How many ways can people be tricked about taxes? Here are a few tricks I have come across.
* The rich already pay most of the taxes. You hear variations of this, most recently the news that 47% of Americans don’t owe any federal income tax. But the fact is that the rich take in most of the income and literallyown almost everything. You probably heard about 25 hedge fund managers getting $25 billion income last year? They get a special deal and don’t pay income tax rates on that money. But regular people still pay Social Security, state and local and sales taxes on their income. In fact working people pay a higher overall tax rate than the super-rich, even if federal income taxes are not part of that.
One more thing – really, don’t get me started – most income at the top comes from “capital gains” from things like stocks and property, but capital gains are taxed at a much lower rate than income that comes from from actually working.
* The new Tea Party Contract From America has as item 4: “enact fundamental tax reform; Adopt a simple and fair single-rate tax system by scrapping the internal revenue code and replacing it with one that is no longer than 4,543 words — the length of the original Constitution. (64.90 percent).”
Think about this. Since the rich pay most of the taxes, guess what happens to their taxes – and yours – if we move to a single tax rate for everyone. Clue: their taxes go way down and everyone else’s go way up.
* Raising taxes on rich unlikely to cut deficit. You often hear stories like this — that there just isn’t enough money at the top to pay off the debt, so why bother? First, even if it doesn’t completely close the budget gap, it sure would make a dent. Next, think about those 25 hedge fund managers who brought in $25 billion last year but don’t even pay income taxes. That’s a please to start right there, and it’s just 25 people. Then think about the$140 billion Wall Street bonus pool that was paid out last year – a recession and bailout year. That all went to just a few more people. There’s lots of money at the top.
* Taxes “take money out of the economy,” or otherwise hurt economic growth. Where do they think the money goes? Taxing the rich might take money out of the economy of the Cayman Islands, but when used to fund investment in our economic future (roads, schools, R&D, etc.), it actually grows the economy.
Please let us know about some tax tricks you have heard, in the comments.
And finally — Take a look at CAF’s Taxes: Myths And Realities