Monday, March 02, 2009

Tax Rate Shell Game

Tax Rate Shell Game

These days everybody is talking about how the tax rates used to be 70%, then were dropped to 28%, and now are about to be raised again. But all this talk forgets that we are not comparing apples and oranges. That 70% rate was levied on a much smaller portion of our income.

I am old enough to have paid a rate over 50%. In those days states and cities would never have dared to levy their own income taxes, so federal was the only income tax we had to deal with. The deductions that were available, however, protected just about as much of your income as you wanted. I was audited in 1978 because my net taxable income was only 20% of my gross wages and 1099 income. My accountant asserted the "creature of business" concept, i.e. everything I did was related to my business, so we refiled amended returns and asked for a refund. After a lot of struggle between my accountant and the IRS there was a trivial amount of additional tax to pay, sort of a fig leaf for the tax examiner. I was advised to pay the tax and take it to tax court. The lawyer said I would probably win. I passed and paid a few hundred dollars, and forgot about the whole thing.

So when they say that rates are going up "only on the rich" I always look at deductions that are disappearing. Even though we have very few deductions left, those are being repealed also. This represents an additional tax on all Americans. We are also facing taxes that will be hidden from us, and state and local income and other taxes will be increasing as well. That 95% of Americans who will not see an increase must include Paramecium and bacteria, since even dogs and monkeys will see higher taxes, and they are about to make Chimpanzees illegal altogether.

We need to understand that the new government in this country is attempting to change our society in ways that are, in some respects, broader and more sweeping than anything FDR did, since these new-age democrats seem to have no compunctions about being truthful with the American people. That's not an opinion, it is fact.