Why is it so Hard to Understand Taxes?

I recently read some comments on Rand Paul's speech at CPAC about his proposal to institute a 17% flat tax.  One commenter raised the issue of a single mother making $7.25 an hour minimum wage just barely squeaking by getting her tax rate unfairly raised to 17%.

I've discussed this before in Tax Primer, intending to address it further.  Well after the wonderful sequester hysteria and now these comments from Rand Paul at CPAC stirring more misinformation out there, it's time to get to it.

The reality is that with this example of a single mother, her payroll taxes alone already add up to 15% (7.5% direct withholding and matching 7.5% the employer pays).  So out of her $7.25, she pays approximately $1.08 in tax ($.54 from her paycheck and $.54 from her employer).  Some will undoubtedly argue that her taxes are only half that and the employer pays the other half, but that still makes the $7.25 an hour of which the employee takes home $6.71 after her payroll tax is deducted cost $7.79 (rounded) an hour to the employer, possibly inhibiting him from paying her more or hiring more workers.  Those taxes are part of the total labor costs that get added into the retail price of whatever she produces, so she's effectively taxed double for buying the very thing she makes at a retail outlet.

For example, say she makes 1 coffee pot in an 8 hour day @ 7.25 an hour.  She gets paid $58 gross minus $4.35 (7.5%) deducted for payroll taxes for a total of $53.65  That total $58 she made before taxes were taken out is part of the retail price of that coffee pot at the store as well as the $4.35 the employer paid to match her payroll taxes.  So just for her part of the production chain, the effect of the payroll tax alone, it would cost her $62.35 for the labor associated part of the retail price to buy something she made for what she only received $53.65, meaning she not only paid those payroll taxes upfront in the production chain, but will have to pay that $8.70 a second time for an "effective" tax rate of 30% just because of the payroll tax alone.

Now that doesn't mean that the government gets 2x as much revenue. That extra $8.70 just pays herself and her employer back for what the government took from them up front.  It simply has the 2x the effect on her cash flow.

That's what helps make US made products that much more prohibitively expensive in that these taxes can often exceed transportation costs of importing similar products made halfway around the world with cheaper labor.

Those problems will also be a part of Paul's proposal for most income/payroll taxes have the effect of hitting you 2x, when you get it and when you spend it.  It gets even worse when sales taxes are added on top, adding insult to injury that you're now paying a tax on a (hidden) tax. 

That's why I do believe a single consumption or sales tax on all goods and services and getting rid of all income taxes, while certainly not perfect, may be a much better solution for it makes it that much harder for them to hide real tax rates and it would add the same imposed cost of our bloated government to the price of competing foreign products.  It will also help shift some of the burden to the underground markets when untaxed income of such activities as prostitution or drugs is used to purchase goods and services in the regulated markets.

While I'm at it, let me touch upon the dreaded Mitt Romney's comments on the 47% who supposedly get a free ride.  The truth is that income taxes that are imposed on the 53% who do pay them only add up to 42% of federal revenues.  Another 40% of the federal revenues come from payroll taxes.  About 9% comes in from corporate taxes, which of course, we all pay for whenever we buy any product or service from those taxed corporations.  And that's only federal taxes.

Citizens for Tax Justice put out this analysis which IMHO is woefully short on identifying anything close to the true tax burden, but is does somewhat illustrate that everyone pays taxes.  As I described above, it fails to capture hidden taxes and the fact that a portion of sales taxes amount to a tax on a tax.  It also fails to consider thousands of user and license fees and other ingenious vehicles for taking money from citizens are taxes, such as those for hunting/fishing licenses, department of motor vehicle fees, tolls, fines, forfeitures, court fees, regulatory burdens, the all too rarely discussed inflation tax and, yes, even the minimum wage is effectively a tax - imagine that.

The current tax code is a ingenious trap used by the predators to divide the herd as it seeks out victims upon which to feast.  They use it to divide and conquer to keep their bellies full.  It will never change unless we wake up and understand it for what it is and stop pointing fingers at each other claiming we pay too much and it's everyone else who is skating.

Please add your 2¢ if you see anything I missed or disagree with any points or have questions in the comments section below.  :)

Fiscal Cliff? ...or Three Card Monte?

Fiscal Cliff, my butt. 

Yea, we're all fools.  Government has perfected the three card monte scam.  It's called 'matching funds' and this whole fiasco of a debt crisis is just a show.  Taxes always go up, because they all keep creating new programs that need funds.  It's all just a show of them deciding from which vehicle do they get their loot, but it still comes from your pockets.  Just take a look at how states abuse the matching funds of the Medicaid program.  That's only the tip of the iceberg as there are literally hundreds of matching funds projects going on.

It's not rocket science.  We hear about it all the time with things like this article, "The Effect of Federal Budget Cuts on States and Localities", yet no one seems to grasp the concept.  It's a pretty good illustration of the dilemma, but there is one minor thing in the article disturbs me.  He wrote:
 

Finally, there are indirect cost-cutting or tax-increasing measures. Under federal tax laws, homeowners now write off their mortgage interest costs. Over the years, this favoritism has driven up housing prices. Real estate values, now in very bad shape, serve as the foundation for local property taxes. But the feds lose $100 billion or so from the interest deduction. That makes it an attractive target for reducing the federal deficit. But such a step might permanently bend down future growth in housing prices and accordingly, the property tax base.

They don't give a rat's patootey about how much your home is 'worth' on the market.  Market value has absolutely nothing to do with tax assessments and their property tax base.  All they care about is how much of your money they need to extract to enact their delusions of grandeur.  The tax 'base' is simply the total number of taxable properties located within their jurisdiction from which they can plunder the loot.  For example, I used to live in a town with a considerable number of government facilities, courthouses, and religious exempted properties for it was the county seat.  Anyone who owned a similar property in a town without all those exempted properties paid much, much less in taxes.  Two similar properties on the same road could have vastly different tax levies simply depending on a township property line being between them.  Nothing drives away homeowners of average means more than unbalanced giveaways in tax-exempt properties.  They have their operating budget full of promises to people to vote for them, and they will extract it from you one way or another.  The rich tend to settle in those locations, for it's another giveaway they use to simply write off the taxes.

Welcome Back, Jim Traficant

For those who don't know him, Jim is a problem for the Feds who just won't go away even after they sent him away to serve 7 years in the prison system.  He was the thorn in the side of the Democrats as Ron Paul is to the Republicans.  He was scared then when they put him under indictment, but after having gone to prison, he no longer is and he's speaking out.  Welcome Back!

I saw a video of him giving a speech a Freedom Palooza in July 2011.  That speech is about 36 minutes long divided into 3 videos and it's well worth watching in its entirety.  In part 3, he recited this verse about a well-known incident that happened when he was in office which he claimed to have spoken on the House floor:

There was once a woman from Manassas

Who got tired of all the hassles

Claiming she'd been raped by her spouse

in her very own house

went in the kitchen to get a knife

fully prepared to take her husband's life

But realizing such a crime was too heinous

decided instead to cut off his "painless".

I don't know if this guy plays the piano

but from here on out, he'll sing like a soprano

But if he really, really did rape his wife

maybe, just maybe, he deserved that knife

After reciting it he says there was a much deeper message in there.  To me it is crystal clear that it is a stern warning to Congress to stop raping the American people for we, unimaginable to many of us ourselves because we're brainwashed to accept the repeated abuse, have many means available to help us emasculate the rapists. 

Jim details some of those ways when he talks about taxes and he has a plan.  Get rid of the IRS, repeal the 16th and 17th amendments, repeal the Federal Reserve Act, get rid of the Dept of Education, Energy, and the EPA.  Replace them all with a simple 25% sales tax, period.  What?!?  I won't explain it all here -- yet (even though I have been identifying parts of it and will continue to put it all together), for Jim details very well how it would work in his speech. 

Don't just shoot from the hip saying it won't work.  Watch the speech, then try to tell us why it won't work.

Freedom Palooza 2011, Traficant (1 of 3)
Freedom Palooza 2011, Traficant (2 of 3)
Freedom Palooza 2011, Traficant (3 of 3)

Tax Primer

Ok, I've had it with reading all the Obamacare "mandate" discussions over whether it is effectively a tax or not.  People seem to want it both ways.  Conservatives first screaming it was a tax when enacted then lambasting Chief Justice Roberts for calling it one while they want it to be called an individual "mandate" to make it unconstitutional under the Commerce clause.  Liberals claiming it's not a tax, but reveling in the SCOTUS decision.  Well, you can't have it both ways, choosing whatever to fit your want.

First of all, they (the government) already can and do tax everything, to include non-activity. Think about this Obamacare “mandate” as you would in terms of a mortgage “deduction”. The mortgage interest deduction can also be called a "mandate".  What they are telling you is you must buy a dwelling ~and~ you must take out a mortgage to get a “deduction”.   Simply renting one or buying your house for cash and not being in debt isn’t good enough.   You must have a mortgage or you will pay a "penalty" by being taxed more, plain and simple. And the bigger the mortgage and the more debt it puts you into forcing you to pay more interest (that translates into more profits for the banks which is also taxed) the better will be your reduction in the tax “penalty” for not having a mortgage.  It's win-win for the banks which sell more mortgages and the government which collects more taxes (they only get 15% on your income, but 35% of corporate profits) and a huge loss for you being forced to go into debt to buy something you may not need.  All in all, it's simply designed to take more money from you.  I won't go into how corporations lower their tax exposure today, but be assured that it is a pyrrhic victory for the consumer who must pay the corporate tax, regardless.

So, do you think the banks helped create the mortgage interest deduction, just as the insurance industry helped create Obamacare?