So, it is political season, and it is starting to hit Virginia in earnest. Campaign ads are all over the television and radio, we have gotten campaign calls pretty much every day for a while now and so on. And, of course, I watched the candidates lie a lot.
If you didn't gather this before, in my my day job I work for a federal agency as a fiscal law attorney. Most people look at me when I tell them that with this puzzled look on their face wondering what the heck that means. Basically, my job is to advise people who I work with concerning the legalities of spending that portion of federal money allocated to our agency. I also look at the budget when it is being developed in order to see if there is anything we need to know about ahead of time, or think we need to ask Congress to change for various reasons. Although not strictly necessary for my job, this has also given me some contact with the tax code that brings the revenue in to the government.
Knowing this, I am never surprised when candidates for federal office display a shocking ignorance of the federal budget when they talk about what they intend to do in office. When people running for Congress or the Senate for the first time do this, I usually excuse it and figure they might learn if and when they get there. But when candidates for the nomination for President, who have served in the Congress and are touting their experience or their skill in managing legislation do this, I worry. It comes down to this: Passing the various appropriations bills is almost always the most important thing that Congress accomplishes in most years. In some years it is the only important thing Congress accomplishes.
More often, I worry about silly tax code pronouncements. Usually they talk about providing a "middle-class tax cut", because that sounds nice and egalitarian, and everyone pretty much universally thinks it is a good idea (because the vast majority of people in the country think that they are middle-class, and any middle-class tax cut will, by definition, apply to them). The problem is that such pronouncements are usually little more than lies.
The problem is that for just about any income tax cut, the bulk of the benefits will go to the very highest income earners, almost by default. The secret to income taxes in this country is that the wealthy pay almost all of them. The top 50% of income earners pay about 97% of the income taxes. The top 5% of income earners pay about 57% of the income taxes. The top 1% of income earners pay about 37% of the income taxes. Even if you define "middle-class" as being income earners between the 50th percentile and the 95th percentile, they only pay about 40% of the total income taxes paid. This reality makes it very difficult to create a tax cut that doesn't end up with most of the benefits accruing to the top of the income barrel - because that's where most of the money comes from. This, of course, gets people up in arms about how the tax cuts which were sold as being for the middle-class have ended up in the hands of the wealthy.
Now, this isn't a call for reducing taxes on the "wealthy", and I am not making any assessment as to how much taxes should be overall. But the reality is that after deductions and adjustments, the typical middle-class family probably only pays 4-5% of their income in income taxes as it is. There just aren't a lot of ways to drive that number down. If a politician was really serious about a middle-class tax cut, he'd look at some of the other taxes everyone pays, taxes that hit middle-class (and lower-class) individuals harder than their wealthy counterparts. The social security tax is "capped", meaning that if you make a lot of money, there comes a point where you can stop paying more into the system. The social security tax is also about 6% paid by the employee and 6% "paid" by the employer (and the reality is that the employee effectively pays the tax, he just doesn't know it), which is a much higher rate than most people end up paying in income taxes. That would be a place that the burden could be shifted "up" and the burden placed more squarely on higher income earners. It would also be a perfect place to reduce taxes on the middle-class. Of course, it would be political suicide for anyone to propose this - social security is called the third rail of American politics for a reason.
The federal government also taxes a lot of things directly at the point of sale as excise taxes. The most obvious is gas - every gallon of gas sold nets the government 18 cents (24 cents for every gallon of diesel sold). This is a lot more per gallon than the oil companies make in profit on that same gas. While the income tax is designed to be progressive, an excise tax like this is regressive - in other words, it hits those with lower income more, since it is a flat amount of money that has to be paid any time a gallon of gas is purchased. Any politician that was truly serious about reducing the tax burden on the middle-class would reduce the gas tax. Although they are taxes imposed by the states, the various sales taxes are also regressive - if a presidential candidate came up with a way to reduce the burden these sales taxes impose I would be impressed (on the converse, I was amazed when Clinton proposed a national value added tax, a hugely regressive type of tax; the proposal was, thankfully, widely ridiculed, and soundly rejected). Property taxes are also imposed by the states, and mostly hit middle-class homeowners, although you can take a credit on your income taxes.
So, the upshot of my rambling is that I have yet to see a candidate who actually has proposed any kind of tax system that will change the tax burden on the middle-class in a meaningful way. Ever. In any election. As long as they keep tinkering with the income tax system as their exclusive playing field, I don't think anyone ever will.
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