Every year when I do my taxes, I also do a small extra calculation to see what percent of our gross family income goes as taxes. It amazes me that the number comes out to less than one third. This low rate would make sense if I were poor. But I am not. I have a good job, as does my wife, and our combined income puts us well above the median income for families in the US, which in 2008 was around $52,000. In fact, as I have discussed previously, our whole concept of what constitutes the ‘middle class’ is hopelessly out of whack with how income is really distributed.
Bear in mind that in calculating my total tax liability I include federal, state, and local taxes, and also social security, Medicare, and property taxes. Furthermore, I do not use an accountant to find loopholes or use any fancy tax shelters and the like to reduce my liability, the way that very wealthy people do. Our finances are so straightforward that I have always done my own tax returns. Yet despite the lack of any determined effort to find ways to reduce taxes, I still pay what seems to me to be an absurdly low rate.
This is why I have so little patience with those people, often people like me or even better off, who use phony tax arguments to constantly whine about how the taxes in the US are too high. They are not. These people seem to start from the assumption that the justifiable amount of tax is zero and anything above that is an imposition. You hear these people saying things like every dollar they get in their paychecks is ‘their’ money and that anything taken out from it in taxes is tantamount to the government ‘stealing’ their hard earned income. Because these people have dominated the discussion, they have convinced everyone that all taxes are bad and any politician who raises them risks defeat.
But this argument is bogus. When I take on a job and sign a contract to have my employer pay me a certain amount of money, that is not a zero cost arrangement. For the company to exist to offer me the job and for me to be able to accept requires the existence of a huge infrastructure. Simply to exist, the company needs roads and bridges and lights and water and electricity and police and schools and fire protection and a whole range of other government services. For me to reach a stage where I am capable of doing the job requires those same services. All those things require money and just because I do not pay for them at the moment of use does not mean they cost nothing. The cost is hidden from us because they are paid using our taxes. These costs are factored in by employers when they negotiate the contract. So what is ‘taken out’ of our paychecks is what was ‘put in’ to cover all these costs. The taxes we pay is not ‘our’ money that is taken away from us, it is basically a bookkeeping device to show us how much money was essentially loaned to us to cover the cost of the very things that enable us to earn the money in the first place. If the costs of all those services were paid for elsewhere by the tooth fairy, our salaries would likely be correspondingly lower.
The fact that costs are factored into the process of determining salaries should be obvious. This is why a job in New York city will likely pay more than the identical job in a small rural town, because to live in a big city simply costs more, especially for housing. We could have a system where the city levies a ‘housing tax’ that reduces your take-home income by a certain amount and uses that money to subsidize your housing costs so that you recover the money at the back end. The net result in terms of take-home pay would be the same but people accept the former arrangement because they themselves are paying the extra costs for housing and it seems like they have a choice as to how they spend ‘their’ money. It does not come out of their paychecks and is thus not seen as a tax.
But certain public services cannot be paid for by individuals at the point of receiving the service. How would you pay for roads and streetlights and police? The debate about taxes should be not be the silly one about the amount of taxes we should pay, as if there is some magic number, but about what public services we want to have and at what level and the degree of progressivity of the tax code that we think is fair. The taxes we pay will naturally flow out of that discussion.
POST SCRIPT: Atheism-inspired rock song and video
The song Bombastic Mind by the band Mental Health has been chosen as one of 40 songs taking part in the Storm The Charts campaign in the UK. By purchasing it starting on Monday, June 27, you can help it reach #1.
It is actually a pretty good song and if the embedded video below does not work, you can see the video here.
The band’s website is here.