Tax Codes

Tax Codes

Raise your hand if you love paying taxes!

We can see that no one is raising their hand.

We understand that paying taxes has a lot of negative associations. You work hard and then the total you are given goes down and down. Who wants that? 

We also create additional negativity around taxes by the way we discuss it and the mindset over finding ways to reduce my taxes . . . and make sure someone else pays them instead. Competition mindset.

We also tend to look at taxes in silos. We pay all sorts of taxes, even though State and Federal taxes are the ones we put most of our thought to. We have payroll taxes, corporate taxes, sales taxes, licenses, death taxes, highway tolls and on and on.

Before we get to how the money collected is spent, let’s spend another minute on the codes of who pays what. 

Let’s play with an imaginary over-simplified system, taxation might look like something like a flat tax of 15% on what you make. You make $100 and pay $15 of that into the social good pot. Theoretically, everyone would pay the same amount – 15 dollars.

Even if the tax system worked like that (it doesn’t), for someone making a low wage, the amount of tax is much smaller than someone making a much larger wage, but it affects their ability to survive much more.   As an example,

  • $30,000 a year = $4500 in taxes leaves them with $25,500
  • $120,000 a year = $18,000 in taxes leaves them with $102,000
  • $300,000 a year = $45,000 in taxes leaves them with $255,000

Now, let’s add in just one real world change to this over-simplified system.

Let’s pick the example of adding a sales tax of 10% on everything you purchase. Even though this sales tax applies to everyone, people on the lower end of their income will spend a significantly higher portion of their income on sales tax than those that earn much higher incomes. Over time, this puts lower income people at a disadvantage as they find it harder to save. 

Higher income people are less affected by this tax. The burden of society’s tax collection has been shifted to lower income earners and they can save at a higher rate. This creates a cycle of widening inequality.

For each tax code created or modified, you tinker with who pays more or less towards the needed pot to maintain the social good.

This creates a lot of competition to redo tax codes (and corporate subsidies). 

Most of us don’t have the time to understand all the complexities of these codes and when we do feel that things could be more fair, we don’t get as much attention as those who can afford specialists to lobby on our behalf.

How do use tax codes to reduce inequality?

Let’s start by reframing taxes as contributing to the social good and upkeep of the society we want. 

This should include democratic participation on how the money is spent (see 

Participatory Budgeting topic) and how tax codes and subsidies are legislated.

Understand that even though our economic system is complex, there are ways to use tax codes to move towards equality instead of widening inequality.   Let’s not allow corporations or the ultra-wealthy to use clever tricks to keep from paying a fair share or take advantage of huge subsidies at the general taxpayer’s expense.


How Tax Money is Spent

A common complaint about taxation is how this “social good pot” is used. The bigger a community gets, the wider the gap between those making decisions about government spending and those paying taxes. This is why creating strong local communities where decision-making power is more close to home is so important. (see our sections on Democracy and Local Leadership). 

Lots of local and federal funds go directly and indirectly to corporations through incentives, subsidies and research.

A common complaint about people receiving low income assistance is that they are driven to that because of the low wages or lack of benefits offered by employers.   Is this a form of companies relying on governments to subsidize their workforce?

What about huge tax incentives given to companies or stadiums to move into their neighborhood?   Are those funds recouped or a big loss of tax revenue?

The government also funds much research that is given freely to corporations who may not feel obliged to pay taxes.

Paying attention to how things are taxed and how they are spent is an important way to create more fairness and justice.

Resources

  • Pitchfork Economics Episode with David Dayan and Rana Foroohar
  • KQED Podcast Episode with Gabriel Zucman – America’s Tax System Is a ‘Triumph of Injustice’

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