Higher taxes are a dire necessity for Ethanomics supported programs like the Green New Deal, Medicare for All, and Universal Postsecondary Education. These programs do not come free because doctors, teachers, and innovators whose jobs would become nationalized still require salaries to keep working and compensation sufficient to not switch for a less stressful/lower implication career. When I advocate for higher taxes, there is a fair chance I do not want to raise your taxes, and as a matter of fact, there’s a chance you could save money with a more progressive tax structure to fund these programs. Tax reform includes more than just making income taxes more equitable, but reconstructing the tax structure to grant leeway to individuals who are less able to pay and compensate with revenue from individuals with greater means.
One of the most significant steps towards tax reform is reconstructing the American income tax schedule into a more equitable system. Such a system makes the income tax structure more progressive, eliminates flat taxes, and provides resources to the IRS to collect on due funds. Budget deficits grow uncontrollably wider each year after politicians choose to curb taxes while spending with no regard. A larger, social, more balanced budget isn’t far-fetched if dignified, transparent politicians can agree on a tax code that works for the people and forces the hands of the super-rich into paying their fair share.
Currently, America operates a progressive marginal tax system that taxes each dollar where it’s earned rather than imposing a flat tax on income. Hypothetically, a tax bracket at 10% for the first $25k, 20% for the next $50k, and 30% for everything else, wouldn’t charge you 30% in taxes if you earned $100k that year. Instead, you’d pay 10% on your first $25k, 20% on the next $50k, and 30% for everything else. These numbers are all hypothetical to illustrate how the American income tax system works. Historically, there is an untaxed amount, called a standard deduction, from $0 to about $12,000 that goes untaxed, and then the highest tax rates usually only affect the top 1%.
Growing up, I believed that a 40% income tax rate was a fever dream for liberal politicians; and this is a fair conclusion to draw given that in my lifetime (since 1999), the highest marginal tax rate from the federal government was 39.6% from both the Clinton and Obama Administrations. Put in a broader historical context, since 1932, only Reagan, both Bushes, and Trump have enacted lower top tax rates. AND REAGAN TAXED 50% DURING HIS FIRST TERM! Long story short, both income taxes paid by the super-rich and wealth held by the working classes have fallen together. Making amends for decades of underpayment of taxes, specifically the rich, starts with income tax reform.
The next step to personal tax reform is to eliminate taxes that regressively tax, or tax at a higher rate for lower-income individuals. Do note that with many regressive taxes, an individual earner of a higher income will pay more of that kind of tax most of the time, but the effective tax rate relative to their income is always lower than that of a lower income earner. Regressive taxes are backward, but they find their way into the current economic society with what we know as flat taxes like sales or consumption-based taxes on alcohol, gas, or other products. For example, the 6% sales tax in the state of Maryland seems flat, but to an individual earning only $18k annually, a 6% tax on their $3000 grocery bill each year totals $180, or 1% of annual income. A worker bringing in $180k annually (10x their counterpart) pays the same $3000 for groceries and $180 for tax on those groceries, yet it amounts to 1/10 of 1% of their total income.
Aside from tax policy consistently underperforming what is needed to sustain a progressive nation, the IRS being underfunded exacerbates the budget deficit. As the primary tax collecting authority in the U.S., the IRS serves as law enforcement for the crimes rich people are more likely to commit, like money laundering, tax evasion, and fraud. In a study published last week by Syracuse University researchers, the amount of people millionaires has doubled in the past nine years however, audits on the same demographic are down 72% over the same time. Fewer audits mean up to $250 billion in legally owed taxes from the rich/large corporations go uncollected. Rationally speaking, fewer audits also plays into the hands of the rich because I, an individual paying no more than $1,500 per year in taxes, have a lot less to gain by committing tax fraud/evasion than an individual whose evasion may save them millions of dollars.
In a perfectly taxed world, finding money to fund so-called socialist programs like healthcare, housing, and education isn’t a scavenger hunt but a right guaranteed to the people. For the past few decades, corruption has ratcheted down tax rates on the rich, effectively defunding audit and enforcement efforts, which constricts the ability of the federal government to provide for the people. The trade-off yielded subpar welfare programs, mediocre public works, and scraps to be fought for at the bottom of the pyramid while those at the top get far richer. Fixing the issues of underfunding and providing services for people regardless of their ability to pay wouldn’t necessarily require the confiscatory 80%+ tax rates of the 50s and 60s because of reduced costs and improvements to technology. Modern policy proposals like the Bernie Sanders plan would break an 80% tax rate at $40.5 million dollars earned annually, affecting only 3 out of every 100,000 people (.003%) of all taxpayers. As with literally anything else, trustworthy and transparent governance unlike the one we have in America today is integral to implementing a tax policy that works for all.
Hopefully, you got a better understanding of how the individual tax system works because this is just the beginning. I’ll publish additional pieces about the corporate tax system and other miscellaneous tax information in the coming weeks. Thanks for reading. From the bottom of my heart, I appreciate you :)