The OLD Philosopher Essays – John M. Miller
Oliver Wendell Holmes, Jr. was one of the most famous justices ever to serve on the United States Supreme Court. In 1927 he wrote a dissenting opinion in a case which came before the Court. In his dissent, he said, among other things, “Taxes are the price we pay for civilization. I like to pay taxes. They buy me democracy.” To reiterate his point, he said, “Taxes are the price we pay for civilized society.”
Taxes are not a recent phenomenon in human history. The Bible refers to the taxes the Israelite kings levied on their subjects, and the subjects were not pleased to be thus levied. Grousing about taxes has a long and honorable, or at least vociferous, history.
Why do governments require their citizens to pay taxes? They obviously do it to raise sufficient revenues to pay for government services: roads, infrastructure, the military, government bureaus and agencies, and so on.
As the American population has steadily grown, so also have laws grown regulating the collection of taxes. The United States Tax Code is by far the largest such government regulation of any nation in the world. It encompasses many thousands of pages and many millions of words.
Buy why? Why should that be? Why don’t the tax laws clearly and simply define the requirements on who pays how much in taxes, and for what? The answer is this: The issue is no longer why taxes are collected, but how they are collected. Who pays what taxes on what types of income or what types of investment incomes? As Aldous Huxley might have put it, in the taxable farm, all the animals are equal, but some are more equal than others.
Tax laws are never written with everyone in mind, but very intentionally with particular groups of people as the real focus. When passing new tax laws, Congress never thinks of the whole American populace, but about certain segments of the populace. They are especially concerned about the wealthiest segments. It is the wealthy who can afford to contribute to the campaigns of the politicians. The wealthy also pay the lobbyists who lobby the Congress for tax laws which are intended to benefit the wealthy. Thus Congress wants their tax laws to benefit their greatest benefactors, not the citizenry at large. This is not a cynical observation, although it may sound like one; it is merely a fact.
It is often claimed that ten per cent of the American population own ninety per cent of the nation’s personal wealth. If that is true, then it would seems that on an equitable basis, the 10% of very affluent people should pay 90% of the taxes. They don’t. They do pay a hefty majority of the taxes received by the federal government, but by no means 90%, at least in real terms. (Corporate taxes also bring in money to the federal coffers, and we shall come to that eventually.)
So where does the rest of the income tax money come from? It is derived almost entirely from the middle class. For purposes of illustration, let us suppose that the middle class represent those who earn from $40,000 to $250,000 per year. (These hypothetical figures can and will be fiercely debated by anyone reading this essay, but we need to conceptualize some kinds of numbers in order to perceive the inherent inequity in American tax laws.)
Further to move the discussion forward, let us suppose that the middle class, thus described, represent 70% of the population. Therefore, in this illustration, 10% of the people (the very affluent) own 90% of the wealth, 70% of the people (the middle class) own 9% of the wealth, and 20% of the people (the poor) own 1% of the wealth, hypothetically. What the actual numbers are, literally only God knows.
In income taxes the 20% (the working poor) pay virtually none of the taxes, because they don’t earn enough to warrant paying income taxes, though they do pay sales taxes and other kinds of taxes. The 70% probably pay 40% of the honestly calculated income taxes, although they own only about 9% of the total assets of all American individuals. The 10%, the very wealthy, probably pay 60% of the income taxes, while controlling 90% of the wealth.
Anyone should see at a glance that I have concocted these figures out of thin air. But they are intended to illustrate a principle. In general, tax laws always benefit the wealthy. Because they are intended to benefit the wealthy, they inevitably punish the middle class and the poor. This happens for several reasons, among which are that the people who pass the laws, Members of Congress, are far wealthier than average Americans, the wealthy can afford to pay the lobbyists to promote laws which benefit the wealthy, and there is a persistent and utterly unproven and probably un-provable conviction which says that the wealth of the wealthy always trickles down to everyone in lower income categories when “more sensible” (i.e., lower) taxes are enacted.
Since the Reagan Tax Reform of 1984, the latter notion has been consistently thrown into a cocked hat. Reagan’s own economic guru, David Stockman, the director of the Office of Management and Budget, declared as much. For that disloyalty, he eventually found it necessary to resign. Contrary to the laws of nature, wealth does not trickle down. Instead, it floods UPWARD. The rich really have gotten richer and the poor and middle class really have gotten poorer in every tax scheme proposed by every presidential administration, Republican or Democrat, since 1980. There is now a greater disparity between the very rich and everyone else than ever before in our nation’s (and probably the world’s) history.
This didn’t happen because of capitalism gone amuck. It happened because of tax laws gone amuck. Tax laws too often fail to take into account genuine economic realities. If economics is defined as the dismal science, taxation is the really dismal science.
President Trump and the Republican Congress are currently talking about tax reform as their primary legislative agenda. What they are planning is to reduce the categories of taxation from seven to three, lowering taxes in all categories, and greatly lowering corporate taxes. (Lowering taxes and lowering spending has been the Republican agenda for two generations.)
Regarding lower corporate taxes, it is accurately noted that American corporate tax rates are higher on paper than in every other advanced nation. However, no corporation actually pays the high tax rate, because of the many deductions and exemptions made possible by the multitude of corporate tax laws. It is claimed, apparently on good authority, that more than half of small corporations pay no tax at all, and many large ones do not either.
Furthermore, the proposed GOP tax reform would allow millions of individuals to become limited liability companies (LLCs) in and of themselves. This means that instead of paying 35% individual taxes on their income (lowered from 39.6%), they would only pay 15%, like the terribly beleaguered and financially struggling LLC hedge fund managers at their scandalous 15% rate.
The point of Republican tax policy is always to take as much money as politically feasible from the government and put it into the pockets of individual taxpayers. Making rich people richer is the name of the game.
Tax laws are not fundamentally an economic issue. Instead they have evolved into a major justice issue. Because most tax laws have always been drafted to favor the wealthy, they are almost always unjust. This may sound like socialism, but it is not. It is unjust for the wealthy to reap the majority of the benefits of their nation’s tax laws while all the lower income people in essence pay the price to enable the wealthy to become ever wealthier.
It has been stated by those who presumably have knowledge of such matters that there are a million tax accountants in America. Their profession is so large because it takes that many of them to figure out ways to use the tax laws to the maximum benefit of their clients. Most of the middle class use tax accountants not to save money, but to save their sanity. Figuring one’s own taxes has slowly turned into an annual vernal nightmare for everyone still willing to attempt to navigate the rocks and shoals charted in every ever-burgeoning and inscrutable Form 1040 and its many ancillary forms.
However, accountants save individual millionaires and billionaires tens of thousands or perhaps millions or even a few billion dollars through their knowledge of the complex and arcane tax laws. Who wouldn’t pay an accountant a hundred or more thousand dollars a year if she could save him millions of dollars? If the wealthy-leaning laws were not there, the less wealthy but still very affluent accountants would not be there either.
All tax reform discussions clamor for the closing of those lascivious loopholes, but most of the loopholes never get closed when push comes to shove. In fact, new and more exotic loopholes are cleverly and carefully sewn into the tax code every time changes to the code are passed.
A poll by PRRI indicates that 72% of all Americans favor tax increases on everyone making more than $250,000 per year. Not surprisingly, only 58% of Republicans favor such an increase, while the figure is 73% of independents, and 83% of Democrats. And yet the GOP leadership in Congress, clearly going against the expressed wishes of a majority of their own constituents, are wanting to reduce the tax rate of the wealthiest Americans from 39.6% to 35%. In their inflexible political ideology, they continue to believe that “trickle down” just keeps trickling down, even though the statistics indicate that money almost always flows up, not down.
For decades, Congress has enabled our tax rates to stay low relative to most other developed countries through the time-honored ruse of government borrowing. In other words, they almost never present truly balanced budgets. Instead, they are forced to crank borrowing into the budgetary number-crunching. The result is that the national debt has risen from a trillion dollars under President Reagan (which then was widely considered to be catastrophic) to over twenty trillion dollars now (at which relatively few Members of Congress seem to bat an eye.)
Politicians from the far right to the far left should be frantic to reduce the national debt, because it represents an obvious and major threat to our national security. Should we collapse financially, we shall also collapse in every other sense of national security.
There is no way a twenty-trillion-dollar national debt can be quickly eliminated. Probably it would be economically unwise to try to obliterate all of it anyway. But much of it must be erased, and that will take a long time. Serious tax reform thus must include reduction of the national debt. And that cannot occur through tax reduction; it will happen only through tax increases.
Where should those increases be concentrated? They should be levied where the greatest amount of wealth is held, namely, among the very wealthy. When asked why he robbed banks, Willie Sutton calmly and clearly answered, “Because that’s where the money is.” Why go to the very wealthy to get the increased tax revenues to operate the government effectively and efficiently? Because that’s where the money is.
From 1944 through the presidency of Harry Truman, the highest individual tax rate was 91%. When Dwight Eisenhower was the President, the highest marginal tax rate was nearly 90%. It continued in the high 70s until Ronald Reagan became President, when it dropped to 50%. It has never been close to that since.
How did the very wealthy manage to keep their wealth in the draconian days of the 1940s through the 1970s? They did so by means of increasingly sophisticated and complicated tax laws. Likely no one in the top one-tenth of the 1% ever paid anything close to those percentages on their actual income. Neither they nor the nation could afford those confiscatory percentages actually being applied.
So now we are being told another tax reform is in order. No doubt it is. But this time there should be some sensibility in it. Instead of foolishly trying to leap back to the 70 or 80% range for the most affluent of Americans, thinking that will solve the problem, we should probably go to the 50 to 60% range for the wealthiest Americans, with many if not most of the loopholes eliminated. However, there is no discussion of raising taxes; as always, the intention is to lower taxes.
It is much more complicated than the following illustration, but unless some illustrations are put forward, nothing of consequence will be done. Let us say the top rate goes up to 55%, instead of going down to 35%. For those many thousands of Americans who have a million dollars of income a year, theoretically they would still have $450,000 left after taxes. (I know it doesn’t work like that, but please humor me.) For the few hundred Americans who have a billion dollars of income each year, they would have $450,000,000 left. If managed carefully, they could get along all right, while still investing in various American enterprises in order to keep their billion dollars of income rolling in.
Tax reform of any sort for the 90% of Americans on the lower end of the income scale will do little to solve our nation’s revenue ills. European nations long ago realized that in order for everyone to live in relative financial security, the wealthy need to bear a much heavier share of the tax burden. That is not socialism. Instead it is wise tax policy wisely implemented politically. Taxes as such are no more of a threat to capitalism than they are to socialism. Instead, taxes are the means by which all governments operate. Therefore the question always must be this: Are tax laws fair, or are they unfair?
The “tax reform” that is currently being proposed is undeniably unfair. It also is an insult to the intelligence of most taxpayers. It lowers tax rates the most for the highest income people, and gives the lowest benefits to everyone else. As usual, it is the wealthiest who reap the highest rewards, while the rest of the citizenry get much less. That does not represent reform. It clearly represents more of the same.
For years, conservative politicians and economists have follow the mantra, “Lower taxes, and cut spending.” In practice, that policy has increased the gap between the very wealthy and everyone else. The “spending cuts” corollary in the equation generally means, among other factors, a cut in the programs intended to assist the poor and sick. It is a vicious cycle, which is always stringently applied. This is the pattern every time a new budget is adopted.
Our tax laws are not corrupt, per se. But they are unjust, because they favor the few at the expense of the many. True reform should reverse that persistent imbalance. Is a majority in Congress likely to initiate such reforms? We shall wait and see. In the meantime, it behooves the voters to pay very close attention. Their fiscal future is in the hands of five-hundred-and-thirty-five wealthy Members of Congress.
John Miller is a writer, author, lecturer, and preacher-for-over-fifty-years who is pastor of The Chapel Without Walls on Hilton Head Island, SC.