The ticket for Independence Day comes due in the spring. April 15 is an anti-holiday, the day when Uncle Sam bangs down the doors of United States citizens, demanding what some believe is an unfair share of their income. The Internet was all atwitter yesterday with conservatives lambasting the high cost of being a U.S. citizen.
According to Sean Davis at “The Federalist,” it takes the nation 111 days to collectively pay off its bill, and in return, government studies shrimp running on treadmills, observed by bureaucrats who cheat on their own taxes. That’s a pretty deplorable proposition, unless you take into account that the government does more than train crustaceans for the Olympics.
U.S. tax revenues for this year will total $4.9 trillion, according to President Barack Obama’s 2015 budget. That’s a pretty penny by any measure, and it’s still not enough. The government will run a budget deficit of more than $1 trillion in 2014. But to suggest it’s all going to shrimp training is absurd.
Most revenues go to defense spending, which, according to Obama’s budget, will carry a price tag of $3.77 trillion this year. Let that soak in—despite the crowing from neoconservative hawks about the dwindling defense budget, 80 percent of revenues will be dumped in the Pentagon. Data from the Stockholm International Peace Research Institute show that in 2012 the U.S. spent more on defense than every other major country in the world. Despite this overblown budget, the U.S. struggles to deter its opponents. Just ask Vladimir Putin.
Conservatives might agree the defense budget is eating up a disproportionate share of tax revenues, but the real problem is the unfair amount of taxes the wealthy shoulder. Looking at nominal rates it seems that way. Unfortunately, these critics ignore the nature of progressive taxation. If a person made $1 million in 2013 filing as head of household, he or she was taxed at increasing rates proportionate to the rise in income. It doesn’t all just come off the top. Even if the nominal rate were a flat 50 percent on $1 million, with no credits, the remainder of $500,000 is still $100,000 above the highest bracket.
Of course, it’s not that simple in practice. Homeowners earn a tax credit for their investment. The more homes owned, the more credits claimed. Income derived from return on investment, or capital gains, is taxed at just 15 percent. Because not many people make millions working as wage earners, it can’t be said that the tax code is unfair to the wealthy.
People whose income is derived from investments, an increasingly large amount of which are not even inside the country, pay a far lower effective tax rate than those employed for wages, or those who own a small business. Ordinary citizens bear the brunt of the tax burden in the U.S., not the ultra rich.
Conservatives like to claim Democrats want to tax the rich to beef up entitlement spending. They ignore the fact that many states, such as North Carolina, are gutting their entitlement benefits even while unemployment remains dangerously high in many places. It’s worth noting that unemployment got so high in part because of the mismanaging of economic institutions—institutions run by those who earn income from investments, and pay a 15 percent rate.
Economic inequality isn’t about redistribution, although the GOP wants to pretend it is. It’s about the ridiculously unfair tax code ordinary citizens are living under. Democrats need to lead on tax reform, and the first line on the chopping block should be capital gains. The money that slips through Uncle Sam’s fingers every year could go to infrastructure projects, education funding and research programs that make commerce more efficient, and yes, provide jobs to the unemployed. When the unemployment rate goes down, entitlement spending drops, so Republicans should be lining up for this vote.
The GOP wants to protect an unfair tax code, gut entitlement spending and protect the interests of a wealthy minority, while claiming a desire to facilitate robust economic growth. That circle can’t be squared. Tax day is nobody’s favorite day, but it would have a better reputation if it were a day that was fair.
