The Tax Code Is a Con - and You're the Mark

The Rules Should Work for Us

In 2012, Warren Buffett dropped a truth bomb that should have shaken Congress: his secretary, Debbie Bosanek, paid an effective tax rate twice as high as his. "Debbie works just as hard as I do and she pays twice the rate I pay. I think that's outrageous". Buffett explained why: "We've got K Street, we've got lobbyists, we've got money on our side in terms of lobbyists. Deb doesn't have a lobbyist. She doesn't have anybody remotely that's representing her."^[1]

He proposed the "Buffett Rule", a minimum 30% tax on incomes exceeding $1 million. Congress ignored him.

Five Reasons the System Bleeds Us Dry:

• Most taxes are regressive. The rich pay a lower percentage of their income than you.
• Large corporations have lobbyists, we don't.
• The tax code allows large corporations and the wealthy avoid taxes.
• The IRS is defunded, the rich are seldom audited. It’s like asking them to cheat.
• Wages are taxed at higher rates than capital gains. If you work, you pay more than if you sit on your assets.

Who the System Works For

Texas populist Jim Hightower revealed the truth:
"Right to left is political theory; top to bottom is the reality we actually experience in our lives–and the vast majority of Americans know that they're not even within shouting distance of the moneyed powers that rule from the top, whether those elites call themselves conservatives or liberals."

On Top: Billionaires, CEOs, hedge fund managers & megacoporations.
On the Bottom: The rest of us.

Progressive vs. Regressive Taxes

Income and estate taxes are progressive because the rich pay a higher share. With Regressive Taxes we pay a higher percentage of our income than the rich. They include:

Sales Taxes

Food, gas, cars, cigarettes, liquor, and lottery tickets. The rich spend less of their income on these.

Licenses, Permits and Fees

Licenses to do anything; drive, fish, hunt, work, etc. Fees and tolls are also regressive.

Property Taxes

The rich spend a lower percentage of their income on housing and personal property than us. Renters pay property tax with every rent check.

FICA Payroll Taxes - Social Security and Medicare

Income from investments is not subject to payroll taxes. The employer share of FICA taxes makes hiring workers more expensive.
Social Security Tax: You pay 6.2% to Social Security on income up to $176,100^[2]. Above that? It stops. The rich get a discount. This may be the most regressive tax.
Medicare Tax: 1.45% on all wages, plus 0.9% on income over $200,000.^[3] This would be progressive, but investment income is not subject to the Medicare tax.
Self Employed? You pay both employee and employer FICA, but you get a tax break.

Employers Match FICA

Employers match both FICA taxes except for the extra 0.9% Medicare tax on higher incomes. This cost is large enough to make employers reluctant to hire more people. To encourage employment, we could eliminate the employers’ share of FICA taxes and replace the revenue by increasing corporate taxes and reducing tax loopholes. The fear is that congress would not tax corporations enough to make up for the loss of FICA revenue, thus increasing the deficit.

Tariffs

Like sales taxes, tariffs are regressive. Importers pay the tariffs and pass the costs on to consumers. Tariffs have two redeeming features: Tariffs create an incentive to purchase domestic goods over imported goods and the threat of tariffs can be useful in trade negotiations.

To give workers some protection from the current “race to the bottom” global trade market every nation could impose a tariff that increases 2% each year until it reaches 20%. This would also make nations more self-sufficient.

Trade Wars and the Dollar

We should avoid trade wars because they tempt our trading partners to use currencies other than the dollar in international trade. If the dollar loses its status as the world's reserve currency we will suffer high inflation. Trade wars also cause disruptions and uncertainty; reducing economic output.

The dollar’s reserve status makes imports cheaper for us, but this creates an incentive to import products rather than make them in America. We gain a net advantage because we can import raw materials and parts at a discount and use them to make new products for sale here and abroad.

Should Taxes be more Progressive or Regressive?

Too progressive: the economy fails to reward people who work hard and smart. A lack of incentives for investment could cause stagnation.

Too regressive: Large disparities of wealth create an economy that serves the rich while we are ignored. Poverty is rampant. Resentment and prejudice flourish. Extreme political conflict is the norm. Growth will be limited by chaos. Sound familiar?

Is our system too progressive or regressive? Look at the numbers.

Distribution of Family Wealth, by Wealth Group – 2022
• Top 1%: 27.1%
• Next 9% (91st-99th): 33.0%
• Next 40% (51st-90th): 33.4%
• Bottom 50%: 6.4%

Money held in taxpayers' social security accounts is included above. When social security excluded, we see greater inequality.

Distribution of family Wealth Excluding Social Security Wealth - 2022
• Top 1%: 33.0%
• Next 9%: 36.1%
• Next 40%: 28.3%
• Bottom 50%: 2.6%

Statistics and images from the Congressional Budget Office

The Big Lie

We reject the Big Lie, the notion that we must favor the rich to make the economy work. Before capitalism, only the landed gentry, the wealthiest merchants, and the church had access to financial capital. The engine of capitalism, Fractional Reserve Banking, (banks creating money by making loans) made capital accessible to farmers and shopkeepers.

Banks can generate abundant capital from middle class savings unless we allow the rich to hoard the wealth. To make capitalism work we need to rig the rules in our favor.

The Fix

Cut loopholes. Make capital gains taxable like wages. Restore IRS funding. Save Social Security by closing FICA's upper limit. Tax the rich to cut the deficit.
And most of all: stop voting for people who write laws for lobbyists. We need to win the primaries of both parties with candidates who oppose the donor class. We need to prove to politicians that they can win without donor class cash.

Tax fairness isn’t left vs. right. It’s top vs. bottom. Democracy is the only way to make the system work for us.

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