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interesting article on the bail out and taxes

and for the record who wrote it aint impressed with either candidates tax plans




The Bailout and the Vanishing Taxpayer
By Steven Malanga

We have heard much in the press lately about the American taxpayer being forced to rescue the sharpies on Wall Street from their own greed and irresponsibility. Anti-bailout sentiment cuts “across class lines” on Main Street because “the taxpayers are on the hook for the bad judgment of others,” as the Washington Post put it.

Now for a reality check. Many Americans probably won’t pay a cent of the cost of this bailout. That’s because a rapidly increasing percentage of U.S. households legally pay no income taxes, and many others pay so little in taxes that they already get back more from the federal government in services than they send to Washington. The number of taxpayers who generate a surplus for the federal government—that is, pay more in taxes than they receive in services—is small and shrinking, which is why the only way that the folks on Main Street will pay for this bailout will be if Main Street is where the mansions are in your town.

The declining portion of households who pay taxes is a direct result of policies pursued by both Republicans and Democrats over the last 15 years or so. While deductions and credits have always served to eliminate the tax bill for some low and lower-middle income workers, from 1950 through roughly 1990, the percentage of households with no income tax burden stood constant at slightly more than one-fifth of all filers, according to the Tax Foundation. But since 1990, Washington has added all sorts of tax credits—subsidizing everything from “lifetime learning” to adoption expenses--that have further reduced the tax tab, and in the process raised the proportion of households with no federal tax liability to 33 percent.

A big culprit in this evolution is the current Bush administration and its tax packages. Although the 2001 and 2003 tax cuts are often criticized as having favored the rich, in fact they were also laden with tax credits benefiting low and middle income families, and as a result, under Bush, the percent of families not paying taxes increased more than under any other president during the last 50 years.

Both presidential candidates would vastly accelerate the trend. Barack Obama’s tax cut proposals, if enacted, would boost the proportion of those paying no income tax by one-third to a whopping 44 percent of all households, according to the Tax Foundation. John McCain’s proposal is not much different in that regard. Under his plan, 43 percent of households would pay no federal income taxes.

But even among those who still pay an income tax, only a small percent would likely be on the hook for the additional costs of the bailout. By one estimate, the federal government already spends more than $20,000 per household in direct services or services that are considered part of the ‘general good’ of the nation (like national defense). That’s a big number, that $20,000. A married couple filing jointly wouldn’t pay $20,000 in income taxes until they earned about $110,000 in taxable income--that’s income after deductions.

Of course, we pay for Washington government in more ways than simply through our personal income tax. A report by the Congressional Budget Office, Historical Effective Tax Rates, looks at our total contribution in federal taxes, including payroll and Medicare taxes, excise taxes and the share of corporate taxes that individuals pay (because we all individually bear the burden of business taxes). That study suggests that we hit the $20,000 in federal taxes mark somewhere around $95,000 in taxable income—still a big number. Of the 138 million households who file tax returns, only about 16 million, or 11 percent, earn enough to pay more to the feds in taxes than they get back in services.

The largest differences are generational, because younger and older households have less income and use more in government services than those headed by adults in their peak earning years. Thus, households consisting of adults 34-and-under and those of adults 65-and-over are a net cost to the government, while families headed by people ages 45-to-54 are the biggest net contributors, paying $1 in taxes for every 73 cents in services. It’s a good bet that middle and upper income families in that age bracket will foot a big part of this bailout bill.

On the other hand, federal legislators could decide that in light of the massive government commitment to the bailout we need to cut federal spending, which might shift some of the burden for the bailout to those who benefit from whichever programs are reduced. And the next president could determine that the country can’t afford his tax plans, and not pursue them. That might spare high-income earners from paying an even bigger part of the tab. But nothing that I’ve heard emanating from Washington suggests either likelihood.

In the end, how we actually pay for the bailout is just part of the issue. The larger point is that if McCain or Obama follow through with their tax plans, we’ll continue a trend that makes us look more and more like some European social welfare state, where many people have a stake in growing government entitlements, which fewer and fewer taxpayers finance. At some point along that road, change becomes impossible because too many citizens benefit from the system in place, while those who pay the freight for this system try whatever they can, including starting businesses elsewhere, or reducing their output, to avoid the disproportionate tax bite.

That’s a prescription for a static economy largely bereft of opportunity. On the other hand, we probably won’t have to worry about volatile markets in such a world.

Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute

http://www.realclearmarkets.com/articles/2008/10/the_bailout_and_the_vanishing.html
 
How can someone write so many words about the subject without once mentioning deficit spending? That's a critical aspect of how the government provides more in services to so many than it receives in taxes from them. I'm not a deficit hawk, but I do think all the major candidates' tax cut proposals are irresponsible. However, the rich have so much disposable income and own so much of the nation's wealth that they should pay an enormous share of taxes. The top 5% of households own almost 60% of the nation's net worth and the top 20% own almost 85%. Why shouldn't they pay for everything?
 
cause they worked for it.....why should they give it to someone who doesnt work? watched someone i know personally who is on welfare and food stamps drive away from the store in a Cadillac Escalade yesterday......tell me why we should keep giving these ppl money if no one is going to revamp the system
 
If I believed the wealthy worked more, I might accept that, especially if they worked more in proportion to how much more they get. But they don't. Living in a state with a stunning contrast between poor and rich, I see both every day and the major difference I see is in the amount of privilege people are born with. Wealth doesn't correlate with people's effort and certainly not with their contribution to society. The financial market has been proving that for years. As for the welfare system, it has has two purposes: to increase consumption and to make sure people have enough to avoid revolution. Otherwise, it wouldn't exist.
 
Yes, the American dream. Anyone can get rich with hard work, so therefore everyone who is rich has worked hard for it, just like people who do not make a lot of money got that way because they do not work hard. Never mind that many of the jobs that arguably are the most "work" pay rather low wages, or that many families have members working 2 jobs to make ends meet. Because those 2 jobs don't equal a whole lot of work, right?

...

The assumption that people who are not well off are in this situation solely through their own actions is hardly fair or accurate.
 
Finch i see far more ppl who are on welfare cause they want to be versus those that are actually doing their damndest to get off it............this area has high unemployment but not for lack of jobs.....most employers cant find good help.......hell i know a couple carpet installers that cant find help and yes while it aint easy work it pays better than most things in the area......christ ive got to knees that are broke down and i can make more money laying carpet over a weekend than all week at the paper......yet they cant find anyone to help them.......there are PLENTY of ppl who sit on welfare cause they prefer it to working.....
 
Finch i see far more ppl who are on welfare cause they want to be versus those that are actually doing their damndest to get off it............this area has high unemployment but not for lack of jobs.....most employers cant find good help.......hell i know a couple carpet installers that cant find help and yes while it aint easy work it pays better than most things in the area......christ ive got to knees that are broke down and i can make more money laying carpet over a weekend than all week at the paper......yet they cant find anyone to help them.......there are PLENTY of ppl who sit on welfare cause they prefer it to working.....

Well then damn, I should move to your area for the summer because after my previous sumer job became unavailable suddenly without warning right before break, I searched for a month and a half at any place within my county that advertised that they needed help (and many places they did not)... I must have filled out 30 job applications. NOBODY apparently needed or was interested in a college student part-time... almost no one even asked for a interview. I was lucky to get what I had... some people sit on their ***, sure but welfare parasites are not the norm...
... though for some reason they breed faster...
... but that hardly includes everyone or most people, and low wealth does not = welfare recipients... more like people at or near the poverty line, many of whom do not qualify for welfare.

.
Still, wealth has no real relation to how hard a given person works.
 
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