Taxes in America

Monday, July 25, 2005 at 08:28 AM

Lots of Americans these days consider taxes to be a form of theft by the government.

Grover Norquist, head of the "Americans for Tax Reform" group that constantly pushes for lower taxes (as a way of forcing government out of business) is one.  A member of Congress (Ron Paul, R-Tex) seems to think that the federal income tax is unconstitutional in its entirety.

Not only are taxes not theft, but the U.S. imposes less tax on its citizens than almost any "developed" country.  According to the Revenue Statistics database of the Organization for Economic Co-operation and Development (OECD), the U.S. imposes total taxes equal to 29.6% of GDP.  Figures for selected other countries:

Sweden, 54.2%
Belgium, 45.6%
France, 45.3%
Netherlands, 41.4%
Germany, 37.9%
United Kingdom, 37.4%
Canada, 35.8%
New Zealand 35.1%

You'd have to increase U.S. taxes by 18.6% just to get to the level of New Zealand, while you'd have to come close to doubling them to get to the level of Sweden.  And I'm not sure that these figures reflect the effects of the most recent tax cuts in the U.S.

One question I've always had is, why in the world do we treat "unearned" income from capital gains and the like with such adoration compared with income from the sweat of your brow?  To me, nothing really demonstrates better what capitalism means than to have capital gains taxed far less than an equivalent amount of  income from busting your butt all day.  I'd love to know how the country would fare if we simply exempted annual income up to some threshold from any income taxes, then taxed all income--capital gains, earned, ANY source--at the same flat rate without exclusions and deductions.

How would the tax revenue be affected, for example, if we exempted the first 30,000 of income per person, and EVERYTHING after that was taxed at 25%, or 35%?  For a family with two earners, making 50,000 each, that would exempt 60,000.  They would pay 10,000 if the tax rate was 25%, and 14,000 if the tax rate was 35%.  A person making $1,000,000 would pay $242,500 under a 25% tax,  $339,500 under a 35% tax.

If that system was at all workable, it would deprive the wealthy of their favorite complaint--that progressive taxes single them out for a special burden.