Thursday, April 21, 2011


Lately, with all the news about our growing national deficit, I have spent some time reading the various deficit reduction plans, critiques of said plans, and articles about taxes in general.

I have read that our corporations pay a far smaller percentage of aggregate collected income tax than they did 20, 30, 40 years ago, but I also read an opinion that these collected taxes are lower because many of these multi-national corporations moved their headquarters off shore to take advantage of the lower corporate taxes of other countries.

I have read that we shouldn't tax millionaires any more than we are currently, because they will simply up and move their companies and/or residences to states where the taxes are lower but then I read about a research study that indicated that very few millionaires, who have the opportunity to move to a neighboring state with lower "top-end" income taxes, actually did move.

I have read that one party's deficit reduction plan will place the next generation of our elderly in the precarious situation of chasing after their own individual health care plan while on a "budget" while the other party's plan will result in the bankruptcy of Medicare which will leave all the elderly without medical coverage. But then I read that one party's tax cut is another party's increase in spending and that either way the budget will never be balanced.

So what is the answer?

As is always the case, the answer lies in a country's priorities. What does it mean that Medicare or Social Security are going to bankrupt America? My understanding is that both these programs have historically collected more money than needed to pay their liabilities. Unfortunately, that excess money was used to balance past federal budgets rather than kept aside for a rainy day (and it appears to be raining pretty hard right now) so we have IOU's in place of actual funds. Yes, those IOU's are in the form of treasury bills, etc which means that one government agency owes another, but the fact is there is a debt and accompanying interest that exists as a result of this accounting ploy. And now, there is the fast approaching time when these programs will begin taking in less money than required to pay the bills so not only will we be paying interest on past debt, we will have to come up with new money to pay future liabilities. So, while using the word bankrupt may be an exaggeration of sorts, the fact is that either cuts to the benefits or new taxes will need to occur to bring both programs back to solvency.

Now, lets take the case of national defense. The United States spends as much money on "defense" as the next 20+ countries in the world, 5 times more than that spent by the 2nd highest. Should that mean that we, as citizens, should then expect to pay more in taxes to support this tremendous outlay of monies? If there were a poll taken today of Americans asking if they were willing to pay substantially more in taxes than the citizens of all other countries in the world to cover defense spending, what would the result be? Clearly, Americans seem unwilling to pay more taxes for better health care and other social services, but I wonder if we would draw the line on national defense. If so, then I guess we have established our national priority; security as a nation over security as individuals. If not, then perhaps we need to have a new discussion about where our tax money is being spent.

Which brings me back to corporations. Are they not willing to shoulder the higher tax rate to keep America safe?

One other question about corporate taxes. Why are corporations allowed to merely establish a corporate headquarters in another country to avoid US taxes? Perhaps I am naive in saying this, but wouldn't it be more fair if corporations paid taxes to the countries coffers where they actually earn their revenue and profit? If I were to research and find the lowest state tax rate in the country and then open a post office box in that state and use it as my "headquarters", could I avoid the state tax of the state where I work? Probably not, yet isn't that what we allow corporations to do?

Finally, I saw an article in a well-respected business magazine which detailed how businesses and individuals could pay no taxes to Uncle Sam. All the suggestions were legal tax deductions, of course. Certainly, I understand that we all need to feel that our tax money is being spent wisely, and so I encourage everyone to research the national budget and see where the money comes from and where it goes. But is it not part of our patriotic duty to pay our taxes? Or, to put it more bluntly, are you not willing to support our troops, pave our roads, build our bridges, educate our children, research the prevention of disease, assist the disadvantaged, etc? Or have we all become so selfish and self-centered that we now only ask "not what we can do for our country" but what our country can do for us?

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