Do Poor People Pay Taxes? And How Much is Fair?
At the end of Monday’s show, the question was raised of who pays taxes, who does not, and how much is fair. One caller complained that a third of his $300,000 income gets taken for taxes. Another caller, who grosses just $50,000 a year but has been unemployed before, said he would give half his pay if it meant people wouldn’t have to suffer the poverty of unemployment in this country. And another caller, who later honorably recanted the claim, tried to spread the disinformation that poor people pay no federal income taxes.
Assistant producer Alexandra and I both pointed out that we’ve recently been taxed on earnings less than the $22,000 floor the caller claimed below which one would pay no taxes. And eventually some tax experts called in to point out that if your taxable income is above zero, you pay federal taxes. All in all, the discussion was exactly the kind we love to have on the show. An issue gets raised, rumors get exposed, and everybody learns something.
On the larger matter of how much should we pay in taxes, how much is fair, etc — we probably all have different opinions on that, to be sure. But the point I always try to make is to look at what a person is left with after taxes, not the portion of one’s income that gets taken out. This is because we don’t all get paid fairly in the first place. One person who works 70 hours a week as a social worker or community organizer, trying desperately to make their neighborhood or city or world a better place, might bring home $25,000 a year, then lose $1500 of that (after deductions) in federal income taxes, leaving them with $23,500 with which to pay for food, housing, transportation, and lots of other taxes. Meanwhile, an arms merchant or a junk-bond trader — who contributes nothing to society, or detracts from it gravely — can make millions a year even after taxes, even if he or she pays the very highest tax rate. So where’s the fairness in that?
For the record, while deductions and tax credits get about a third or more of working Americans out of directly paying federal income taxes each year, this common argument and its implications are deceptive, since everyone who gets a paycheck loses a chunk to federal payroll taxes. Besides, plenty of people who would be considered poor by nearly any North American standard pay painful amounts in federal income taxes, with the lowest rate being 10%. And in the end, poor people pay a higher percentage of their income in taxes than rich people do, especially considering state and local taxes. And if we want a common enemy, let’s look at all the corporations that get away with paying no income taxes at all!
Here’s an interesting interview with a progressive tax expert, to counter all the garbage being floated around.
The problem with talking taxes is everyone is on a different page. You end up not only comparing apples to oranges, but also pears and pineapples.
I know a taxpayer that makes $50,000 a year, pays nothing in tax, has no withholding and gets a $2,000 check every year.
There are so many pieces to the tax code you cannot have a simple answer like you are trying here.
Further, I think the biggest problem with taxes is how they are spent, not how much we pay. When did it become a wealth redistribution program. Taxes are supposed to be to provide things for public use–like roads, schools, fire protection. The government should not be playing Robin Hood.
So, property taxes are fair enough since our kids get to go to school?
But what if they don’t? What if our school stinks? What if our school is dangerous? What if we don’t have kids?
Taxes should revert to the original intent. You provide schools for those who choose them or cannot afford other choices. You build roads. You provide fire and police protection.
You do not take money from someone you think makes too much to give to someone you think should have more. If it were done right, poor people would not have to pay taxes. They didn’t used to when it started out.
First of all, we have always all paid taxes, don’t you remeember the “death and taxes” quote? actually, taxes are much lower now, at one time people paid over 70% of income in taxes at the higher incomes, in the US.
there is a large debate over taxes. so many philosophies. “ability to pay” “benefits recieved” etc etc etc. personally, im content, overall with the progressive tax structure. it makes sense from both a personal view, and certainly from a macroeconomic view (as in the progressive tax structure, im my opinion, suits and encourages a broad and growing economy)
also, everyone complains about “wealth distribution”
its not wealth distribution, its keeping our country’s standard of living above the horrendous living conditions and turmoil found in third-world countries.
the governemnt is paying out cash like its out of style, they are providing means of survival to, generally, hard-working americans who need a hand.
why? because, first of all, its the decent thing to do.
secondly, from an economic perspective it makes sense.
people will consume a certain amount to survive, whether they have the money for it or not. what happens when they dont? in a word, chaos. when people do not produce enough income to purchase products to survive, and are not given it either, they will resort to other methods.
this means, begging, stealing, etc.
that is certainly not good for a country, so what do you do? you help out those in poverty to reach a level where they concentrate on other things, and in effect, help expand the economy.
Monday during this segment Pete said about a caller something to the affect of, “well he makes $200K a year so boo hoo if he has to pay taxes.”
Spoken like someone who has never made $200K a year.
It’s not what you make, it’s what they take. Try paying $50-60K a year in Federal Income Taxes (not payroll taxes) and see if you get all excited when people say you don’t work hard for your money and that you should pay more. After watching these idiots at all levels of government waste hard earned tax money and then put this country in astronomical debt — you really don’t feel like paying them anymore. Actually, you would really like to get some back.
Also, psyroll taxes are not income taxes and everyone should pay them because they are in return for the future benefit of getting a Social Security and health insurance in your senior years. Last time I checked SS was not a welfare program. Everyone has to pay the payroll taxes and people that make more contribute more to these programs.
Big Brother Reply:
November 18th, 2008 at 11:18 pm
Spoken like someone who has never made $200K a year.
Hilarious. Actually, what Pete said is that after taxes the caller made $200,000 a year. It’s enough for a nice home, plenty for retirement, enough to put a few kids through decent colleges. Who needs more than that? If you grossed a million dollars and the government took 80% and you had $200,000 a year left, you’re still doing better than the vast, vast majority of Americans, including most who work very, very hard under onerous conditions, or have extensive schooling and qualifications and do important, socially valuable jobs, etc.
Enough of the whining. That’s the point. We’re sick of crybabies boo-hooing that the government takes away too much of their money, even though the government leaves them with more than 99% of the world lives on. So many people, who either make a lot of money or very little, say they don’t mind paying a large share in taxes as long as the government doesn’t waste it. They understand the civic duty of contributing to the social good. But then there are those who can’t stand the idea of sharing. And one can’t help wondering how such folks behaved back in the sandbox.
I do like what Donna pointed out, in part. Another part of the discussion is what government does with money. Whether you’re rich or poor, you won’t have to look hard to find things our government spends money on that are upsetting. I think wars and corporate bailouts are legitimate reasons to be pissed off that the government takes your money. And seeing corporations get out of paying their fair share should also be something we can find common ground on. But instead of trying to hold onto your money, why not see it as your civic duty to contribute to the public good and see to it that the government upholds its end of that deal? Isn’t that something we can all be fighting for?
Brian Reply:
November 19th, 2008 at 8:23 am
Well if the government takes 80% of the money you earn then in effect you are working for the government and not for yourself. Also, there is no incentive to increase your earnings. Why work hard to make $1M if at the end you are only going to get $200K. You might as well just make $200K and forget about it. Of course, in order to make $1M I would have to have many employees making $80K-$120K so if I’m content at the $200K mark those people will have to go elsewhere.
I do agree with your comments on government spending being “upsetting” and the only way that is going to change that is if they get less of our money — not more. The less they have to spend the more they will have to think about where to spend it. Also, I don’t need the government to “contribute to the public good” I can do that without them.
It would be nice if this country stopped demonizing successful people in this country who pay the majority of the taxes and for once say, “hey, good job, we need you”, instead of always saying, “she/he doesn’t need that much money, we are going to take more.”
I believe the average federal income taxes paid in the U.S. is about $4,000 (total paid/number of taxpayers). If someone is paying that much then great they are paying their share. If someone is paying more than that then they are paying for themselves and others. If someone is paying less than that then they just be quiet and say “thank you” instead of complaining.
Big Brother Reply:
November 19th, 2008 at 11:01 am
Brian, I wasn’t advocating an 80% tax rate. If I had been doing so, I would have preempted your questions thusly: If the government were to take 80% of what you make after a certain point out in taxes, that would be a HUGE incentive to work harder, if you wanted to be rich, which obviously many people do. You’d have to work PRECISELY THAT MUCH HARDER to become filthy rich. How is it a disincentive at all? If we keep putting the goal point farther off, those who want to reach it will have to work that much harder.
That doesn’t stand to reason at all. There are plenty of small businesses in which one person makes $1M and has no employees making more than 50K or so. I would imagine that’s the norm, actually, though I’m not sure either of us has the statistics at hand to say.
Anyway, I am not necessarily advocating any of this. I was just making a hypothetical point, which was a different way of looking at taxes in terms of how much hardship they actually cause the individual taxpayer, rather than just what share of income they amount to.
That may be so, Brian, for you personally. You may be a terrific philanthropist. But it has been proved over and over again, in studies and in real life, that public goods are not provided in true free market environments. That’s basic macroeconomics 101. If you’re going to have market capitalism, you’re going to have to have government just to provide roads and other basic necessities everyone uses, not to mention special needs for the poor people that market capitalism absolutely, inherently leaves behind. As long as there is an economy that depends on keeping some people poor, a government is going to be needed to make sure those people are kept in moderate health. It’s kind of a sick system, but that’s how it works. It would be really nice to think that, without taxes, people would voluntarily pay for public goods and charities would care for all the discarded, but there’s no reason to think that, sadly.
The funny thing about all this is that it is some of those who are left after taxes with more money than the rest of us may ever hold onto that complain the most. I mean, the incessant whining by a portion of rich and well-off people about how much is taken, despite how much they are left with, is kind of amazing. It really makes you wonder, as I pondered in my last post, what went wrong with these folks when they were growing up. Like did someone take a favorite toy or teddy bear away? Did a parent withhold allowance on the promise that when they grew up, they could make money and keep it all? It’s kind of fascinating what motivates the childish sense of entitlement some wealthy adults have.
Brian Reply:
November 19th, 2008 at 10:07 pm
I understand that your 80% tax rate was hypothectical. Regardless, just call it any tax increase.
For example, if taxes are going to be higher for people making $250K or more then they will be a point that it doesn’t make sense to make over a certain amount.
Let’s say I make $300K and have to pay $60K to the federal government. In effect I’m only “making” $240K so why bother with the extra effort it takes to make $300K if the government is going to take more?
You analysis of “well if you take more people will have to work harder to make more” is something I can only imagine in bizzaro land. It may sound good on paper but its not how the real world works. Nobody is going to bust their ass if they only get to keep 20%.
You are right about the “public good” thing. I was talking more about giving to charities, etc. not building my own roads. I expect the government to build roads out of what I pay already. It is sort of a priority. Nevertheless, if the government didn’t want to build roads I could always buy an off road vehicle.
As far as people who pay a lot of taxes always complaining about taxes and being “whinners”, well all I have to say is that you probably don’t pay a lot of taxes. It is not fun to watch your hard earned money wasted, or used to buy votes, etc. I’m not one who thinks that the people in DC have our best interest in mind — they have their best interest in mind.
steve, jasper Reply:
November 19th, 2008 at 10:47 pm
Brian,
You know I love you and Pete both but what are you accomplishing here with all the “if only we could” stuff?
I just feel like all we do is talk anymore. Even with Pete’s show.
How are things really going to change? Are we just venting?
We can discuss tax plans, the economy, money, cars, you name it, but what can we do?
Is anything going to really change?
I had hope with Obama but is he really a JFK?
He inspired an entire country and put us on the moon in less than 8 years.
We need someone who can get us off oil in eight years!
I don’t see it happening.
Big Brother Reply:
November 20th, 2008 at 1:50 am
Hey Steve. I have been involved in organizing actual people in the real world (ie, not just online or over the airwaves) for fifteen years. Sometimes I’m more engaged than other times. There are a lot of things that can be done, but I think it has to start with “what if” for a lot of people. I mean, why fight if we don’t know what we’re against and have no idea what we’re for? We figure out that kind of stuff by communicating.
JFK was no JFK, so I hope Obama is no JFK either
He’s going to be another ruling class president who, like JFK and Clinton, doesn’t rock the boat too much. One would hope he’d be more like Nixon when it comes to economics, but we should be so lucky. In any case, we’re going to get ruling class attitudes and nothing that significantly ricks the boat. And besides, it’s too much to ask of a president, anyway. If the country really wanted to get off oil in 8 years, we could probably get very far toward that goal. More easily than if we wait for some authoritarian to do it from on high.
Big Brother Reply:
November 20th, 2008 at 2:21 am
Except if you study economics — real world economics — you find that people will in fact bust their asses even when they’re being taxed at extraordinary rates. Indeed, during one of the highest growth periods of the US economy, taxes on the richest elites were way above 80%. Just look at the rates for the late 1940s. The whole time the highest tax rate is in the 90s!!! You need to study this stuff before you go spouting off about it, Brian. Or, if you don’t understand something, don’t just go making something up and assuming you’re right and the other guy is from “bizarro land” or whatever.
But all of this is beside the point. Another economic truism is that people will bust their asses for $100,000/year, let alone $250,000 a year. I was actually kind of kidding about people working harder for marginal returns at high incomes. There’s no economic theory I’m aware of under which people get paid $250,000 a year to make them work harder. Markets don’t work that way. There would be no reason for it. That kind of money is NOT given out because the recipient requires it to work hard. Salaries at that level are the result of the recipient having special leverage in the market, for a host of reasons, including the monopolization of specialized knowledge, special connections or conditions, etc. But few people suggest that, in any except the rarest jobs, extraordinarily high salaries are to induce harder work, longer hours, etc.
But maybe that’s not the angle you’re looking at this from. Maybe you just think people deserve more money than $250,000/year, for whatever reasons. But our society would do just fine if no one made more than that, even under capitalism. People who are more humble, more grateful and every bit as capable will gladly do for $80,000 a year what your theoretical whiners will, theoretically, not do for $250,000/year. Hell, even if it took 3 workers at 80k, it would make sense! Problem solved. Crybabies lose out.
Only people with the luxury of having the alternative of liesure would turn down that kind of money. And we can easily do without such folks. They’d be replaced without ever being missed, and the gears of industry would continue to churn.
The other thing to keep in mind is that tax rates can be applied only on particular portions of taxable income. So the $250k+ rate can be charged only on the “earnings” above $250k. In fact, that’s exactly what the current highest bracket is supposed to do. So there would be ZERO disincentive against hard work, if in fact that kind of money was supposed to be an incentive for hard work. In real life, people get paid massive sums because of market forces having nothing only marginally to do with the quality of their work or the amount of effort they expend. In a system with extreme tax rates, that would not change at all. Generally, owners would have to take a little bit less in order to provide extraordinary salaries. The world keeps turning…
murphman Reply:
November 19th, 2008 at 8:20 pm
I don’t that it is fair to lump all people who support a progressive tax system into a group of wealth haters. Brian made the claim that I have heard a lot of times. “Why work harder if the gov’t is gonna tax the hell out of my earnings.” The argument then goes on to say that the person would then be harming his or her employees because his business would not be doing so well. There are a few problems with this simplistic view.
First, it assumes that the person would choose to either take a significant pay cut, or in the whole scenario place forth, take in less money for his small business. If he does the latter than he is doing less work and less business. He would have to be more selective about what is done and how often he provides his service. In doing so, it is probable that a competitor who is willing to provide more consistent service would be able to step in and take the business of the cost cutting owner.
This then is assumed to result in a cut in pay of the workers employees. If he is to reduce the amount of business he does then it is probably true that his employees would see a loss of pay or even job. However, job cuts will affect his business. There are only so many people that he can do without. This means that not only must he keep some workers but pay a competitive rate. He could see a loss of employees due to the better pay by his competitors. Again, cuts would seem to be impossible if he wants to keep his business.
Last, you would have to assume that a seemingly driven person who worked hard to create a business that allowed him to make a very good amount of money each year would suddenly turn off his drive. This is more conjecture, but I think this is something that would be tough to do.
Now, if we were to do the complete opposite and suddenly reduce taxes are you saying that owners would suddenly raise the payroll? Yes, employees would benefit, but the money would continue to go into the pockets of the owners. This is not some Marxist thought but common sense. Why pay your employees more than they already get? Why give them a better share when you can just keep the money for yourself?
Brian Reply:
November 19th, 2008 at 10:19 pm
I tired of people painting business owners with this broad “Darth Vader” like brush.
I had an employee come into my office today to notify me that he was about to lodge a personal complaint with one of our clients who happens to employee his wife.
Unfortunately his wife has taken ill in the last few weeks and he was upset about how they were treating her.
My response to the employee was to go ahead an vent his frustrations with the client/employer and not to worry about whether he pissed off of the client. I told him that HE and his family was more important to me than the client. Also, that if the management at the client insists on treating his wife the way they are then I didn’t want them as a client anyways.
Business Owner does not equal The Devil.
And yes if I had more money in my pocket (or the company’s checking account) then I would grow my business, hire more employees, and promote the ones I have to run the business and make more money. Therefore I could spend more time sitting around my pool. Its a win, win for everyone.
I have already put off new hires due to the down turn in the economy and to wait and see what happens with this new government.
You need to understand that I need GOOD people in my company (technology) and I need to offer good compensation to attract good people. Even more so because I’m a small business and they may get better offers somewhere else. It also takes increased compensation to keep good people because I don’t want to go out and hire new people, and traing them every six months. It much less expensive (and more profitable) to grow your employees with the business then it is to recruit and train new employees.
My goal is not to make $1M and keep everyone at $50K. My goal is to get everyone up to $300K or a $1M so I can be earning $2M or $3M. Its not that I’m greedy I just want to be a good provider to my family, provide financial security, and hopefully retire while I’m still young (I’m 43).
That is the American Dream. If I willing to put in the hard work and know how then why would someone want to hold me back? Especially since I’m providing jobs, compensation, benefits, and opportunity to others?
justjustin Reply:
November 20th, 2008 at 4:03 pm
I believe the average federal income taxes paid in the U.S. is about $4,000 (total paid/number of taxpayers). If someone is paying that much then great they are paying their share. If someone is paying more than that then they are paying for themselves and others. If someone is paying less than that then they just be quiet and say “thank you” instead of complaining.
i’m not sure about the exact number, but, if you want to go with averages, the average income in the country is about $34,000. So, by your logic anyone making more than that is making more than their fair share.
Tessa from WV Reply:
November 21st, 2008 at 2:18 pm
lol i love that. also murphman has made some very astute points.
Jamie Reply:
November 19th, 2008 at 12:56 pm
I agree that paying taxes is a civic duty and that how the government spends it is the bigger concern. I do have sympathy for the small business owner who complains about taxes, while they have to watch the corporate bailouts. Less taxes for the small business owner can mean health insurance for their employees.
Also, through NATO we provide national defense for much of Western Europe. They get nationalized health care, and we get a huge tax bill. While our taxes rates are currently low, we have a tremendous national debt that is going to become impossible to service and still operate the government.
I really believe the heavier taxation should be at the lower levels of government, where people can have more of a say on how the money is used. Better schools, public transportation, recycling programs, clinics, etc. In my opinion it is stupid that a school district or a city must look to the federal government to fund their programs. Now cities are going from badly funded to bankrupt, as billions are wasted on a disastrous foreign policy.
I beleive I have been paying payroll, federal state and local taxes now for 27 years and and I have always seen it to be my civic duty to do so. Taxes are in place for us to “Provide for the common Defense, Promote the General Welfare and secure the Blessings of liberty for ourselves and our posterity, gee thats sounds familar, so I agree with the notion of rasing them and stand fast with those who want trasparency not only for federal taxes but sate and local as well.
Hello fellow “Indie-viduals”,
I know this Tax topic is often debated and it’s great that we vigorously do so and make sure we get the proper representation in Government.
Just wanted to highlight the last spectacular time this happened on Pete’s Show, when New Englanders Eric and Steve went at it on air with Pete moderating.
I have the audio up on my blog, hope you get a kick out of it. It was a classic segment.
http://punditfight.blogspot.com/2008/11/pete-dominick-moderates-debate-between.html
steve, jasper Reply:
November 19th, 2008 at 9:47 pm
Great audio from Pete’s old show!
Bottom line is selling oil is like selling air.
People wonder why the economy is in such a mess.
People spent all their disposable income this past summer on gas!
It was money that they would have put aside for holiday shopping in the past.
People are tapped out!
As far as Government spending, the argument for conservatives as Reagan puts it is the best way “to downsize government is to take away its allowance”. Starving the Beast.
With the way this current administration has handled things, you’ve taken away the allowance but have given the Country a credit card*. The logic being if you tax people, they have more skin in the game. They will hold Government to account and in turn Government will have to be more responsible in spending. Does that argument hold? The Cato Institute did some research which apparently proves its true.
It also stands to reason that the nation will take pause before going into war.
*got that from liberal talker Sam Seder
I know that Brian (Big Bro) has an absolute hatred of anyone who complains about paying too much in taxes.
This conversation has completely fixated itself on one form of tax, income.
Why don’t we talk about Property tax? How about capital gains taxes? Not to mention death taxes or even sales tax!
I pay the following taxes:
1. Federal Income
2. State Income
3. City/Regional Income (it is an Ohio thing)
4. Property
5. Social Security
Because I work, my employer pays:
1. Social Security
2. Unemployment
3. Property
(and I am sure that there is more)
I guess that I should be glad that I am not paying church tithes!?
Big Brother Reply:
November 20th, 2008 at 8:37 pm
As I pointed out earlier, when you add in state and local taxes, wealthy people make out even better, proportionally. And as Warren Buffet famously pointed out (though I believe he was misrepresented by a caller on the show today), overall pay a lower share of their income to taxes than middle-income folks. So we were talking about tax shares. But if you want to talk about whether the government is spending it wisely, or taking too much in taxes in the first places, etc, etc — that’s all a different story, and we might find more agreement there. But we never have fun agreeing, do we?
Hello from Canada,
I agree with Brian (Pete’s brother) on this one. Right now I am in about a 30% tax bracket and once my wife grads with her nursing degree we will be pushed up to a 49% tax bracket. So anything we make over 55,000 will be taxed at 49%. We are poised to make about 100,000 this upcoming year and we will pay 22,000 in taxes…seems like a lot but we will still make 23,000 take home past the 55,000 mark. I have no problem with higher taxes because even tho we pay more we are still making more money and hopefully some of that money finds its way to people that need it through government programs.
There was a caller on the show the other day I can not remember his name but he was complaining about putting four kids through school etc on 200,000 a year…I am putting my two sons through school and my wife right now on 32,000 a year just fine. I suppose if I made 200,000 a year I might have a luxurious car or maybe a cottage on the lake as well.
I believe the more you earn the more you should pay.