Managing Property Taxes is not our only Challenge

Private Citizens cannot expect to balance their finances without addressing spending.  Our local governments cannot balance their budgets simply by increasing property  taxes.  So is our Federal Government  hiding from reality in thinking that  we can tax our way out of our nation’s current $1.4 million dollar federal deficit?

Just like you and I, our government has to address the out of control spending in order to even make a dent in the deficit.  The current income tax rate would have to be doubled across all levels of tax payers  to wipe out the deficit. If we were to place the deficit burden just on the so called rich, the tax rate would have to be tripled.  It will take political courage for our elected officials to address the deficit. Let’s hope they can put partisan and servicing politics aside and do what is right.

The article below by Scott Burns does a great job of explaining why simply increasing taxes will not address the problem of the deficit.

 Both parties wrong on taxes, spending

12:00 AM CST on Sunday, January 9, 2011

Scott Burns is a syndicated columnist and a principal of the Plano-based investment firm AssetBuilder Inc. E-mail questions to scott@scottburns.com.

If you’re a devoted Democrat, you can stop reading now. This column will offend you. Ditto if you’re a devoted Republican.

But if you think of yourself as an American first, this column is for you. We have a major problem, and both of our political parties have contributed to it. The problem will be solved only if citizens stop using the thought tranquilizers supplied by both parties and start getting real. This column is a down payment on getting real.

Reality No. 1: The deficit isn’t a tax problem; it’s a spending problem. Republicans tell us that keeping the Bush-era tax rates will aid job creation and get the country turned around. This is dead wrong. It may aid job creation more than higher tax rates on the rich, but it won’t turn the country around enough to cover the deficit.

Democrats tell us that we need to shrink the deficit. They suggest the best way to do it is to put higher taxes on the rich. That is also dead wrong. As well off as the rich are, they don’t have enough income to cover our current level of deficit spending.

You can understand this by examining the broad figures for income, taxes and spending. Let’s start with the really big numbers.

The estimated federal deficit for the current fiscal year is $1.4 trillion. The most recent IRS figure for federal income tax collections, $1 trillion in 2008, represented an average 12.24 percent tax rate on all personal income. To close the deficit, the average tax rate everyone pays would have to be doubled – and then some. Needless to say, neither party will talk about doubling taxes on everyone.

Now let’s see whether the top 10 percent of households, those with an income of at least $113,799 in 2008, could handle the burden. This group paid 18.71 percent of its income in taxes, a total of $721 billion. We would have to triple the taxes on this group – to about 60 percent – to cover the deficit.

It’s a good bet that few of the people earning that amount would identify themselves as rich enough to triple what they pay in taxes.

So let’s go to the top 1 percent of all households, those with incomes of at least $380,354 in 2008. These are people who don’t worry about their cable bills.

This group earned $1.7 trillion in 2008 and paid 23.27 percent of its income in taxes, a total of $392 billion. After taxes, they had nearly $1.3 trillion left. That’s a lot of money – but not enough to cover a federal deficit of $1.4 trillion. In other words, if you took 100 percent of income earned by people in the top 1 percent, you still wouldn’t balance the federal budget.

The message here is simple. Discussions of minor shifts in tax rates are useless diversions. They can only alert us to the cynicism of the politician speaking or to his or her degree of intellectual impairment. Take your pick.

Reality No. 2: The money isn’t in another pocket. Personal income taxes aren’t the only source of government revenue. How about employment taxes? How about the corporate income tax? Sorry, these are non-starters.

The second-largest source of federal revenue is the employment tax – the tax that supports Social Security and Medicare. Unfortunately, tax revenue is no longer adequate to support the promised benefits.

While the employment tax has provided a cash surplus since the Social Security reform of 1984, that surplus had only one use – it allowed Democrats to spend more and Republicans to cut income taxes. In reality, both parties were unrelentingly dishonest about the financial condition of our government.

Our corporate tax rate, which raised a relatively modest $304 billion in 2008, is already the second-highest corporate tax rate in the industrial world. That tax rate is a major reason so much domestic employment is being outsourced to other countries.

What about the estate tax? How about increasing it? It could be raised, but as I demonstrated in November, when I suggested that we eat the rich, there simply isn’t enough wealth to keep up with federal spending.

Bottom line: We have a “can’t get there from here” problem.

Next week: How much can we tax our economy?

Scott Burns is a syndicated columnist and a principal of the Plano-based investment firm AssetBuilder Inc. E-mail questions to scott@scottburns.com.