TAX TALK

This new section of my Web site will address one of the two chief dreads of mankind: Taxes.

An Online Conversation

Here is a brief debate among some Facebook members and myself about the fairness or unfairness of our tax system. The names have been changed, and some typing errors have been corrected, but this is otherwise a direct transcript of our conversation.


Keith: The way to eliminate...or better stated, reduce poverty is to create an environment where bussinesses can thrive and be competitive. There are those who are feeble of either mind or body who are unable to care for themselves and should have their lives subsidize so that it can be lead with dignity...but I have no sympathy for those who won't manage there own affairs and expect me to foot the bill. As an american, I haven't a clue as to how this bodes for the Harper government.


Mark: Doesn't affect Harper a bit Keith. This was a provincial election in a small province. I can't believe why so many Americans are opposed to universal healthcare when most Western democracies have it. Do you guys like paying high premiums to gouging insurance companies?


Keith: We are suspicious of government. We think of government as a necessary evil. Premiums are high because the cost is high and the cost is high because we live in a litigious society. The reforms that were ram rodded in Congress were writte...n by lawyers for lawyers...to benefit them and not us. What is the difference between a "greedy" insurance company getting my money verses the "greedy" government and the bureaucratic fat cats that want to play god? I am not for the status quo..but what was done was not reform. Also why did the Primier of Newfoundland fly to Miami to have heart surgery and pay cash when he could have gotten it for free at home??? Or does he know something that I suspect to be true.


Mark: The procedure he had was not available in Canada. He is a poster boy for anti health care advocates in America. We have a litigation society here too but there would be a revolt if we lost our health care. I have received excellent care in ...our system. How I would have paid for my bypass surgery on my tiny salary I don't know. Soon we will be getting a free prescription drug program. Many come from Maine to take advantage of our much cheaper drugs as it is. Yes taxes are higher but mainly for the wealthy as it should be. There is a 13% Goods and Services Tax on everything but lower income people get a quarterly rebate. I have heard horror stories of Americans losing their homes just because they got sick. Not right! Why can it work in every other country? We have had it since 1965. At the time greedy insurance companies tried to lobby against it but to no avail. The same as they are trying to lobby against government run auto insurance. I am not as skeptical of government as the folks in your country seem to be.


Bill Grogan: All on this thread : please visit my website and give me feedback on my attempts to replace our present tax system with a fair and simple one. It sounds like Canada has some of the characteristics as the one I propose, i.e. sales tax ,with a pre/rebate for low income earners. I propose there should be no tax whatsoever on EARNED income. I'd appreciate comments, positive or negative.


Keith: We have had social security (old age pensions) since FDR (1935) and Medicare since 1965 under Lyndon Johnson. They are both in the red...going broke. Why? Because the government spent the money on other things and not as these monies tha...t all people who work and employers pay was advertised to be allocated to. In short, we have two social programs that the gov't has utterly demonstrated that it cannot manage, why give them a third? What may work fine in a country with 40M people would not necessarily work in a country of 350M. Wealthy people (the people we expect to create jobs and opportunity in this country) pay a higher percentage of their income in taxes than lower earners. In states like New York and California as much as 50% if one includes the corresponding state income taxes. With the pending sunsetting of Bush tax cuts in January these rates could reach 60%. So I ask you, mon ami, at what point does this begin to get to be oppressive? Also how can a businessman create jobs when his money is going to taxes instead of investing in his business?
There are ways to make health care accessible to the great many without doing what was done, and at a cheaper rate to consumers...it was short sighted myopic thinking on the part of those in the far left who want to socialize our country.


Mark: Bill your ideas are innovative. Income tax was introduced in Canada as a "temporary" measure to help pay for the war effort around 1940. It was never repealed. Governments tend to become addicted to new revenue. Lotteries and gaming machine...s exploit gambling addicts to add money to government coffers. Our Goods and Services federal tax of 5% is combined with the 8% provincial sales tax to make a 13% tax on everything except groceries. Restaurant food fast food movies cars clothing are all taxable. It raises much needed funds for our social programs with low income earners getting rebates. In the late 90s and before the recession we had surpluses in the hundreds of billions every year much of which was used to pay down the debt. The last few years we have been in a deficit position but thanks to stimulus spending and job creation we are projected to have a balanced budget again by 2013


Mark: Why is socialism such a dirty word to the right in America? Democratic socialism seems to be equated with oppresive Communism! We may only have a population of 40M but we don't generate the revenue that 350M does.


Bill Grogan: I like parts of both of your (yall's ) positions. Keith - first I have to tell you your numbers are wrong. I don't know if that weakens your argument; I just know the rates you quote are not accurate. I'm willing to investigate to determine... if your argument is still true at the correct rates. The fact that necessary and beneficial govt programs have failed is no reason not to implement another one that seems necessary. It's reason to be very cautious , I agree ; but we must determine why the others failed. For example, SS. Reagan was considered to be a conservative, but he is the one who jeopardized SS by allowing the govt to borrow from SS funds to pay general operating expenses, and then to give SS I.O.U.s for repayment. SS should be a trust fund , to be touched only to pay SS obligations . Congress should be held accountable for excessive spending which created the circumstances to raid SS. I'd like to carry this discussion on further, but I must leave.


Keith: "We hold these truths to be self evident that all men are created equal, that we are ENDOWED BY OUR CREATOR, with certain inalienable rights, that among these are LIFE, LIBERTY and the PURSUIT OF HAPPINESS" Thomas Jefferson, Declaration o...f Independence and 3rd President of the United States.


Mark, we get our rights from God, by whatever name we as individuals choose to honor him, not from man nor his institutions (such as government). The founders of this country operated on a set of principles that government should be limited, especially the central government. The constitution has 18 enumerated powers that the central government can do through acts of congress ranging from taxation, common defense to punishment of acts of piracy and maintenance of "postal roads". The more we allow the government to do things...all in the name of a perceived good, the more it boosts the egos of politicians and bureaucrats to think that they can play god.


Now I have stated before that we as a country should provide support to those who are unable to care for themselves (feeble of body and/or of mind) so that they can lead a life of dignity, but I should not be asked to finance the activities of those who are wreckless and irresponsible.


I am utterly convinced that when I reach retirement age and collect the Social Security I have paid in since 1993, it won't be there and my check will be $0 (the alleged Trust Fund will be depleted 10 or so years before I can retire). So pardon me for feeling that I am being rooked and trust government or politicians as far as I can throw them.


Keith: OK...Taxes: TOP tax rate= 35%, will go to 39% in january. Payroll taxes are 7.35%, if self employed...13% plus state and local income taxes..another 8-10% The cumulative tax rate on the "WEALTHY" with all the taxes...income, payroll (So...cial Security and medicare), state and local income taxes are 50% in the certain states.


Congress raided the social security trust fund long before Reagan came into office...he just kicked the can down the road by the fix he and congress came up with in 1983


Mark: That's unfortunate Keith but Scripture tells us we are our brother's keeper. The Canada Pension Plan has a big surplus so I do not share the fear of it going broke as you do for your social security program. I am sure you have good reasons to distrust government but here in my country I do not share that distrust.


Keith: One more thing: Congress holds the purse strings and not the president...so during Reagan's time he had to deal with Tip O'Neill and the liberal Democrats in congress. Also Mark...the US is not a democracy, but a republic.


Rob: Currently, it is widely accepted that Social Security is funded until 2036 and actual assets were understated by 20%, demonstrating undue conservatism in the choice of the official assumptions.
"That program (social security) has worked like a charm and is regarded with great affection by the public. However, it has been maligned for so long that even President Barack Obama believes it has a problem. He has asserted the need “for a bipartisan solution to ensure the long-term solvency.” This belief has come to be widely held; but it is my belief, formed after much research into the actuarial basis of Social Security, that it is a sly fiction concocted by conservative think tanks starting in the early 1980s, the purpose being to turn the public away from Social Security in order to sell privatization as a replacement." See this article for an expanded explanation.


Mark: And besides the Canada Pension Plan which we pay into all our working years we have the old age security pension which EVERY citizen gets at 65 under an income of 70k. It amounts to 625 dollars a month and a further supplement of 600 a month at 65 for those under about 30k a year income. This is on TOP of the Canada Pension Plan(which you call Social Security) Also there is lots of subsidized housing for seniors where you pay 30% of your income as a fixed rent payment .


Bill Grogan:KEITH -responding to your comments about who raided the SS fund , tax rates , etc. These are my opinions, but I think you'll find they reflect the facts.


Observation and opinion #1 - It was Reagan and nobody else who was responsible for borrowing from the SS fund and giving IOUs as collateral. It was his plan to balance the budget and was carried by a Republican Congress.


Observation and Opinion #2 - When you start blaming our ills on a certain political philosophy ,you lose credibility. Our issues are not liberal vs conservative, Republican vs Democrat or left vs right ; the issues are about right vs wrong. Sometimes the Left is right and sometimes the Right is wrong.


Observation and Opinion #3 - (these are incontrovertible facts ) You have used the wrong numbers (rates ) in making your assertions. My question to you will determine where we go in this discussion. Are you willing to re-assess your position on these issues after you learn the correct impact taxes have on individuals, or is your mind made up regardless of what the facts reveal ?


Continuing #3 or beginning #4 as facts (NO OPINIONS): Here are the results of income tax statistics based upon a review of all income tax returns filed in the U.S. -LATEST YEAR REPORTED 2007



You said the payroll tax rate is 7.35% - the actual rate is 7.65% on earned income (GROSS) up to $106800. Based upon this the actual rates on the aforementioned TPs are:


INTERESTING FACTS (At least I think so ) The tax rates on taxbl income varies thusly:



You quoted State and Local income tax rates as 8-10 %. With only two exceptions in the U.S. the MAXIMUM combined tax rates do not exceed 6%. SECONDLY, to get a total tax rate, you do not add state to federal; you multiply state by federal and subtract that number from the federal rate. If you're a mathemetician you'll understand why.


Therefore the actual total maximum tax rates are as follows:



Observation and Fact #4: Housing tendencies of taxable income levels.


ASSUMING A MORTGAGE INTEREST RATE OF 6% , the federal govt subsidizes the sample TPs in the following amounts:



Keith - these are the correct numbers, rates ,etc. showing the true bite the govts take out of TPs. I offer no opinion if it is too much or to little. I don't know if having the correct info influences your opinions in any way. However you should be able to tell from this info the following:


  1. The real tax bite is much less than you believed and related in your comments.
  2. Our tax system is not really progressive; it takes a higher percentage of total income from those at the lower income levels.
  3. Those at the higher income levels get greater benefits from the tax system , i.e. larger subsidies in housing, etc.
  4. The present system is neither FAIR nor SIMPLE!


I AGREE WITH ALMOST EVERYTHING YOU SAY ABOUT LIMITED GOVT, frugal govt, excessive power of Congress ,etc. WE agree on what the problems are; it appears we just don't agree on the causes and solutions.


Please check my website; I am on a mission to reform our tax code and base it on the only two requirements for a legitimate tax system: FAIR and SIMPLE. Please join me in this endeavor. People tell me it will be impossible to accomplish this task. My reply : I won't if I don't try.

Would like to continue with this discussion, but I won't be able to do many more of these epistles ; aren't you glad ?


William K. Grogan


And remember Grogan's Law:


"The COST of government is directly proportional to the AMOUNT SPENT to obtain an office."

Grogan's Law