"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Monday, April 18, 2011

Taxes v. Dentistry

After having completed my federal and state taxes over the weekend I spent this morning having two cavities drilled.   On the whole, I preferred the dentistry.  


Some random thoughts on taxes:

1. The arguments about taxes in this country are insipid, and backwards.   The premise of much of the political debate is focused on whether the "rich" (an elastic category) pay too little in taxes and should be made to pay more as a matter of fairness (the Democratic position).   Republicans oppose the Democratic position, but their opposition is essentially couched in terms of the proposition that raising taxes on the rich would hurt the economy (with the implication that, if it didn't, then raising taxes on the rich would be okay).   The truth is, of course, that the rich are overtaxed by any reasonable measure of fairness, not undertaxed.   And the converse is true:  the non-rich are undertaxed, not overtaxed, again as a matter of fairness.   How could it be fair that 45% of Americans pay no federal income tax at all?  And don't tell me that they pay Social Security and Medicare payroll taxes.   Everyone knows, or ought to know, that those payroll taxes do not begin to pay for those programs, so the truth is that, as things stand now, that everyone will get back more than they pay in for Social Security and Medicare.   But no one, and certainly not the national GOP, will dare say that the rich are overtaxed and the poor undertaxed.   So we let the argument go on in all its vapidity, with the result that we have a nation of deadbeats who think it's perfectly moral to mooch off the so-called "rich."

2.  Doing taxes is far, far too complex.   I do my own but I (a) have relatively simple taxes to do; and (b) have relatively high skills with reading legalese, with following step-by-step instructions, and with doing simple arithmetic.   It still took me most of Saturday and Sunday.   For the average person, I suspect it's a nearly impossible task.   And so we have a huge industry whose sole purpose is tax compliance -- preparers, accountants, tax attorneys, etc.   This is an entirely unproductive sector, and a huge drain on the time and money of the nation, a drain which has been estimated here (by Arthur Laffer no less.... yes, that Arthur Laffer) at $431 billion a year.   Simplifying the tax code should be a major priority... but, alas, I fear that the tax compliance industry is "too big to fail."

3.  I paid roughly 27% of my income in federal and state taxes, including self-employment taxes (both employer and employee shares of Social Security and Medicare).   I paid another 3% of my income in state property taxes.   In Wisconsin we have a state sales tax of 5.6%, so I likely pay another 4% or so of income to sales tax (food purchases are not taxable).   Then there's licenses, fees, gasoline taxes, etc.   So let's round up all of those and I guess it's pretty likely that I paid somewhere around 35-40% of my income to taxes.    Compare that to:  mortgage (about 9% of income this year); new car payments (about 6%); tuition at Catholic School (about 3%), health insurance (about 8%), retirement savings (about 10%).   So I pay in taxes about what I pay for my house, my cars, my kids education, my health care, and my retirement savings.    And what exactly do I get for it again?   Forget about the real estate bubble and even forget about the so-called "higher education bubble."   What we have now is the worst of all bubbles.... the "government bubble."   Government, viewed purely as an asset, is wildly over-priced.   Sooner or later, people are going to wake up and realize that it's just not worth it.

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