Everyone smile now! It’s time to name your favorite tax. For extra credit, you can write essays about why your favorite tax is beloved. (Sorry, you can’t exchange your extra credit for lower taxes.)
My favorite tax is:
- The income tax
- The employment tax
- The estate tax
- The corporate tax
- Any sales tax
- Any tax paid by someone else.
Before you choose, read these taxation CliffsNotes.
- The Income Tax. Both political parties get to claim the income tax is progressive because the rates range from zero percent for low-income workers to 35 percent for high-income workers. But the tax burden is actually pretty flat because most workers also pay the employment tax. But politicians only talk about one tax at a time, much like they avoid walking and chewing gum at the same time. Also, people with higher incomes tend to have income from capital gains and dividends, which just happen to be taxed at rates normally reserved for the hopeless peons who earn less than $100,000 but account for over 90 percent of all earners. Regular changes in the income tax are called “The Accountants and Lawyers Full Employment Act of (Insert Year).”
- The Employment Tax. Our fastest rising and most regressive tax for half a century. If you have a job, you pay the tax even if you live in the trunk of your car. Claiming to keep Social Security and Medicare safe, both parties conspire to keep the cash rolling in by raising the income limit and rate. They use the cash to buy votes, giving the Social Security trust fund IOUs.
- The Estate Tax. Many legislators think this tax is nearly ideal. Dead people seldom vote, unless they are residents of Chicago. Like taxes on rental cars and hotel rooms, it’s a “gotcha” tax. The living don’t pay it because it has been paid by people who are no longer in the area. Unfortunately, people are neither rich enough nor dying fast enough to make this a big productive tax.
- The Corporate Tax. Like the estate tax, legislators favor this one because it seems like someone else--- a big nasty corporation that has the money to buy skyboxes and corporate jets--- is paying the tax. As a practical matter, the corporate income tax is just another way to tax people without the people understanding they are paying the tax. In that respect, the corporate tax functions much like the employment tax, but with greater subtlety. Skeptics should check the annual report of the local utility company and see how much is paid in taxes for each dollar of profit.
- Any Sales Tax. This tax is unpopular with legislators because it is visible, personal, and inescapable. The best way to use it is to tax something sinful like smoking, gambling, or driving a car, while saying that all proceeds will be spent to provide college scholarships for children who don’t cry in restaurants. In other words, make it a Vice-to-Virtue Tax. Those who believe in such taxes have never looked up the word “fungible” in a dictionary or learned that money is, well, fungible.
- Any Tax Paid By Someone Else. There is no formal name for this tax, but it is extremely popular with voters. Voters cheer the passage of a Someone Else Tax. They commend their fearless legislator for courage in the face of intense pressure from the Someone Else lobby.
Our friends in Washington, always a source of innovation, are now working on a new hybrid tax. It combines the best features of the Someone Else Income Tax, a Vice-to-Virtue Sales Tax, and the traditional income tax. Their proposal: Pay for the overhaul of health care by putting an income tax surcharge of 1 to 5.4 percent on households with adjusted gross incomes of at least $280,000.
Since the tax will be paid by only 1.2 percent of all households, it is the Ivory Soap of Someone Else Taxes, something likely to be favored by about 98.8 percent of all voters. It also taxes the vice of high income and promises to transfer the money to the virtue of better health care.
Are these people smart, or what?
It is this kind of unending manipulation that has turned me into an advocate of a national sales tax.
Scott Burns is the retired Chief Investment Officer of AssetBuilder, the creator of Couch Potato investing, and a personal finance columnist with decades of experience.