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Change tax codes to fix income gap
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You might be penalized with a large late fee and interest payments on the unpaid taxes if you miss the Tax Day deadline, but the United States doles out much harsher penalties due to their archaic tax codes. Wisconsin’s tax code in particular penalizes work and therefore our ability to rebound from recessions. It’s also undermining essential public services by increasing income inequality.
A new report from the Center on Wisconsin Strategy and the Wisconsin Council on Children and Families released last week shows that income inequality has increased drastically in Wisconsin since the late 1980s. The real wages of the bottom 20 percent of the income distribution grew only 7 percent while the top 20 percent saw their wages grow 36 percent.
The income of the top 5 percent of the population grew a shocking 60 percent.
At the same time, as inequality is becoming a larger and larger problem, Wisconsin’s tax code has remained quite regressive, meaning the share of income you pay in taxes goes down as your income goes up. According to the Center on Wisconsin Strategy’s report, in 2002 the richest 1 percent of taxpayers in Wisconsin paid only 8.1 percent of their income in state and local taxes while the poorest 20 percent paid 10.2 percent and the middle quintile paid 11.3 percent. How can we expect any degree of income equality when we make the low and middle income bear a larger burden of funding state services than the rich?
It’s possible the tax code is not responsible for this. After all, globalization is largely responsible for depressing wages for those without a college education and eliminating countless manufacturing jobs, right? But these factors are affecting all states equally, whereas Wisconsin’s equality has been declining at a faster rate. Wisconsin consistently had one of the smallest gaps between rich and poor, but we’ve moved down in the rankings from the fifth to the 11th smallest income gap in two decades.
Some may ask why we should shift our tax code when the rich pay, by far, the largest amount of taxes. While it’s true the low income do pay little or no federal taxes, they are disproportionately affected by payroll, property, excise and sales taxes. The last one is critical because so much of low-income paychecks go to immediate consumption while paychecks for the well-to-do are more likely to be saved and invested.
When analysts, journalists, and policymakers point out the worrying trends in income distribution, they are often accused of “class warfare” or wanting socialistic-enforced equality through redistribution. I’m not advocating that; there will always be class differences in a capitalist society. But extreme income inequality has all sorts of drawbacks beyond the simple fact that some people are bound to be poorer than others.
When incomes become vastly unequal, different classes begin to have completely different concerns and priorities. While the working class is struggling day-to-day to get by and is often unable to afford quality health care and higher education, the very wealthy can devote themselves to eliminating the estate tax so they can pass on their millions to their offspring tax-free. I guess you can never have too many yachts.
This increasing class polarization has tangible negative effects on the have-nots. Public schools, crime and environmental problems increasingly fall off the national radar as the wealthy segregate themselves into walled suburban communities — with artificial lakes and bottled water — and send their children to private schools.
There are solutions available to help even the playing field. Raising the minimum wage is important, but it can only get so high before it starts burdening small businesses. That’s why raising the Earned Income Tax Credit is so essential for offsetting the regressive nature of state taxes and rewarding those who have dependents but are continuing to work. The Homestead Tax Credit, which offsets the property tax burden for the low-income earners, hasn’t been raised since 1991. Raising that credit has the potential to help a lot of low-income student renters here in Madison, because property taxes constitute a chunk of the rent you pay your landlord. Finally, we must not eliminate the estate tax — which only affects the very wealthiest — particularly in a time of massive budget deficits.
As the state and the country enter a recession, some will claim we should focus on economic stimulus above all other priorities. But what’s the use of having lots of economic growth if most people aren’t sharing in it? It’s something to think about while you’re frantically running to file taxes on time.
Ryan Greenfield (rgreenfield@badgerherald.com) is a junior majoring in political science and economics.
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Oh Ryan,
This was such a thoughtful piece. I think you should send a copy into the Times. I am so proud of you. aunty s
I'm working hard here at the UW, and am still on academic probation. I spend every day and every night studying and still can't get ahead in academic life.
I propose a tax on high-GPA students (perhaps those students in journalism and political science) to benefit students in mathematics and science-related fields. That's fair, right? Right???
I think it's time for the bottom 20% to quit being so damn lazy, start working hard, and get rich like the rest of us. I'm sick of all these freeloaders!
"You might be penalized with a large late fee and interest payments on the unpaid taxes if you miss the Tax Day deadline"
When the income tax was first enacted in 1913, on the top 50% paid all the taxes. Over the years, the income tax liability threshold came crashing down through one income bracket after another. Along with that came the interest and penalties. Sound fair? Nope.
"It’s possible the tax code is not responsible for this."
It's possible that a taxpayer taking a 2x4 to your head might actually cause you reconsider that it never did.
"There are solutions available to help even the playing field."
There may be solutions, but politicians on both sides of the fence will resist any attempt to change anything if it'll cost someone else.
Ryan, there is only one option: a federal tax revolt. Pay your federal taxes to your home state instead of the federal government. It would scare the hell out of those fatf***s in Washington and they wouldn't be able to do anything about it. Now federal troops, no prosecution-hell, they wouldn't know where to begin! No elected official, Democrat or Republican, will ever change anything for the little guy. And why not a tax revolt? I mean, the federal deficit is already at $9.5 trillion. Why the should the little guy have to pay that off?
Both parties are equally to blame for the mess. The Democrats are to blame for the very existence of the income tax. They're the ones who wanted to "soak the rich". Then the Republicans came along and created all the loopholes so they could get out of having to pay their fair share of taxes. All that's left is the little guy.
I suppose we could try the FairTax, but Democrats don't like it because it would be admitting that their income tax was really a lousy idea after all. That's why they come up with all these weak argument (i.e. the FairTax would have to be around 30-40%, it would create a swelling black market, it causes acne on your butt cheeks).
So until the morons in the nation's capital get that ultimate bitch-slap, things will remain the same. Don't look to liberals or conservatives to do your thinking for you. They'll only lie.
Time to grow a spine and take back our country from the liberals who pretend to care and the conservatives who never cared at all.
who says the estate tax actually results in net revenue to the state? there are several economists who will disagree with that assumption.
"while paychecks for the well-to-do are more likely to be saved and invested"
Yeah, why would we want that when the Chinese and Arabs stand ready to pour in capital and buy all the assets? Encourage mass consumption at all cost!
No representation without taxation!
It's a struggle between the tax-payers and the tax-eaters.
The sad thing is that many tax-payers don't even realize that the magnitude of the tax burden. You point out the payroll, property, excise and sales taxes, but do you also realize that ANY tax on companies is actually a tax on the customers of those companies?
They say that if you want less of something you should tax it - so we tax income???
"I propose a tax on high-GPA students (perhaps those students in journalism and political science) to benefit students in mathematics and science-related fields. That's fair, right? Right???"
Irony is okay, but only if the metaphor is an appropriate one. One cannot use previous earned GPA to gain further GPA. One cannot earn more than a maximum amount of GPA. One can earn an average GPA and still do well for themselves. One's GPA does not place them in certain, stratified classes for the duration of their life. One's GPA, if important at all, is compared relative to the quality of the university and the difficulty of the major. The marked differences between GPA and wealth are great.
Unfortunately, it seems like you equate money with success, intelligence, effort, or any number of other positive qualities. We all know people with money who are not intelligent or are downright lazy, and we all know people without money who are successful. Maybe your argument would be a little more valid if there was a greater correlation between people having to struggle to get by and people being lazy, good-for-nothing bums, but that's not always the case.
I'm actually on your side though. I hope I get to see the rich continue to hoard their wealth and abuse the lower classes even more. Episodes of "My Sweet 16" and "Keeping up with the Kardashians" make me giddy for a revolution, and if the inequality continues to get worse it'll just become more probable. If only we could bring back the guillotine to see those heads roll.
Tuesday is the deadline for filing federal income taxes. Half of American taxpayers will pay 97 percent of the individual income taxes the government will collect for 2008, according to IRS data. The other half will pay little or nothing, yet receive billions in benefits in the form of cash, subsidies, "free" services and other benefits, and loans. There are indeed "Two Americas," but the two aren't the rich and poor, but taxpayers and tax consumers. It's going to get even tougher for the taxpayers in the near future, thanks to legislation being readied by Democrats who control Congress.
http://www.examiner.com/a-1339123%7ETwo_Americas_on_taxes.html
Maybe if the deadbeats paid up the rest of us would bea bale to pay less?
***
The IRS estimates that 21% of federal individual income taxes go unpaid each year — about $300 billion last year. States lost about $60 billion in such taxes, $6.5 billion in California alone.
http://www.usatoday.com/news/washington/2008-04-13-Taxcover_N.htm
"Wisconsin’s tax code has remained quite regressive, meaning the share of income you pay in taxes goes down as your income goes up. According to the Center on Wisconsin Strategy’s report, in 2002 the richest 1 percent of taxpayers in Wisconsin paid only 8.1 percent of their income in state and local taxes while the poorest 20 percent paid 10.2 percent and the middle quintile paid 11.3 percent."
Not an economics guy at all here. This does not show that the amount you pay in taxes goes down as your income goes up. If you move from the poorest class, you pay 10.2%, but then if you make more money and enter the middle class, you pay 11.3%. Is that not paying a higher percentage as your income goes up?
Screw the IRS...instead of us for once. Either pass the FairTax bill or stop paying federal taxes altogether! What's in going to take for all of you to finally pull your thumbs out of your asses?!
It's the IRS that's making us all pay more. And they do it because no one is stopping them. We workers on the bottom are the path of least resistance. Why go after a bunch of rich tax cheats when you can just twist the little guy's arm and force him to make up the difference? That's what happens no matter who's running the show.
It doesn't take a Democrat or a Republican to straighten out the mess, it takes you and me. They can't stop us. Why do you think they use fear and intimidation so much? It's all they CAN do!
I have an idea: fill out a new W-4, put "EXEMPT" on the bottom line so no more federal withholding gets taken out and pay what you'd owe in federal taxes to your home state. The federal deficit stands at $9.5 trillion right now and it'll only get worse until we stop it. And the only way to stop it is to re-route the money. Dismantle the Federal Reserve System and the IRS. They're just a bunch of rich bankers from the US, Europe, Saudi Arabia, Japan and now China. They're rich because our fearless leaders in DC helped make it possible. And we're the ones who always pay in the end. All of this was set up back in 1913, the year the 16th Amendment was fully ratified, Federal Income Tax Act was passed and the Federal Reserve System was created. And it wasn't all done for our benefit. It was done so that the rich could get rich and stay rich...all on our dime.
Back when the income tax came in it was only richest that had to pay anything.
Unfortunately, rich now means you have a non-goverment job.