I’ve always promised myself that I wouldn’t write about politics on this site, or any other. Politics is a lot like chasing your tail – no matter which direction you go, or which politician or party you support, the end result is unlikely to change much. It’s the story of a largely comatose culture that’s bent more on protecting what it has then forging a better path to the future. But the Donald Trump phenomenon has me coming out of my political shell, forcing me to defend a personality that I don’t necessarily even like myself, if only in the interest of fairness. The much documented tax day protest offers proof America is delusional, even on a gut issue like taxes.
And that’s what bothers me.
It’s bad enough that the political class are a classic example of the blind leading the blind. But when millions of Americans work so diligently to reinforce the blindness – that’s what keeps me awake at night.
The Tax Day Protest – It Sounds as American as Apple Pie
“Tax day protest”; doesn’t it just invoke thoughts of the Boston Tea Party, the Proposition 13 movement against high property taxes in California in the late 1970s, and other popular public protests against high and unfair taxes?
The right to assemble to make our concerns known to the powers that be is an integral part of the democratic process. In fact, it would be hard to imagine democracy having any real place in our society if we didn’t have that right. After all, the voting booth doesn’t always work when it comes to ushering in needed change, particularly when it comes to specific but broad issues, like taxation.
But nothing so noble occupied the minds of this past weekend’s protesters.
What the “Tax Protesters” Want
So what exactly is it that the tax protesters want? Lower taxes? Lower tax rates? A more equitable tax scheme? Tax simplification?
No to all of it. No, what the tax protesters want – and what they consider to be integral to US tax policy – is for our newly elected president to release his tax returns for public scrutiny.
Now I don’t want to dismiss this as an irrelevant concern. The nation’s leaders should be held accountable, particularly in regard to how they handle their income taxes. And there’s no doubt that Donald Trump very likely has a more complicated tax situation than the average citizen, and one that could raise more than a few questions.
And that seems to be the primary objective. I’ve already written that the Trump opposition has dedicated themselves to removing him from office and little else. That’s the real story with these tax protests.
The protests were apparently initiated by a group called TaxMarch.org. According to the website, the purpose of the protest was to “demand President Trump’s tax returns and a fairer tax system”.
That all sounds fair enough, particularly the part about a “fairer tax system”. But if you follow the news reports on Saturday’s events, the protests focused exclusively on Trump’s tax returns. It doesn’t appear that tax fairness – or any other reasonable demand – was part of the agenda.
There was something else that speaks volumes. According to a New York Times article, at least some of the people who attended the tax march protest were also present at the women’s march after Inauguration Day in January.
So there you have it. Tens of thousands of people, maybe hundreds of thousands, have dedicated their existence and free time to the removal of Donald Trump from the White House.
At another time and place we might rightfully refer to such a group of rabble as a lynch mob.
What the Tax Protesters SHOULD be Calling For – IF the Country Were Sane
If we look at the concept of a tax protest in the broadest sense, it should focus on issues related to the tax code that represent an impediment to the largest number of people, and may also be strangling the economy. And it’s actually a long list at that.
We can start with high marginal tax rates. The top federal income tax rate is 39.6%. While that’s lower than the highest tax rates that prevailed before the Reagan tax cuts in 1981, it still approaches confiscatory levels.
When combined with high state income tax rates, we’re looking at a marginal tax rate approaching 50% in high tax states. We can talk about tax-the-rich all we want, but the reality is that rates that high hurt investment and business formation. That results in less money and fewer jobs for everyone.
Then there’s also the matter of the 35% corporate income tax rate. While that may seem fair on the surface, it’s important to realize that the US is competing with other countries for international business. Many of those countries have far lower corporate tax rates. This has a lot to do with why so many companies are moving their businesses offshore, to more attractive tax havens.
But apart from high marginal tax rates, we should also look at the inequity inherent in the tax code. While the top federal tax rate is 39.6%, there’s also the FICA tax – and that’s as high as 15.3% if you’re self-employed. Since this is a flat tax, it’s also a regressive tax. It’s even possible that a person making $75,000 per year is paying more in FICA tax as a percentage of income, than someone making $500,000. What’s fair about that? Yet it never gets discussed.
Then there’s the complexity issue. The tax rates we’ve discussed so far are only the basic ones. There are also other tax complexities, including the alternative minimum tax, the phaseout of personal itemized deductions, depreciation allowances, limited investment loss allowances and a host of tax credits and surcharges that have rendered even relatively simple income tax returns in desperate need of a computerized tax preparation service.
It seems to me – in my simpleminded thinking – that these tax issues are a whole lot more important than Donald Trump’s income tax returns.
Why Taxes Don’t Really Matter to the Left
I know that the issues listed above matter to me, as well as to millions of other Americans. But why do they not – and never – seem to matter to the Left?
There are several reasons:
The government dole. It’s now estimated that nearly 50% of Americans receive some form of government benefits. With half the population on the receiving end of tax revenues, there’s little concern among the group for the tax burdens born by those who pay them. Translation: there’s more political capital in sucking up to the takers than to the payers.
The tax code includes generous tax breaks. Chief among them are the home mortgage interest/real estate tax deduction, and tax-deferred retirement plans. Many people will ignore high tax rates, so long as they have the benefit of generous deductions that keep them from ever reaching those tax rates.
Let’s consider a household that earns $250,000 per year, which makes you well placed in the top 5% of household incomes nationally. On the surface, you would assume that a family with such a high level of income would want to see some sort of tax relief. But that’s not the way the tax code works.
Let’s say that this family lives in a $750,000 house, that secures a $500,000 mortgage. They pay $20,000 per year in interest on the loan, and $15,000 per year in property taxes. That means that they get a $35,000 tax deduction for mortgage interest and property taxes. Right there, their taxable income drops to $215,000.
There are a number of IRS approved tax-sheltered retirement plans that enable you to defer up to 20% of your income per year (up to $54,000 per year in total), which means that a couple earning $250,000 per year could shelter $50,000 of it from taxes. Combining the two major deductions – home expenses and retirement savings – this couple’s taxable income drops to $165,000.
With personal exemptions and various other permissible tax deductions, this couple is able to further reduce their taxable income by another $30,000. That means that out of a taxable income that started at $250,000, only $135,000 is subject to federal income tax.
That gives this couple a marginal tax rate of just 25%. But because the tax brackets are tiered, the couple will pay only about $25,200 in total federal income taxes. That represents roughly 10% of their combined income of $250,000. If that describes your household, what’s not to like about that kind of tax system?
Tax-sheltered returns on tax-favored investments. Not only are the contributions to retirement plans tax-deferred, but so are the investments earned in the accounts. If you have $300,000 in your employer-sponsored 401(k) plan and it earns 7% for the year, you will have $21,000 in tax-deferred income.
The same is true with your primary residence. Not only are the mortgage interest payments and real estate taxes deductible from your income, but the profits on the sale of your home are generally also tax-free – which is even better than tax-deferred. The IRS allows couples to reap a gain of up to $500,000 on the sale of the primary residence without having any tax liability on said gain.
This naturally benefits high income households more. If you’re a working-class family, and you purchase a house for $150,000, it might be worth $300,000 in 20 years. That would entitle you to a tax-free profit of $150,000.
But if you’re a high income household, and you purchase a house for $500,000, it might be worth $1 million in 20 years. You’ll have a gain on sale of $500,000, that will be completely tax-free.
What we have is a tax code that favors higher income and wealthier taxpayers. Yes, all taxpayers get some form of relief, but higher income produces higher benefits. Higher income also means that a larger amount of your income can be dedicated to wealth generating assets, such as a home and a retirement plan.
These generous deductions and provisions largely neutralize the opposition to high tax rates that we would normally expect from wealthy and high income earning households. And we haven’t even talked about the generous tax breaks that are available to corporations and the very wealthy, who are often able to reduce or completely dodge taxes either by moving assets offshore or into trust accounts.
Why the Tax Day Protest Offers Proof America is Delusional
What this all means collectively is that any opposition to either the complexity or the severity of the tax code is seriously muted. In the meantime, the Left are able to play the class warfare card, to keep both government spending and tax collection at levels that are sucking the life out of the general economy and weakening the job market year-by-year.
Unlike the 1970s and 1980s, there is no longer a large and vocal constituency that opposes this trend, and insists on a move toward a more reasonable, rational and balanced tax code. Naturally, the solidly left leaning mainstream media do their bit to help their buddies in the protest marches. They, like the protesters, keep the attention focused on Donald Trump’s tax returns – as if the substance of the tax code is a complete nonissue.
Moral of the story: never rely on the mainstream media to provide a narrative of what’s really going on in this country and in the world. It’s beyond either their ability or their agenda, and which it is really doesn’t matter. The tax code is a wreck, but all that matters is Donald Trump’s tax returns. If that isn’t proof America is delusional, then I don’t know what is.
Where Do We Go From Here?
As I’ve written in the past, I don’t know where it is we go from here. Certainly it isn’t anyplace rational. The people who complain about the things that really don’t matter are the ones who gain the national audience. The people who might speak up about the issues that really do matter are too busy working, paying their bills, paying their taxes, taking care of their families and tending to their own business. They don’t have time to take a day or a weekend or a week and spend it marching in contrived protests against imaginary ills.
For whatever reason, the Left and the mainstream media have always controlled America’s national agenda, at least superficially. This is why both were so surprised when Donald Trump won the election at all. They were so certain that they had it all nailed down in advance, that the outcome was virtually a given. But when enough of the population went the other direction, they went into panic mode, as if sensing that they’re losing control.
My guess is that this will be the trend going forward. That being the case, for those of us who refuse to participate in circus acts, who would rather focus on what really matters in life, the best course of action may be to simply bide our time, and stay true to our beliefs. The circus act frantically shifts from contrived issues to imaginary ones, but if we can stand our ground perhaps we can restore the vast center that once made this country great.
Please feel free to share your thoughts.