The Government and the Economy
Federal Income Tax Theory
- Would another form of Federal Income Tax be fairer and/or offer more revenue and/or offer greater economic stability?
- Government Policy is summarized as a government course of action or "legislated" plan (rules) for dealing with an issue.
- Recession is summarized as economic decline, high un-employment, low investment and/or production.
- Economic Stability is summarized as economic growth, stable prices, high employment.
- Inflation is summarized as too high demand and too few goods, causing price increases.
The President and Congress work together to achieve a Federal Budget.
In 2009 the US spent $3.5 trillion dollars, broken down as follows: Defense (23%), Social Security, Medicare/Medicaid (19%), Mandatory Other (17%), Mandatory Discretionary (12%), Interest (5%), TARP (4%). Revenue for 2009 was $2.1 trillion dollars. Recent Tax receipts/revenue have been at there lowest in decades! (Wikipedia.org - Federal Budget)
The President may suggest (budget proposal) to Congress what should be spent/saved and where. But the Congress is actually in charge of raising and spending revenue (budget approval, taxing, etc) !
"As of January 20, 2009, the total U.S. federal debt was $10.627 trillion." The debt is currently $12.1 trillion
(Wikipedia.org - US Economy)
A Government must be able to raise revenue by taxing/etc in order to support itself (basic administrative duties), function,
and serve the people (finance government programs).
The following Laws give the government the authority to tax, raise revenue, and manage the economy:
The 16th Amend (1913) gives Congress additional authority to collect taxes/revenue. It allows for a Federal Income Tax.
Article I Sec.2 states that Direct Taxes shall be determined by state population.
Article I Sec.7 gives the House of Representatives the authority to originate bills for raising revenue.
Article I Sec.8 gives Congress the authority to collect taxes/duties/etc uniformly throughout the states.
Article I Sec.8 gives Congress the authority to make such Laws as are necessary for executing its powers.
This is the "necessary and proper clause".
Article I Sec.9 states that Taxes must be in proportion to the state's population.
Article I Sec.9 forbids taxing of state exports.
Article I Sec.10 states that States have no right to make money, except gold or silver coin.
Article I Sec.10 states that States cannot tax imports or exports (except min necessary for inspection).
Major Economic Theories or Principles used by the Government include:
- Monetary Policies: modifies economy throuhg money supply and interest rates.
This is controlled by the Federal Reserve System (formerly called the Board of Governors).
An increase in the money supply leads to more investment, production, jobs, competition, purchases, and lower prices.
Also "loans" create more money in circulation.
The Federal Reserve System includes: mainly the Federal Reserve Board, and also the Federal Open Market Committee, 12 Fed Reserve Banks, and other member banks.
Federal Reserve Board (FRB) helps to stabilize economy by controlling bank reserve requirements (mandatory funds maintained for securing loans), discount rate (Fed Reserve Bank interest rates to other banks), and open market operations (buy/sell government securities).
During "inflation" (high demand) the FRB may tighten the money supply; and do the reverse in a recession.
- Fiscal Policies: to achieve Economic Stability, the government makes modifications in government spending and taxing, which effect citizen's spending.
- Taxation: taxes on income and goods purchased, etc.
- Government Economic Stimulus Bill (American Recovery and Reinvestment Act, ARRA): government sends checks (@$600) to taxpayers hoping they'll make purchases to stimulate the economy.
- Government Bailout (Troubled Asset Relief Program).
- Government funded Social Programs like: Social Security, Medicare/Medicaid.
- War Expenses: The Afghanistan and Iraq military expenses for 2001-2008 exceed $750 billion! And that doesn't include reconstruction and aid.
- Economic Regulations focus on business, industry standards, rates, monopolies and competition, etc.
Some believe that Regulation causes inflation, increasing costs of goods, lack of competition, and inefficiency.
- Foreign Investment & Loans.
Other Economic Theories include: laissez-faire, Supply-Side Economics, keynesianism, mercantilism, and monetarism
My focus in this report/forum is on Federal Income Taxes:
The authority to collect Federal Taxes comes from the 16th Amendment.
"According to the United States Census Bureau, the pretax median household income in 2007 was $50,233. The median ranged from $68,080 in Maryland to $36,338 in Mississippi."
(Wikipedia.org - US Economy)
Numerous economic studies have found that Tax Cuts don't really help the economy or the US's overall financial health. In fact, they usually hurt. This is common sense. If you reduce your revenue then you cant pay your expenses.
My theory is to adjust the Income Tax table as follows. This table shows 3 different tax scenarios per class of income.
These income figures are for each person. So for a family amount a simple equation is to double the figures below:
| INCOME/person/yr: |
tax-rate |
income |
taxes |
income after tax |
| <20K income required for living |
0.00% |
less than $20K |
$0.00 |
$19,999.00 |
| 20K |
5.00% |
$20,000 |
$1,000 |
$19,000 |
| 20K |
8.00% |
$20,000 |
$1,600 |
$18,400 |
| 20K |
10.00% |
$20,000 |
$2,000 |
$18,000 |
| 30k living pretty good |
7.00% |
$30,000 |
$2,100 |
$27,900 |
| 30k |
10.00% |
$30,000 |
$3,000 |
$27,000 |
| 30k |
12.00% |
$30,000 |
$3,600 |
$26,400 |
| 50k well off |
10.00% |
$50,000 |
$5,000 |
$45,000 |
| 50K |
12.00% |
$50,000 |
$6,000 |
$44,000 |
| 50K |
15.00% |
$50,000 |
$7,500 |
$42,500 |
| 200k + very well off |
12.00% |
$200,000 |
$24,000 |
$176,000 |
| 200K |
15.00% |
$200,000 |
$30,000 |
$170,000 |
| 200K |
18.00% |
$200,000 |
$36,000 |
$164,000 |
| 500k + rich |
20.00% |
$500,000 |
$100,000 |
$400,000 |
| 500K |
23.00% |
$500,000 |
$115,000 |
$385,000 |
| 500K |
25.00% |
$500,000 |
$125,000 |
$375,000 |
| 1mil + very rich |
18.00% |
$1,000,000 |
$180,000 |
$820,000 |
| 1mil |
20.00% |
$1,000,000 |
$200,000 |
$800,000 |
| 1mil |
23.00% |
$1,000,000 |
$230,000 |
$770,000 |
| 3mil + outrageously rich |
25.00% |
$3,000,000 |
$750,000 |
$2,250,000 |
| 3mil |
30.00% |
$3,000,000 |
$900,000 |
$2,100,000 |
| 3mil |
34.00% |
$3,000,000
| $1,020,000
| $1,980,000 |
{Note: I've recently seen a table (Economics class) showing what different income levels actually pay in taxes and realize the tax rates in this tax table should be increased at every level to generate sufficient taxes. Adding about 5% to every tax-level should be ok.}
This Tax scenario takes into account fundamental values such as care for the poor {which is already evidenced by Social Security, Medicaid, etc}, idea that honest hard-working and ingenious persons should be able to keep their gains and have something to show for their extra work and intellect; but also that monarchy and gluttony at the expense of the many will not be rewarded by the government. Such would undermine democracy and freedom.
You cant break a dollar in half for taxes, but you can tax thousands of dollars!
Additionally, taxing the wealthy and income above that required to live helps to support and stabilize America. It's "common sense" and common decency.
Also, a billionaire who's taxed at a flat rate, the same as a $30k employee, would quickly become his own nation, and likely seek to over-throw or undermine the US and its citizens! This is illogical.
The way I was raised, you pay your church tithes and your taxes. That's just automatic. It's not charity. It's for the good of all.
If a hard working man sticks a gun in your ribs and takes your diamond watch, you can't fault him if you haven't given back to society. That's just an example. But the idea is if you make 5-10+ times more than a minimum wage you should pay your fair share without grudge.
You may think you're 100 times more special than anyone else and deserve 100 times more in salary, but I assure you you're alone in that misguided thought! And such beliefs do not support Democracy (or spirituality).
Some try to argue that if you tax a millionaire more then he wont re-invest in society. That's erroneous. Additionally, allowing those making less than $300K to keep more encourages them to make more purchases. This theory is evidenced by the recent Government stimulus checks given out; although a permanent tax modification (greater than the $600 stimulus) would do a lot more to stimulate millions to spend. And this extra spending year after year would grow business and investment! And this spending plus the taxes (income and purchases) would help create a stable economy.
This scenario assumes limiting or eliminating the numerous and complex loop-holes currently used by some to avoid paying taxes.
Also we've got to support those seeking a higher education. Such support improves America and its position in the world, as well as the individual.. America is no longer at the top of the ladder in countries with college graduates. If you make A's your education should be free (reduced payment for a B)! I make straight A's (mostly) and cant afford to pay for tuition and books.
Posted by Sebastian Green Lamar
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Bibliography:
Wikipedia.org - Federal Budget
"United States Federal Budget", http://en.wikipedia.org/wiki/United_States_federal_budget, accessed/read 8-4-10
file = J:/Brookhaven/Government2/US_federal_budget_wikipedia.mht
Wikipedia.org - US Economy
"Economy of the United States", http://en.wikipedia.org/wiki/Economy_of_the_United_States, accessed/viewed 8-5-10
file = J:/Brookhaven/Government2/US_Economy_Wikipedia_0000.mht
Copyright 2010 Sebastian Green Lamar
{slight edit on 10-18-10}