|
It's that taxing time of year again, and it's especially painful for me.
I'm not against tax cuts for the rich, because they pay the lion's share of the nation's tax burden. But the current system penalizes workers and rewards people with so-called "unearned" income, such as interest payments. Wouldn't you love to avoid those morning traffic jams, forego dealing with obnoxious co-workers and a hateful boss, and just lay around on your deck in your pajamas, expending energy only to walk to the mail box and pick up your unearned income checks with little or no tax liability?
This system is unfair to working people. About 75 percent of us pay more in payroll taxes than in income taxes. Payroll taxes were designed to cover the cost of social security and Medicare, two entitlement programs that are in dire straits. But the payroll tax applies only to the first $87,000, meaning that those making more than $87,000 pay a lower percentage of their income in payroll taxes, and have a lot more disposable income. In 1950, payroll taxes accounted for approximately 12 percent of total federal tax revenues. In 2003 it's estimated that payroll percentage will be a record 40 percent of tax receipts, according to the Office of Management and Budget (OMB).
So the overall system needs a severe overhaul. The alternative minimum tax is a good place to start.
In 2003, I paid taxes in three states: at the start of the year, I lived in New Jersey and worked in New York, but I moved to live and work in Maryland. If you itemize like I do, state taxes are deductible from your federal income tax. I also had primary residences in both New Jersey and Maryland, which meant I paid real estate taxes, also deductible from federal income tax.
What I didn't know is that by claiming those perfectly legal deductions, I would increase my federal tax liability by triggering the alternative minimum tax. It's an additional sum on top of the regular income tax that kicks in when items that normally count as deductions reach a certain threshold. The alternative minimum was originally designed to catch the rich who were trying to get around paying more taxes, but it now affects those with adjusted gross incomes of $70,000 or more. It is a tax that, unlike other tax categories, is not adjusted for inflation. That means many of you reading this will be surprised by it, if you haven't been already. Those especially vulnerable are those with several children, high state and local taxes, interest deductions from second mortgages, capital gains and stock options.
Not many of us have any capital gains to tax, and "stock options" is now an bad phrase. But when did having a family and embracing the American dream become a scheme to beat the tax system? Isn't it time someone addressed this inequity?
Meanwhile, corporate America is paying less and less of the nation's tax bill. In 1940, the tax burden was shared 50-50 by companies and individuals. Now companies pay about 14 percent while we shoulder the rest. The federal income tax rate for corporations is 35 percent, but few companies pay that much, as tax management has turned into tax avoidance. It can be as simple as incorporating in a tax haven such as Bermuda. Think Tyco, with the stink of corporate corruption still wafting from its business practices, deciding to remain based in Bermuda even after the scandal of last year. It could be as complicated as investing in production of fuel from non-conventional sources. Think Marriott and its investment in coal treatment machinery. Whatever the scheme, corporate tax management has driven corporate taxes sharply lower. In 2000, corporate taxes accounted for 2.5 percent of GDP, down from 4 percent in 1965, according to figures from the Organization for Economic Cooperation and Development.
I don't blame corporations for not wanting to pay taxes, but they shouldn't shift the burden to individuals. Get rid of the loopholes and tax shelters.
Without revenue from you and me, the government would be forced to downsize. Those guys and gals in Washington D.C. want to keep their jobs, so the probability of them tackling this issue is slim to none. Maybe in the long run that would be a good thing, because the longer this inequity persists, the angrier taxpayers might get. And eventually we could have a populist uprising that would make the Boston Tea party look like, well, a tea party.
|
