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Monday, July 31, 2006

Fredrick and Johnny were Earners

In progressive taxation the further away (or up the ladder) an earner is from living desperately or from hunger or homeless, determines what greater percentage of his whole, or fraction of his whole, of total annual earnings, The progressive system, in an ideological pure form, increases the revenue burden on the wealthy because their own welfare is not at stake.
As the illustration above shows, that drop in the bucket experienced by Bill Gates (on the right) does not effect his lifestyle, as his pie is still huge (numerically). Interestingly Bill Gates, a.k.a. Fredrick, perhaps one of the richest persons in the world, supports progressive taxation. Johnny on the left would have but a sliver of his pie left if his contribution to the general fund (federal taxes), were equivalent in percentage to Fredrick’s percentage. Funny thing about money is, the less of it you have, the more valuable it is to you. Conversely, the more of it you have the more of it can be disposable without threatening your lifestyle, opposed to Johnny – less valuable.
But loudly the vast majority of the wealthy complain. Lavishly they lobby our politicians, and aggressively they hire tax accountants and tax lawyers and stash their earnings in offshore accounts to keep more and more at amounts approximating seven hundred billion dollars annually. Having more money comes with a brain condition called greed. An irony is that pirates also suffered this condition in the eighteenth century, and they buried their treasure, also offshore.
When issues of taxation are discussed, its not just philosophy that separates the Economic Conservative (EC) from the Economic Social Liberal (ESL). Because the differences are so brightly polarized, I have to conclude its got to be a brain hemispheric difference. The humorous adage ‘ . . when you were a baby your mother must have dropped you on your head.” May apply in this area.
The ECs do not seem to understand the value of the mathematical fraction as expressed as a percentage. A percentage, or a fraction relative to the whole, has nothing to do with a specific amount of money dealt with, generally income earned. It is relative value that defeats the ECs case against Progressive Taxation. This is why so many simple economics instructions begin with nice round and small amounts for easier understanding.
Johnny works in the plastic factory. Johnny earns a dollar.
Fredrick works at Morgan-Chase-Stanley investment brokers. Fredrick earns a dollar in commission.
Johnny cashes his dollar at the payroll cashing store and pays the owner twenty-five cents of that dollar for the “service.” Johnny would like to use a bank but he needs two-hundred dollars and good credit to open an account.
Fredrick never saw his dollar, he has an arrangement, it automatically compounded into a mutual fund account that earned almost twenty percent last year. For this financial service Fredrick is charged only point six seven percent for the transaction on that dollar, or six tenths of one cent.
The next day an IRS agent pays a visit to Johnny at the plastic factory and informs him he owed taxes on yesterday’s earnings. Johnny contributed his share of eleven cents (or eleven percent) Johnny paid at the lowest income earning taxation level, because based on his previous year’s earnings, he will earn far less than most people working full time jobs. Johnny will file taxes on a one page form at the beginning of next year, the form’s formula will determine that he gets all of his federal income tax back, less of course his Social Security and Medicare payments to those federal government insurance programs.
Fredrick was in shock when he looked up from his plasma computer screen to see an IRS agent standing over him with serious look of business. He requested Fredrick’s contribution to the General Fund, and Fredrick handed him thirty-eight cents (or thirty-eight percent). The agent left and Fredrick was pissed. “That’s a lot of money dammit!” He slammed his fist onto his deck. Later that night at home in front of his eight foot fireplace, Fredrick drank a glass of Sherry, his ass on leather, his feet on mahogany, he thought about taxes:
“Its not right. I paid almost a hundred and fifty thousand last year, and what do I get? An IRS agent barging into my office for more? I get not food stamps, no free lunch, no special training, no help with colle . . well Ok I did get a lot of help with college. But nothing else! Shit on soap! That’s what I get!”
Johnny left the factory a seven p.m., it was already dark out and he appreciated the street lights that show the way and keep him safer, subsidized by the eleven cents he gave today, if the city had to pay for those alone, they would be off for sure. A police car sped by him, lights and siren on, it was speeding to someone’s aid. Again his city’s funds alone could never fund the entire police force of twelve cars. An ambulance followed within a minute, a service belonging to the fire department, another case of an expensive service that federal dollars subsidized, costly when they sit doing nothing, invaluable when they show-up within three minutes to save your life. Johnny crossed over the bridge, made of cement and steel, it spans the wide river in his city. To build it today would cost millions of dollars, to maintain it costs thousands per month. Again if the city had to pay in full, the bridge would be closed due to safety concerns. Johnny approached a big campaign billboard on the other side of the bridge, it showed the face of a man he knew, he had played darts with him at the pub a couple of times:
Joe M. Blow for Congress - You Dollars Should Be Accounted For!
Johnny remembered Joe’s vehemence about the money in Washington. He knows he was pissed off and determined to do something about it. Fortunately, and even Joe M. Blow knows, most money is accounted for pretty well, but there’s always those stories that anger the public, of those so called rip-offs. Joe is an average guy, when he gets past the local primary, he’ll get matching funds from the Federal Elections Commission, money well spent for representation of the type he promises.
Late that night Fredrick was still in his living room and the fire was dying down, he listened to a talk radio program and the host was matching his feelings and anger about taxes. He thought to himself “I should call in, boy I’m mad!”
“I paid almost a quarter of a million dollars I taxes last year! Why should I have to pay so much when I make so much to be taxed! I should get major tax breaks, I deserve them, I should get a rebate and we don’t need to give the middle class and the poor anything back because they don’t contribute like I do!”
Here is where it becomes convenient for Fredrick to speak of his tax contribution in terms of amounts (notice that when publicly stating his taxes paid he increased the true amount more than one third to emphasize his point more dramatically) but his taxation rate is not on his mind. Its convenient because in this example on the radio call in show, he is complaining for his own defense, for his own benefit To Fredrick its all about the money in real terms. It is that money in dollar amounts that leads Fredrick to feel his contribution is stronger, worth more, more valuable to society as a whole.
Fredrick’s income class, those making $200,000 or more annually supply slightly more than %87 of federal revenues from income tax. But so what. Its all relative. The group buys %100 of all caviar, fine wines, Bermuda beach houses, Mercedes Benzs. These victims of government oppression manage, even with their high tax rate, which is between %28 and %39.6, of reported income, after all deductions (which this income class is very good at using) to have the best that a material world could offer.
But Johnny’s dollar is worth more to Johnny than Fredrick’s dollar is worth to him. Fredrick will earn tens of thousands of dollars before the summer is over, he can use his spare dollars for toilet paper without guilt. Johnny has to think very carefully about every dime of every dollar spent. Johnny has to buy the generic can of beans instead of the B&M Boston Baked Beans which cost twenty cents more. Back at Johnny’s apartment he finds that the cable television is out, he was late with the payment, so Johnny sets up the antenna with foil wrapped around them. Johnny sets a cold beer down on his coffee table, one of three left in his refrigerator. His table, a electrical cable spool turned on its side. Johnny watches the game with snowy interference, he downs a hearty swallow of cold beer, and he thinks to himself: “I’ll never fucking get ahead! How would I? Its impossible.”
Come tax time Johnny will pay no federal income tax, after all allowable deductions and exemptions for his personal low income. He will be one of 43.3 million filers in this category. But he’ll not escape his State income taxes, or his State sales taxes, or a city tax he may pay, and his landlord will pay, using Johnny’s rent money, the property taxes on his building. He won’t escape a tax attached to his phone bill, his electric bill, his natural gas bill. Essentially everything single thing Johnny does is taxed, his groceries, his rent, his clothes, his car, his driver’s license and etc.. Are these things less valuable to Johnny than to Fredrick? No. They are more valuable to Johnny, they represent his livelihood.
From all of our lawmakers who we citizens and our parents elected, to the lawmakers long before them who have assembled a complex book of tax law, to the millions who sought more fairness to create those laws, its about the fraction of your earnings, a.k.a. the percentage from earnings. The large fraction that Fredrick pays is not just because he makes more, it is because he can do a lot more and have a lot more than Johnny, whether is Fredrick is taxed slightly or taxed more heavily. Fredrick has also benefited from society greatly: like his college loans which allowed him to get a BA, and the Securities and Exchanging Commission that has enforced and protected his stocks from corporate trust violations, and the government services in his neighborhood that increase the realty values increasing his own capital. His father went to college on the G.I. Bill, later his father bought his first home through a Veterans Administration housing loan, where would Fredrick be without the opportunities of his father? When his mother was dying her Medicare was her only payment method to receive care, her doctors knew their payment was guaranteed, the hospice knew their payment was guaranteed, and so her care was unquestionably reliable, without the Medicare Fredrick would have had to drop out of college to help his father meet expenses, they may have had to sell the house they occupied since the 1950s. Fredrick didn’t “pull himself up by the bootstraps.” Fredrick pulled himself up by the collective boot straps of others, of a society that realized the economy of opportunity is the best investment.
But now Fredrick sits in luxury and wants those poorer than he is to take a larger tax burden that he does or a more equal burden, so that hopefully in the balancing of federal revenues to expenditures, he can keep more of his own money. Fredrick has become an EC, he has lost his way while traveling in a sea of green. If being empathetic is what it takes to consider the plight of those without opportunity, Fredrick has successfully quashed that attribute in order to enable his pro rich-people stand. Denial is a river in Fredrick’s mind, that flows with green treasury paper and Fredrick is a man standing in that river. Under the wallet temperature bills that flow with vigor past Fredrick’s wading body are the decomposing bodies of the World War II generation, those who created the many programs used to help Fredrick – those who had confidence in the Great Society concept. He steps on them and wobbles a bit, but that’s not enough to tip him over.
Taking thirty-eight percent from Johnny would essentially wipe-him out. Johnny would indeed be pressed to meet basic human needs since he is already living on the edge between poverty and despair. While Fredrick’s earnings place him far above any need to begin to worry about eating, housing, child care, transportation, health care. So, taxing Fredrick still hurts him very little, this is why have a progressive tax system. As you “progress” up the ladder of economic success you can contribute a higher percentage of your income without being hurt in any of the manners that those below you may be hurt.
Liberals tend to understand Progressive Taxation, while the Economic Conservatives seem to selectively choose to deny that it is fair based upon their feelings of being unfairly burdened. The Conservatives may realize that the system is fair in concept, but they won’t admit it, because that would violate the very essence of their conscience of selfishness. Coinciding, the rich are more likely to vote for a conservative candidate to represent them, while the middle class and the poor (and those with advanced college degrees) tend to vote for the more Liberal candidates.
Simplification is now the call of the wild in the forest of reformers. National Sales Taxes are proposed, Flat Taxes proposed. Some dream of one little postcard we could all file our taxes with. Each of these tax hypotheses would eventually lead us back to a Progressive Taxation system similar to what we have today. How man years will that take? Twenty, forty years? It is just natural that we would divide into those who need certain deductions and exemptions and those not yet realizing they do, and it would start all over again. We would campaign to elect representatives who would get us our special deductions and exemptions, refunds, and allocations of special need. Because we are not the same. We are not uniform in our needs. We don’t stand on the same rung of the economic ladder. Thus we must contribute to the revenue stream progressively, based upon need. Based upon the distance on the ladder from the ground.