There’s been a lot of talk about taxes and what tax rates would be appropriate for different income levels to assure that everyone pays their fair share.

A look at other taxes can provide insight to how fair share is defined for them.

For example, let’s look at local property taxes. The property tax that my neighbors and I pay are based solely on the assessed value of our property multiplied by a tax rate set by the town.

The property tax rate does not vary and is the same for everybody, regardless of the type of property, its location, the owner or his income.

If my neighbor’s house is valued twice that of mine, he pays a tax twice that of mine. This seems fair.

Similarly, the amount of vehicle excise taxes that I pay annually is based on a fixed percentage of the current value of my automobile. The tax percentage or rate, however, is the same for everyone regardless of whether the automobile is a beater or a BMW, its age or who the driver is. If I owned a higher-valued car I would have to pay a proportionately higher tax. This also seems fair.

Then there is the sales tax. It, as the others, is a uniform percentage or rate that is applied to all purchased taxable goods and services regardless of what the item is, the residence of the seller or buyer or their incomes. Again, fair enough.

The more you buy, the more you pay but at a rate that is the same for everyone. Also fair and consistent.

When it comes to income taxes, however, the tax rate is not the same for everyone and therefore discriminatory. As one’s income increases the income tax increases and that’s fair. The tax rate also increases, however, causing the tax to increase disproportionately. That does not seem fair.

A close look at the different income tax brackets shows how unfair they are. For example, under the current federal tax structure, a married couple with a taxable income of $50,000 would pay a federal income tax of 13.3 percent or about $6,650. If their income doubled to $100,000, it would seem fair if their income tax also doubled to $13,300.

It does; plus a lot more. It increases disproportionately to a tax of $17,250. It doesn’t seem fair that when their income doubles they would be required to pay an additional surtax of $3,950 on top of their doubled tax. That’s an add on of about 30 percent.

At higher incomes it gets progressively worse. If, because of hard work, the couple’s income rose from $50,000 to a level six times higher or $300,000 their federal income tax would rise from $6,650 to $77,455. This amount of tax is six times their tax on their earlier $50,000 income plus an additional surtax of $37,555 or 94 percent.

Where is the justification for that? The harder one works, the harder the punishment and the incentive to succeed vanishes.

Since the object of each of these taxes is the same, namely to extract funds from the people to pay for the cost of running the government, what is the logic that allows such a discriminatory income tax?

The income tax seems especially discriminatory if half the population is excused from paying any income tax at all, even though they are not excused from paying the other types of tax.

If Mr. Big Wig makes big bucks, I want him to keep as much of it as possible because it benefits all of us far more than giving it to the federal government.

Mr. Big Wig does not spend most of his earnings on big expensive toys; rather, he invests most of his wealth in bank deposit accounts, stocks or bonds. Although his purchases of the good things in life create jobs for us munchkins, the real benefit comes from the investments that Mr. Big Wig makes with his wealth.

They create new capital made available for businesses to borrow to expand, purchase machinery and equipment and to conduct research to develop new products and markets. It also provides capital for the rest of us to borrow for new homes, cars and vacations.

It all creates jobs. What does the federal government do with all this excess revenue in comparison? It does not make anything and has no money of its own. It wastes and mismanages the funds it take froms us, supplemented with borrowing to meet its growing appetite for more.

It makes it difficult for daddy to go to work to bring home the bacon because the government ate it all.

 

Alvar K. Laiho of Cornville was a financial analyst with the Maine State Housing Authority for many years. He and his wife now own and operate MountainsView Bed & Breakfast on Hilton Hill in Cornville.

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