Tax cut debate is missing the point

by | Dec 13, 2010 | Comment, Detroit Free Press | 0 comments

Given that man invented money, shouldn’t he understand it better?

Instead, how money works remains the biggest mystery this side of cancer or “American Idol” voting. We can’t even get a consensus on a stupidly simple question: Should we raise taxes?

The obvious answer should be no. Who wants to raise taxes? Instead, Congress is at an impasse. Everyone is screaming. Half the experts warn if we don’t raise taxes, the country will collapse, and the other half warn if we do raise taxes, the country will collapse.

Sorry. But for something that has been going on since the Bible, Mesopotamia, the Roman Empire and the American Revolution, shouldn’t we be able to say whether taxes help or hurt? How much more experience do we need?

Taxes stimulate jobs. Taxes kill jobs. Taxes help small business. Taxes ruin small business. Taxes make things fair for poor people. Taxes falsely sustain poor people. Taxes let government function. Taxes let government malfunction. Heck. We don’t even know what to call the suckers. Pundits refer to “the Bush tax cuts.” But even George W. Bush’s rates are higher than taxes once were, so how could they be “cuts”? And since they have been the norm for at least seven years, why aren’t they called the “status quo”?

Money just doesn’t go that far

Be honest. When it comes to taxes, everyone has a theory. So here’s mine. If you take 25% of a person’s worth, that’s enough. Especially if you’re the government. If you can’t make things work with that, it’s your fault, not the people’s.

The current debate suggests a near-40% tax rate is fairer for the richest citizens – and “richest” means households earning more than $250,000 a year. People pushing this argument make two assumptions: 1) that this rate is somehow deserved because it once existed and 2) that $250,000 makes you Bill Gates.

“Why should we give breaks to Wall Street tycoons who caused this economic crisis in the first place?” you heard people scream last week.

Well, for one thing, paying 35% in federal taxes – the current highest rate – is not really “a break.” And every household earning $250,000 did not rape and pillage the economy.

A $250,000 household could be a mid-level business executive, a college professor and some investments. Comfortable? Yes. Oprah? No.

Take such a married couple, both working, with four kids out in a nice suburb. Say two kids are in college. The parents make too much for scholarships, so that could be two times $50,000 right there, or $100,000 in school bills. Mortgage? Let’s be conservative: $2,000 a month. Property taxes? Let’s say $10,000. Throw in insurances, car payments, food, utilities, gas. You’re easily at $150,000 in costs before anyone has bought a movie ticket, let alone a yacht.

Now. At a 40% federal tax and a 5% state tax, and a 1% city tax – typical to many areas in this country – you only get to keep 54% of all you earn, or in this $250,000 example, just $135,000. Which means this couple is already $15K in the red – while people label them “ultra-rich.”

The government has gotten greedy

Yes, this is oversimplified. Yes, there are deductions. And yes, you can argue that not everyone has to send their kids to a good college, not everyone needs two cars, not everyone has to have a nice house. But then, what’s everyone working for? Isn’t that what the American Dream was once about? Should we set the bar at the lowest aspiration? Should we tilt a system to unemployment and benefits payments?

You all have heard how a tiny fraction of Americans pay more than half of all taxes. And how a big chunk of Americans pay no taxes at all. The only thing you honestly can conclude is that the system is broken.

Well, raising taxes (and that’s what it is; stop calling it “eliminating cuts”) can’t be the only solution to a broken system. The focus should be on whoever is breaking it. Here’s a hint: It isn’t the wage earner.

Let the economists wrangle over models and theories. The finger ultimately points to the party taking the money, not the one giving it, and that means the government. And if the history of taxation proves anything, it’s that there comes a point where people say to that government, “You’re taking enough.”

Here’s my theory: We’re already there.

Contact Mitch Albom: 313-223-4581 or Catch “The Mitch Albom Show” 5-7 p.m. weekdays on WJR-AM (760).


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Mitch Albom writes about running an orphanage in impoverished Port-au-Prince, Haiti, his kids, their hardships, laughs and challenges, and the life lessons he’s learned there every day.

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