Wednesday, August 22, 2012

Taxes...You Decide!

Over the last couple of years--and especially in this current election season--there's been a lot of talk about taxes: who pays the most, is the current tax structure fair, and do the rich pay their fair share?
I thought I'd let you, the voting American, decide based on the consideration of all relevant factors, including the consideration of average household expenditures (i.e., the cost of living)...

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...which portion of the the federal income derive from which particular tax...

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...who actually pays taxes...

Click on graphic to enlarge (The often cited Urban Institute-Brookings Tax Policy Center estimates "that 46 percent of households will owe no federal income tax for 2011" and Joint Committee on Taxation estimate that "51 percent of households paid no federal income tax in 2009" are, according to the Center on Budget and Policy Priorities, "anomalies that reflect the unique circumstances of the past few years, when the economic downturn greatly swelled the number of Americans with low incomes. The figures for 2009 are particularly anomalous; in that year, temporary tax cuts that the 2009 Recovery Act created — including the “Making Work Pay” tax credit and an exclusion from tax of the first $2,400 in unemployment benefits — were in effect and removed millions of Americans from the federal income tax rolls. Both of these temporary tax measures have since expired. Source: "Misconceptions and Realities About Who Pays Taxes").

...and a few facts about the link between tax cuts and economic growth, using several individual low-tax states as an illustration:

A few states—Alaska, Nevada, Florida, Wyoming, and New Hampshire—impose very low tax rates yet their residents enjoy solid mid-range incomes. Do these states blaze a trail that other states can follow?

Unfortunately these states' success is tough to copy. Both Alaska and Wyoming have abundant and valuable natural resources (energy and minerals) coupled with small populations and little need for public services. Nevada, Florida, and Wyoming benefit greatly from tourism as well. And New Hampshire gets a free ride from Massachusetts-based high tech companies without paying the corresponding taxes.

There are no guarantees when it comes to taxes and economic development. But without abundant natural resources or heavy tourism or the generosity of a neighbor, no state in the United States has been able to sustain high prosperity without a robust tax base (Source: "Do Lower Taxes Create Jobs? Let’s Look at the States?" and the Institute on Taxation and Economy Policy).

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Conclusion: Outside of those who subscribe to Keynesian economics, and unless there are a certain economic conditions present, most economic experts assert that tax cuts--in and of themselves--do not directly spur economic growth (which iLinks not to say that under other conditions, they don't have their place. Personally though, I would favor an income increase rather than a tax decrease. Why, because only the working poor would even notice the change.
A February poll by the National Foundation for Credit Counseling showed that 66 percent of workers did not realize their paychecks were larger after the government reduced the payroll tax by 2 percentage points. Source: "Economic Illiteracy: The Candidates' Best Friend."). is where you decide...



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