How Effective is Obama's Plan to Tax the Rich?

President Obama proposes to tax anyone earning over one million dollars per year at the middle-class tax rate of about 20 percent. This implies that the rich are currently paying less than the middle-class who earns an average of about $50,000 per year. Why is the president not attempting to tax the rich more than the middle-class? It was suggested that the president is fearful that the rich would not create jobs, and invest their money off shore rather than here in the United States.

Are the Rich Creating Jobs Recently?

The belief that the rich are the job creators in the United States is misguided. According to Professor Robert Reich, 99 percent of small business owners account for the new jobs created (robertreich.org). According to Reich, the rich are sitting on two trillion dollars and are not creating new jobs (robertreich.org). Due to the state of the current economy, more and more individuals are becoming self-employed due to the lack of job creation. So if the rich are not creating new jobs, why is the president attempting to give them the benefit of being taxed like the middle class? In fact, it would be more beneficial to tax the rich at the bracket intended because it would create a greater incentive to actually create jobs, as there are numerous tax benefits to creating corporations.

What if the Rich Take Their Money out of the US and Invest Off Shore?

If you recall from my previous blog on the IRS attempt locate funds held in off shore accounts, the IRS has the authority to tax the income of all United States citizens whether it was earned in the United States or abroad. Not only that, anyone who fails to report their off shore accounts are subject to additional penalties. So should the president fear the rich investing their funds elsewhere?  The answer is very clear. Even if the rich does decide to do this, the income that they earn off shore would be taxable.

The real problem exists with the Tax Codes that are currently in place. There are too many loopholes and credits given to the rich that they end up paying a lower percentage in taxes than the middle class. If the president is going to attempt to tax the rich, he should approach this matter based on fairness. The lower and middle class are taxed based on their earnings, and the rich should be also. The various tax brackets were created for a reason, and it is time that they are implemented on everyone. By taxing the rich at the same rate as the middle class, the president implies that the rich now pays less than the middle class. As a middle class individual, I find this to be quite disturbing. I pay my taxes based on my respective tax bracket, and I see no reason why everyone should not be required  to do the same.

However, if the president really wants to be effective in creating jobs in the United States, he should focus on offering some sort of tax credit or tax deduction to individuals for creating jobs, whether rich or poor. This credit should be similar to the tax credit or tax deduction given for donations made to charity. Individuals are always seeking tax write-offs, and this would be a great way to incentivize job creation. When the First-Time Home Owner's Tax Credit was introduced, there was a major boom in the real estate industry. By introducing a Business Owner Credit, the president may realize the same results.

Reference

Reich, R. (2011). "Taxing the Rich, The Obama Way." Retrieved on September 27, 2011 from: http://robertreich.org/post/10360054909.

How Much Taxation is Too Much Taxation?

Many citizens of the United States may have been wondering why do we pay taxes on our income, and then have to pay taxes on items that we purchase with that income? At what point will the Federal and State Governments determine that the people have been taxed enough? Is there even such a thing as being over-taxed?

We are Taxed on Airline Tickets

On August 5, 2011, the IRS announced that Congress has reinstated the Airline Ticket Taxes and apparently there was a lapse in the Federal Aviation Administration ("FAA") authorization because it states that this authorization will apply "retroactively" to the airline ticket taxes for passengers who traveled during the lapse of the FAA's authorization. As a result of the bill Congress passed, passengers who purchased tickets prior to July 23, 2011 and traveled between July 23 and August 5, 2011, are not entitled to a refund of the airline ticket excise tax. Additionally, the IRS intends to provide relief for passengers and airlines with respect to ticket taxes that were not paid or collected because of the lapse. Makes you wonder how many people actually noticed the additional fee labeled as "federal taxes" on their receipts. As if airline tickets were not expensive enough. So not only do we have to pay to check in our bags, we pay more federal taxes.

We Pay Taxes on Goods and Services

Now not only do we pay taxes to the federal government, but some of us pay income taxes to the state. Well if that was not enough, some states also imposed a sales or use tax on goods purchased by consumers. At least 45 states impose sales and use taxes on the retail sale, lease and rental of many goods, as well as some services. Many cities, counties, transit authorities and special purpose districts impose additional local sales or use taxes. A sales tax is collected by the seller at the time of sale, while a use tax is self-assessed by a buyer who has not paid sales tax on a taxable purchase. Luckily for consumers, there is no Federal sales or use tax.

We Pay Estate and Gift Taxes (Also called Inheritance Tax)

The Estate Tax is a tax imposed by the Federal Government and states against the "taxable estate" of a deceased individual. A Gift Tax is a tax placed on taxable gifts such as a transfer of an estate as a gift from one individual to another. So individuals who receive an inheritance, proceeds from a life insurance, or property, etc, from a living or deceased person is subject to this form of taxation. So not only will the Federal Government tax the estate or gift, so will the state. Is this form of double taxation fair?

We Also Pay Property Taxes

So not only do individuals pay taxes on the income they receive, they in turn must use that income to pay taxes on any taxable property owned as determined by most states. Property includes both real and personal property. So we are subject to taxes for the houses, land, and vehicles, etc. that we may own even though we likely paid taxes on the items when we first purchased them. These taxes are often paid annually.

These are just a few examples of the type of taxes that citizens of the United States may face, and there may be others not listed. At what point will the Federal Government and states realize that individuals are over-taxed? We are taxed on our income, then taxed on the items we purchase with that income. Is this the type of power we gave to our government, and if so, how do we take it back? The Federal and State Governments may issue refunds each year to those who may qualify, but it hardly compensates us for the taxes that we pay on a daily and annual basis. Yet despite paying these taxes, our economy is still declining. How much more would consumers purchase and revive this economy if their income were left untaxed?

What do you think, are we over-taxed here in the United States?

Reference

http://www.irs.gov

Top 10 Reasons Taxpayers Use as Support for Not Paying their Income Taxes to the IRS

     There are several interesting arguments offered by Taxpayers and Attorneys in support of their opposition to Federal Income Taxes. I have narrowed it down to my favorite ten (10) Arguments:

(10) The Federal Income Tax System is "Voluntary," so a person can choose whether to pay income taxes to the government. - This would explain why the IRS then voluntarily chooses to levy bank accounts and garnish the wages of individuals. If you won't pay your taxes voluntarily, the IRS will voluntarily take it from you. You decide which is preferable.

(9) The only individuals required to pay Federal Income Taxes are Federal Employees. - I think that Federal employees would be the first group to be exempt from Federal Income Taxes because they are already being paid from the taxable income of others by the Federal Reserve.

(8) Only Foreign Income is Taxable. - If the United States were able to track down the money that many individuals have stored in foreign countries, we would not be in a deficit today. It is their inability to tax foreign income that signifies the need to tax the income locally.

(7) Taxpayers can refuse to pay Federal Income Taxes for religious or moral grounds by invoking the First Amendment. - I can hear the United States Attorneys arguing "separation of church and state prevents you from invoking your religious and moral beliefs on the government also."

(6) Wages, Tips and other Compensation received for personal services are not income because there is no personal gain when a person exchanges labor for money. - If this were true, then the only income that's taxable would be income that you did not earn from personal services, like inheritance, gambling, investments, etc. There would be more of an incentive for people to work however, wouldn't it? However, the IRS defines income as compensation received from services. The IRS is not concerned with the nature of the service.

(5) The Internal Revenue Service is not an Agency of the United States.  - I found this argument to be rather amusing. If the IRS is not an Agency of the United States, then who are they working for? Is that why we are in a deficit? Where is our hard earned dollars going? Unfortunately, pursuant to section 7801, the Secretary of the Treasury has full authority to administer and enforce the internal revenue laws and has the power to create an agency to enforce such laws.  Therefore, the IRS is an agency of the United States.

(4) African Americans can claim a tax credit for reparations for Slavery and other Oppressive Treatment. - Wouldn't this be nice? However, the Federal Government will Prosecute anyone who attempts to claim the "Black Tax Credit." The government essentially argues that a tax credit is a grace, it is not an entitlement.

(3) Compelled compliance with the Federal Income Tax Laws is a form of Servitude in violation of the Thirteenth Amendment. - I was rather amused by this argument. The reason why this argument fails is because if an individual does not want to pay Federal Income Taxes, the solution is simple, "STOP WORKING," or "WORK FOR FREE, or FOR GOODS, or IN EXCHANGE FOR OTHER SERVICES." Go back to the barter system.

(2) Federal Income Tax Constitutes a Taking of Property without Due Process in violation of the Fifth Amendment. - This argument is actually very clever. If we consider our income to be property, then this is a valid argument. The problem with enforcing this law is the forum in which it would be brought. The case would be a Federal Case and your impartial judge would likely not be so impartial because your taxes pays his salary. Also, the same Constitution that granted this right also granted the Government the right to tax. Therefore, the taxpayer is likely to lose this case before a tribunal that is its own judge and jury.

(1) Individuals have the right to refuse to pay Federal Income Taxes and accept the fact that they won't get a refund for that year, thus eliminating the need to file a Federal Income Tax Return. - This argument makes a lot of sense. If someone refuses to pay Federal Income Taxes, they simply would not be entitled to a refund. This would reduce not only the paper work involved with filing income tax returns, but it would reduce the income tax refunds paid out every year. However, the IRS only issues refunds to individuals who have paid taxes beyond their statutory requirements in conjunction to tax credits for which they are eligible. Therefore, if no one pays the statutory requirement, the government would be forced to find alternative means to raise revenue, which is possible. This is the strongest argument I found in support of not paying Federal Income Taxes.