Clear Fog Blog

Political musings from Warren E. Peterson

How much tax is too much?

Posted by Warren Peterson on April 27, 2010

The question that never fails to stymie “raise taxes” liberals is: “What level of taxation do you think is fair – 20%. 40%, 60% – what? In detail, add up all the taxes one pays (federal, state and local) – income, sales, property, gas, excise, business taxes hidden in the price of goods and services, etc. – all of them. Divide the tax total by the sum of one’s income from all sources – salary, dividends, interest, capital gains, etc. – all of it. The result is the percentage that goes to taxes. Is it reasonable?

For me, just federal income, state and local sales and property taxes amount to about 16% of my income, not all that bad. But I am retired. If I were still working, I’d add in Social Security/Medicare and gas tax, which would bump my percentage to over 23%. Excise taxes might raise the number to 24% or so. Who knows the amount of pass through business taxes but I wouldn’t be surprised if they would be enough to raise the total government take to 30% or more. Will it stop there? The Value Added Tax (VAT), some are proposing for the United States, is currently 5% in Canada. That is on top of income taxes, provincial sales taxes, and a host of other taxes and fees. Congressional “reforms” from health care to financial oversight will only add to the tax burden. Consider also that the taxes we pay now are insufficient to sustain benefits such as Social Security and Medicare not to mention the unfunded liabilities for government pensions and debt service. Now add in the new health care entitlement; well, you can see where we are headed.

I’m not opposed to taxes per se. Governments need money to fix the roads, provide security, help the indigent and perform all the tasks the people, through our elected officials, demand. Though we may disagree on what tasks are appropriate, we get what the voters allow. Local property taxes are high in many cases because voters approve rate increases for all manner of goodness from schools and parks to arts and sports facilities. We allow our representatives to promise what is not paid for, raise taxes and fees and then spend us into greater and greater debt. They use our money to lull us with cake and circuses into reelecting them.

I support a progressive tax system. The growing wealth divide between the very wealthy and the average citizen is a concern but at what point of taxation do we kill the Golden Goose? Yes, the rich live better materially than most but they also provide investment capital, fund new ventures, create more jobs and support charities. The two problems crying out for a solution is the revenue raising system and a truly transparent view of the actual cost of government. Government is so over committed that running a red light is no longer just a matter of safety but a new source of revenue. Spending, including future obligations is out of control. The tax system is frequently unfair and far too complicated.

Is there a future President and a Congress with the intestinal fortitude to take on these problems? Is the public ready to face reality? I have my doubts.

cross posted on Sound Politics

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