Monday, May 25, 2009

A Taxing Dilemma

When my children began working to earn extra money, I remember vividly a scene which was repeated with each of them. They would get their first paycheck and open the envelope with great anticipation only to be crestfallen when it didn't add up to what they thought they were going to earn. "Who and what is this FICA and what happened to all the money I earned? I was supposed to get more than this." It was at this point that we sat down to have "the talk". This wasn't about the birds and the bees, but just as sensitive and contentious. We talked about taxes, Social Security, and Medicare; and we talked about citizenship and responsibility. We explored the necessary evil that taxes are, and the idea that everyone paid their fair share as part of the bargain for sharing in all that this country represents. We talked about patriotism and shared pain as well as shared vision. They didn't like it. They wanted all their earned money; but at least they understood the principle behind the imposition of taxes.

To this day I still hate paying taxes. I hate even more that I don't like how my taxes are used. Regressives scream loud and often about their taxes going to projects they don't like, television they don't watch, and human decisions (like contraception or abortion) that they don't support. I scream loud and often about my taxes going to illegal or immoral wars, immoral institutions like the Pentagon, or to fund torture and illegal spying. Yet, despite all our screaming, most Americans pay their taxes. Most pay, but not all.

This week President Obama proposed closing tax loop holes that allow American corporations to hide their profits outside of this country, and thus avoid paying taxes on the money they earn. The figure are staggering. It is part of Obama's promise to end tax breaks for companies that send jobs overseas. The President claims, according to the New York Times, closing these tax breaks for multi-national corporations and wealthy individuals would save $210 billion over the next ten years, and help to pay for tax cuts for middle class Americans.

This seems like a no-brainer to me. My children, your children, all of us have to pay our taxes. Should we try to hide some income or even innocently declare deductions that can be questioned, we face the wrath of the IRS. Is there a government agency more feared or reviled than the IRS? They will hunt you down and take your first born child, if necessary, to make sure you pay your fair share. To get a letter from the IRS is to feel a chill run down your spine before you even open it. Yet, now we find out that everyone from General Electric to Pfizer to Citibank have stashed billions in profits offshore in tax havens like the Caymen Islands to avoid paying billions in taxes. The President says that this should stop and they should pay their fair share. No-brainer, right? Wrong! These corporations employ an army of lobbyists. They are already screaming about raising taxes during a depression (despite the fact that these proposals won't take effect until 2011). If we are still in a depression then, many of these companies won't have profits to tax.

How bad is this abuse? The average American middle class family pays approximately 25 % to 30% of their income to a combination of income and payroll taxes. For some families or individuals that percentage can climb to 35%. The top corporate tax rate is supposed to be 35%. However, according to the Treasury Department, in 2004 (the most recent year available), American corporations paid $16 billion in taxes which translates to a top tax rate of 2.3%. Imagine for just a moment if you only had to pay 2.3% of your income in taxes. Imagine how much more money you would have. Imagine how much easier that would be. Imagine how it would feel when April 15th rolled around. They made $700 billion and paid $16 billion in taxes. No wonder they will fight the President tooth and nail to stop him. As for the wealthy, Warren Buffet has said on more than one occasion that his Administrative Assistant pays a higher percentage of her income in taxes than he does. The Swiss are finally admitting that they have been allowing rich Americans to hide their wealth in Swiss banks to avoid taxes. The Caymen Islands are another favorite place to hide wealth. According to the Times, there is one address in the Caymen Islands that"houses" over 18,000 corporations.

So why are experts predicting a fight that the President might lose? Do you mean to tell me that members of Congress will vote to protect these corporations while letting the average American live in fear of the IRS? Do you believe that American voters will look the other way while their Representatives protect corporate profits at their expense? Who among you would vote for someone who protects corporations and wealthy individuals at your expense? Which members of Congress will stand and defend Exxon, Chevron, and Goldman Sachs against Joe the plumber and main street America? Yet, commentator after commentator says that the President has a tough fight ahead; and that the corporations could prevail and continue to hide profits from the Treasury.

Our tax system has been getting less and less progressive over the last forty to fifty years. Starting with President Kennedy, the wealthy have seen their tax rates steadily drop from a high of 90% to an effective rate of 15-17%, and even lower for some. At the same time, the effective tax rates for the middle class have risen. The idea that those who make the most should also pay the most is no longer operative in this country. Don't be fooled by the argument that the rich pay most of the taxes. The question is what percentage of their wealth do they pay in taxes, and that number has never been lower. If you isolate just the richest 1% of Americans, they have seen their wealth increase and their tax rates decrease dramatically over a generation.

If the corporations can beat back the President's attempt to restore some fairness to the tax system, if they can prevent him from punishing them for taking jobs overseas and getting tax breaks for doing it, if the American people allow members of Congress to kneel before the corporate royalty at their own expense; then this experiment in democracy is doomed.

This is one of many fights that this President has to win. He will win it only if armies of average Americans storm the hall of Congress and rout the forces of corporate America. Don't expect any help from the corporate media. Rupert Murdoch, Clear Channel, and NBC (owned by General Electric) all like things the way they are. You won't see much coverage; and what you do see will demonize the President and his supporters as un-American socialists who want to stifle the patriotic corporations. The rich will be represented by millionaires like Limbaugh, Hannity, and O'Reilly. You can already make their arguments against this idea before they voice them. Only you can rise up and help the President and yourselves. The question remaining is, will you? What do you think? I welcome your comments and rebuttals. Please send them to

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