage wars against citizens of other countries, not to mention lawmakers would not be able to make our lives miserable by making stupid laws that impede our lives just to justify their existence. If Bill Gates and Warren Buffet really hate their money and want government to take more from them I have no problem them giving all their money to government.

    Furthermore, lawmakers should not get anything for being lawmakers. If they really want to serve public let them have a job and meet in Congress or State legislatures only one day a week to discuss the security of the country or state. I would like to see how many of these self professed public servants would stay in government. Professional politicians are a great threat to a free society.

  • Comment Link MemphisMickey Monday, 14 July 2014 13:26 posted by MemphisMickey

    Taxes is not the problem, SPENDING is the problem.

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