How America was Tricked on Tax Policy. Bret N. Bogenschneider

      CONTENTS

      Introduction: The Classic Deceptions in Tax Policy

      CHAPTER 1Tax Policy in the Oval Office

      CHAPTER 2The Abandonment of Scientific Methods in Tax Research

       CHAPTER 3How the Business Tax System Favors Large Corporations over Small Businesses

       CHAPTER 4The Limits of Moral Philosophy in Formulating Tax Policy

       CHAPTER 5Wage Taxes Do Have Social Costs

       Conclusion: Postmodern Tax Policy, or Why the “Little People” Matter to Tax Policy

       Index

       INTRODUCTION: THE CLASSIC DECEPTIONS IN TAX POLICY

      You’ve probably been told many things about tax policy:

      •That the wealthy pay a surplus of tax into the system and that workers somehow draw out these funds disproportionately to receive a net benefit.

      •That the economy will grow quickly because of tax cuts for large corporations that supposedly give those companies enough free cash to make investments into new business lines.

      •That if the wealthy were asked to pay taxes they might simply pack up and leave, creating a loss to the economy.

      Of course, none of these claims are true. The truth is, what you have been told about tax policy is a trick designed to deceive you into working ever longer hours and paying taxes at ever higher effective rates. Many of these and other ideas about taxes and tax policy, especially those that you hear on television, are inconsistent with each other and make little or no logical sense. For example, if the first idea were true, that the wealthy pay copious amounts of surplus tax into the system, then it cannot also be true that the wealthy would leave if they were forced to pay any tax.

      At this early stage, you should be at least suspicious that something is amiss with what you’ve been told about tax policy. The truth is that tax policy is formed by and through a series of deceptions. The foremost deception, which is the premise of both economic and philosophical thinking on taxation, is that it is always better for society that workers pay the bulk of taxes and that the wealthy and large corporations pay as little as possible. Economists claim that this type of tax policy is efficient for society. However, any supposed efficiency gains could arise only if the wealthy have very special plans for capital that they could achieve if they were not required to pay taxes. In fact, there are good reasons to believe that workers are better able to efficiently allocate small amounts of capital they have earned through work. The act of engaging in productive work is strong evidence that a person should be able to find a productive use for some capital. This means that it would be better and more efficient for society if taxes on the persons that engage in productive work were reduced from current levels so workers could invest their own capital, derived from their own work, in various productive pursuits. The productive pursuits of workers might be expected to yield efficiency gains for the economy including enhanced small business formation. Such productive efforts are encouraged where workers are not forced to pay nearly all of their surplus capital over to the government in the form of high rates of labor taxes and small business taxation. Some might even go further and call that a “fair” approach to tax policy.

      Notably, the Social Security Trust Fund, as accumulated over the years from withholding taxes on prior generations of workers, was used to fund the federal budget, until even it ran out of money. All the while, politicians claimed, preposterously, that workers don’t pay taxes and that the wealthy pay a disproportionate amount of taxes because of the progressivity of the income tax system. Even a cursory glance at the federal budget reveals that such a claim is sheer nonsense, however. If we look to cash flows, the reality is that workers remit the bulk of the taxes through income taxes, employment taxes, sales taxes, gasoline taxes, property taxes, excise taxes, governmental fees for licenses and on and on. Since most of these tax types are either regressive (such as employment taxes) or not progressively indexed (such as property taxes), the overall system of taxation is regressive as workers pay a higher proportion of their earnings into tax types other than income taxes. The wealthy do not pay proportionate amounts largely because capital income is not taxed currently and the non-indexed tax types, such as sales taxes, are simply not as material to the wealthy in dollar terms as they are to workers. If we apply a more reasonable accounting method to tax policy and take into accounting holding gains on capital assets as tracked by the Federal Reserve, for example, then the effective tax rates on the wealthy are about one-third (1/3rd) those paid by the working classes. As will be explained in further detail later, it turns out that effective tax rates are more important than statutory tax rates or marginal tax rates and even the underlying methods of calculating an effective tax rate have been manipulated to deceive working taxpayers.

      Yet, the progressivity of the income tax is the issue of tax policy that you see most often discussed on television. Of course, the wealthy as a class are indeed most concerned about the progressivity of income taxation because that is the tax which they predominantly pay. Yet, that hyper focus on income taxation is an illustration of a type of trick or, in some cases, may represent even a bona fide mistake, such as where the television tax commentator may fail to realize that employment or property taxes, as examples, are onerous to persons that do not have high incomes by which to pay these sorts of taxes. In any case, the Social Security Trust Fund cash so accumulated by the toil and sweat of generations of past workers has now been depleted, which will lead eventually to a governmental cash flow crisis as current workers cannot realistically