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Fed Up With Hearing How ‘Taxing The Rich’ Will Fix The U.S. Economy

August 8, 2011 · 28 comments

in Personal Finance

August, 2011 has been a rough month already for the U.S. economy, and we are only in the first week of the month!

Important Events That Affected The U.S. Economy During The Week Ending August 6, 2011

First, the Dagong Global Credit Rating Co, Ltd in China cut the U.S. credit rating from A+ to A because it was felt that the planned increase in GDP and tax revenues could not keep up with the expected increase in debt in the coming years.  With China being the United State’s largest creditor, the news cannot be a positive for the U.S., and I wonder if more countries will follow suit.

Second, the stock market had it’s largest single day drop since 2008, and the S&P 500 was down more than 7 percent for the first week in August. There were various reasons for the stock market decline, including disappointing personal spending numbers, global economy worries, and fear a possible S&P downgrade of the U.S. credit rating.

Third, Standard and Poor’s went and reduced the credit rating for the U.S. from AAA to AA+.  The reduced credit rating is not simply because our nation is overwhelmed with debt.  It is also a reflection of the fact that our government couldn’t seem to come to a debt deal in a reasonable manner.  As a matter of fact, John Chambers, the Managing Director at Standard and Poor’s,  made the following statement to the Financial Times:  ”The political discourse has diminished the credit standing of the United States”.  Actually,  I find it interesting that it has actually taken this long for the U.S. credit rating to be lowered.  Mainly because, if my personal balance sheet looked like that of the U.S., I would not expect to have a pristine credit score.  As a matter of fact, I think I would be considered a credit risk.  (Of course, Timothy Geithner would disagree with me…)

So, how does the United States get out of this mess?  There are a million different opinions out there, some good and some crazy.  One thought I have heard from many is that we just need to tax the rich, then everything will be great.

I Have An Idea:  Lets Tax People ‘Fairly’

According to an article by the Associated Press in April of 2010, 47 percent percent of Americans pay zero Federal Taxes, and many actually get a refund because of all the tax breaks available. (Meaning, they get a full refund of what they initially paid in Federal Taxes through payroll deductions, plus a little extra!)  In addition, the top 10 percent of wage earners provide approximately 73 percent of the Federal income taxes collected by the government.  How can people legitimately say that the rich are not taxed enough?  What percentage of income taxes should the rich cover?  80%?  90%? 100%   Do people not realize that many of the rich actually stimulate the economy through investing, providing jobs, and spending?  Keep taking income away from the rich, and you just might see other areas of the economy being affected. You can’t just expect one segment of the population to provide resources for everyone without consequence.  (However, I am all for making the rich that evade taxes being held accountable, however, the current tax system that is in place makes it possible for those with income at any level to avoid taxes.)

I am not saying that the poor take on more of a burden.  However,  I a huge proponent of a flat tax that would apply to everyone at or above a certain income level.  No ‘write offs’, credits, or anything else.  Everyone would just pay their 15 percent or whatever the percentage is to the government each year.  Can you imagine filing your taxes if this came true?  Just state your income, calculate the percentage, and hopefully you will have the amount you are expected to pay already covered through the Federal payroll deductions that were already made with each paycheck.   Plus, a flat tax would hopefully catch people that intentionally evade taxes through loopholes currently, and force them to pay what they rightfully should.  However, I don’t think creating a flat tax will eliminate the deficit.  I think the whole debt picture is much more complicated than that, and there are a whole lot of cuts that need to be made also, among other changes.  However, I do think creating a flat tax would increase tax revenue, and would also reduce the amount of government money spent on the IRS each year.

What do you think?  Will taxing the rich even more fix the ills of our economy?  What would you do to reduce the deficit?

 

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{ 27 comments… read them below or add one }

The Biz of Life August 8, 2011 at 8:06 am

The solutions are not difficult, just politically untenable for people who’ve made careers out of pandering to special interest groups for campaign contributions—

1. Close all tax loop-holes, and lower individual and corporate rates.
2. Make sure everyone who has earned income pays at least some taxes.
3. Repeal the 1974 Budget Act that put this insane baseline budgeting in place that institutionalizes ever increasing federal spending, and replace it with a zero baseline budgeting (i.e., increases in spending have to justified).
4. Social Security, Medicare, Medicaid benefits are going to have to be reduced in some way since their financial foundation is crumbling away.
5. A good old budget freeze for several years will go a long way toward eliminating obsolete and overlapping programs, and in cleaning up waste, fraud and abuse.

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The Biz of Life August 8, 2011 at 9:09 am

Growth could possibly make some of these problems less severe, but this is a very growth unfriendly administration that continues to provide incentives for companies to ship jobs offshore due to excessive regulation, taxation and it emphasis on class warfare.

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Kris August 8, 2011 at 4:57 pm

I have seen so many situations where off-shore solutions are not necessarily the best solutions, but companies just cannot refuse that price tag. They don’t look at the long-term effect of what the product may ultimately cost, they just know that up front, that initial cost structure sure looks good!

It sure seems hard to get ahead for many, it all seems quite discouraging right now.

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Kris August 8, 2011 at 8:47 pm

When are you running? However, your ideas are wayyyyyy too radical and you may not be wealthy enough to run for office.

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ken September 21, 2011 at 12:47 pm

everyone should pay the same percent in tax,if the middle class had the same tax breaks they would have more money to start up bissnesses and the poor would have money to eat and the rich would have to take less vacations,plus you get rid of the millions of eleagle and now you have millions of jobs and ss and welfair will have more money and our hospital bills would be cheaper anything less then this is greed for the rich if you look at how the rich live and can aford to pay a lot more,why dose this country give everything to the people that dont need it and nothing but a trap to those that do need help

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Moneycone August 8, 2011 at 8:18 am

Giving tax breaks to the rich might stimulate the economy, but not necessarily the US economy. I don’t blame them either. It is a business. If it makes sense to create jobs in China, corporations will do so to in order to maximize profits.

Apple sits on more cash than the US! Do you think Apple will start manufacturing MacBooks in the US? No.

The same applies to the credits we all got when we filed taxes. Was it necessary? The previous administration started this nonsense, the current administration continued this practice.

Same with dividends. Why the 15% cap?

Exxon mobil’s effective tax rate last year was 17.2%.

Now flat rate taxation is something I can get behind!

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Kris August 8, 2011 at 8:45 pm

I have no idea what will stimulate the economy at this point. At no other time in history have we faced such global competition for jobs, so ideas that worked in years past may not work the same way anymore.

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First Gen American August 8, 2011 at 9:00 am

I like the flat tax idea too but given that the people who run our government can’t seem to even come to agreement on changes within the existing framework of taxation, I won’t be holding my breath for such a dramatic change. It would be nice though. I would even be okay kicking in extra tax revenue if it would help balance the budget (not fund additional special interest groups). I want my country to be prosperous and it would be good if we actually could pay down our debt like normal people do everyday.

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Kris August 8, 2011 at 8:36 pm

I think there are a lot of people out there right now that just do not trust the government, and with good reason. I can’t imagine a flat tax actually being implemented ever, regardless of whether it makes sense or not. It is all about what will get a candidate reelected, and I am not sure the flat tax idea is popular enough among constituents.

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Linda August 8, 2011 at 1:32 pm

Why can’t Congress reconvene long enough to address the aviation tax issue? That would add some needed income to the US coffers. Apparently it’s not something their constituents understand enough to make it worth a vote, though. If they *really* cared about balancing the federal budget so it ran less into a deficit instead of about getting re-elected then they’d do what is needed to collect this income.

It’s because of grandstanding tactics like we just went through that our investment rating got downgraded.

Flat tax sounds great on the surface. I’d like to see more analysis of it, though, before supporting it. On the surface it sounds great considering how crazy our current tax system is. Closing tax loop-holes, though, is something I can get behind immediately.

I think letting certain tax cuts passed eight and ten years go expire has been interpreted as “people want to raise taxes on the rich.” That’s not quite the same thing. If I gave you a coupon for a half-price coffee every day during the month of August you’d likely enjoy that benefit and come to my coffee shop every day. Once September rolled around and it expired you’d have to pay full price for that same cup. Is that me raising the price of a cup of coffee? That’s essentially what the fuss was about in the past few weeks. Granstanding. Pure grandstanding.

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Kris August 8, 2011 at 4:55 pm

I figured that the whole debt deal would com down to the 11th hour because each politician has their own agenda and wants to make it seem like that did their best and stood up for what they think their constituents want. Things are screwed up because we can’t have long-term thinking when we only care about the next year or two so politicians can get reelected. It is like putting 5 boxes of bandages on a bullet wound to the chest. You might stop the bleeding for a little while, but eventually, the wound will bleed through and there will be a crisis.

I think there was a lot more than just the tax cuts expiring keeping the deal from being settled. (Defense spending, not cutting spending enough in other areas, etc.) Grandstanding is a huge part of it and everyone has to see who can blow their own horn loud enough. However, there is so much in-fighting within parties even that make things look so ridiculous.

I have to respectfully disagree with your assessment about the Bush Tax Cuts expiring not being a tax increase. If your taxes go up, it is an increase to me. Also, it wasn’t just the rich that benefited from the Bush Tax Cuts. However, it is the segment that many people like to point to.

Regarding your coffee example, I look at it more like the coffee was 2 dollars a cup, and then for 10 years was reduced to a dollar cup, and then suddenly it is 2 dollars a cup. Or, maybe it is only 2 dollars a cup for people at a certain income level, whatever that arbitrary level may be.

Give me a flat tax all day, any day, and I will be happy as a clam.

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Squirrelers August 8, 2011 at 3:19 pm

We need to hold our “leaders” accountable for their ridiculous posturing and partisan politics (Exhibit A: Debt Crisis), and make their actions more visible to all. Seems to me that any ideas that might really be good, including possibly a flat tax, won’t get implemented easily with the current political climate we have in our country. Not picking on any one party, all have made mistakes in my view.

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Kris August 8, 2011 at 4:37 pm

You echo my thoughts exactly. Both parties are to blame, that is for sure. I do get sick of those that totally blame one person, as nobody could have orchestrated this mess all on their own.

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Heather August 8, 2011 at 7:37 pm

A flat tax would be devastating to the working poor.

If I make $100,000 a year, even if half of my salary goes to taxes (which it wouldn’t), I can still live comfortably in all but the most expensive places to live in this country.

If I make $20,000 a year, and pay 15% in taxes, now I’m living on $17,000 a year. That $3,000 makes a huge difference in living conditions.

I’m tired of hearing about how the wealthy create jobs. If tax breaks for the wealthy create so many jobs, where are all of the jobs? They have had plenty of breaks.

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Kris August 8, 2011 at 8:33 pm

Heather, I don’t think the working poor should be taxed like everyone else either, as I stated in my post. I don’t think I said I wanted tax breaks for the wealthy either. My point is, those above a certain income level should have to pay taxes, and in the current system, that is not happening. One article I read said that a typical family of four making fifty thousand a year does not pay any federal income taxes as the laws stand today. Not sure that is right either.

The are loopholes everywhere in the US, from taxation to unemployment benefits. It would be nice if the loopholes were closed and people just paid what they should.

I don’t specifically have stats about how many jobs the wealthy provide, but I am guessing it is a lot more jobs than other segments of the population do. Actually I know many well-off entrepreneurs, and they do employ a lot of people.

Please re read my post. Tax breaks for the wealthy is not what I was talking about. I am not sure if your frustration is with what I wrote or things you read in general. However I will say I do not understand why so many people in this country seem to have a grudge against the rich. This economy has been so poorly managed that I don’t understand why one segment of the population should be expected to make up for the debt of an entire nation.

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Money Reasons August 8, 2011 at 8:25 pm

Not surprisingly, I agree with eveyrthing you said. A flat tax would make accounting so much easier too.

I think if we all don’t contribute to the tax system, then we aren’t really free, we are dependent on our parents, erh the rich people of america…

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Kris August 9, 2011 at 8:32 am

Imagine how much the government would save with a restructured IRS that revolved around a flat tax!

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Little House August 9, 2011 at 2:30 pm

I agree with the flat tax; pick a percentage and close some of the loopholes. Right now, many people pay more than 15% from their paychecks. However, I think state’s would need to get on board with this and also charge a flat tax, or everyone might decide to move to a state that doesn’t charge state income tax! Look out Texas and Nevada!

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Kris August 9, 2011 at 2:43 pm

Don’t come to Michigan- we have a 4.6 percent state income tax. Then of course, there is local/city taxes, depending on where you work.

Are you considering leaving your state Little House? I know you were looking for houses near your current home, is it possible you might change your mind?

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retirebyforty August 10, 2011 at 12:18 pm

We ALL need to start feeling the pain of two wars. In the past, whenever we go to war, the whole country feel the pain. During the Bush era, we started two wars and got a tax cut. It doesn’t make sense. If the government is going to spend tons of money, then they need to raise tax for everyone.

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Kris August 10, 2011 at 9:45 pm

I thought you were just supposed to spend more money and then take on more debt?

Things are so frustrating right now. The government certainly doesn’t set a good example to follow, that is for sure.

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Paul August 10, 2011 at 10:16 pm

Kris,

Have you looked at the Fair Tax? It is simple and easy to use. You only pay taxes when you purchase something. It would eliminate Social Security and Medicare TAXES.

Are you still playing tennis?

Have you seen this video? http://www.pjtv.com/?cmd=mpg&mpid=56&load=5851

Paul


Of all tyrannies, a tyranny sincerely exercised for the good of its
victims may be the most oppressive. It would be better to live under
robber barons than under omnipotent moral busybodies. The robber
baron’s cruelty may sometimes sleep, his cupidity may at some point be
satiated; but those who torment us for our own good will torment us
without end for they do so with the approval of their own conscience.

— C. S. Lewis

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Kris August 11, 2011 at 4:02 pm

Hey Paul! My husband and I have talked quite a bit about the Fair Tax too. That would probably be even better than a flat tax!

Still playing tennis and quite a bit of racquetball. You?

Gotta go check the video!

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101 Centavos August 16, 2011 at 6:51 am

Warren Buffett just went on record saying the hyper-rich should pay more in income taxes. I think he should set a good example and ante up a few billion to lead by example. :-)

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101 Centavos August 16, 2011 at 6:52 am

[ said "example" twice, didn't I? ]

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Kris August 16, 2011 at 10:49 pm

I would not have noticed the multiple examples had you not pointed it, but probably because I am so tired and worn out, weathered, you name it.

My husband and I were talking about Buffett this morning and how he wants the super rich to pay more in taxes. Well, there is nothing stopping him from giving more money than required in taxes, the government will take it no problem. So yes, he should lead by example example. :)

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Paul September 29, 2011 at 9:42 pm

I am surprised that nobody has mentioned Herman Cain’s 9-9-9 Plan. 9% flat income tax, 9% flat corporate tax, and 9% flat national sales tax. It eliminates payroll taxes, capital gains taxes, estate taxes, etc. The most powerful thing is that it simplifies taxes so people don’t feel that certain people or groups are “gaming” the system. Give 50 tax preparers the same income data and you will get 50 different and unique tax returns. Same data, same laws, 50 different returns. Ask 50 different IRS offices the same question you will probably get answers. That is a crazy way to finance a government. Does anyone remember the acronym KISS?

I have liked Herman since I first heard him speak. I am all for Herman and have contributed more to him than any other candidate. If he is able to survive the primaries, I will give more to his campaign and will actively work for his success in the primary and against Barry O.

You might want to look at this site: http://online.wsj.com/article/SB10001424052970204226204576599031274832242.html?mod=WSJ_Opinion_LEADTop

Best to all,

Paul

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