Nobody likes paying taxes. I
prepare my own returns with pen, paper and calculator, mainly so I can
understand exactly how my tax burden is determined. Like many people, I wish
the tax code were simpler.
The complications result from
hundreds of individual Congressional decisions. Depending on whether you have
other income, Social Security benefits could be tax free or up to 85% of them
could be taxed. If you itemize deductions, you can deduct medical expenses that
are more than 10% of your gross income, unless you are a senior, in which case
anything over 7.5%. You can deduct business costs incurred as an employee that
are more than 2% of your income.
Some parts of the tax code
are so complicated that the IRS recommends not doing it yourself. If you have
earned income from which payroll taxes were not deducted, the total amount
withheld for federal taxes might be much less than what you owe. In that case
you have to pay a penalty determined by form 2210, about which the instructions
say, “Because Form 2210 is complicated, you can leave line 79 blank and the IRS
will figure the penalty and send you a bill.”
It’s hard to see the forest
for the trees in our tax system. We can miss the big issues, because the
details are so convoluted. Why are we allowed to deduct fewer medical expenses
than employee business expenses? If your income is $50,000, you can only deduct
medical expenses more than $5000, but employee expenses over $1000 are
deductible. That’s a benefit for high-spending professionals who can deduct
travel expenses, while poorer families might face crushing medical bills with
no tax break.
One feature of the forest
that we often miss is the presence of other taxes. Illinois has a flat income
tax of 3.75% and a state sales tax of 6.25%. Even the website Investopedia
considers the sales tax regressive, meaning it “takes a larger percentage from
low-income people than from high-income people”.
Nearly all the discussion in
Illinois is about the income tax. Across the nation, and in Illinois, income
taxes are the only tax that is not regressive. The proportion of their incomes
that poor people pay in sales taxes across the country is an amazing eight
times more than the proportion paid by the top 1%.
A non-partisan study of each
state’s tax system finds this: “Combining all state and local income, property,
sales and excise taxes that Americans pay, the nationwide average effective
state and local tax rates by income group are 10.9 percent for the poorest 20
percent of individuals and families, 9.4 percent for the middle 20 percent and
5.4 percent for the top 1 percent.” That is, at the state level, total taxes
fall heaviest on the poorest people.
Illinois has the fifth most
regressive state tax system in the nation. We have the third highest effective
tax rate on the poorest fifth of the population, 13.2%. Illinois taxes its
poorest residents nearly 3 times as much as its richest 1%.
Republicans have made taxes
into enemy #1 of Americans. But the policies they propose mainly help the
wealthy. They always attack the income tax, the most progressive tax. They mock
the work of the IRS and keep cutting its budget for enforcement, which means
less ability to catch wealthy tax cheats. And they try to substitute sales
taxes for income taxes.
The tax proposals of Ted Cruz
show what conservative
tax reform means. He would shift the burden of taxes onto the shoulders of
the poor. No more corporate taxes at all. No estate taxes, a boon for the rich
passing their wealth to the next generation. No more progressive federal income
tax, instead a flat rate of 10%. The wealthy would gain enormously from that
provision. And a new 16% sales tax, the most regressive of all taxes.
Overall tax revenue would
decline, what Republicans always point to first about their tax plans. That
decline, however would come from cutting
the yearly burden of the richest taxpayers about $2 million EACH. Middle
income taxpayers would get an average cut of about $1800, and over the long
run, the poorest 20% would see an INCREASE in their total taxes.
Bruce Rauner won election as
Governor of Illinois by demanding that the recent tax hike from 3% to 5% be
rolled back. But he doesn’t really believe that Illinois can live with our new
lower rate of 3.75%. He admits the need to raise the Illinois income tax again.
He just won’t agree to a tax hike unless it is paired with anti-union labor
reforms he wants. In his budget
speech in February, he said that: “Let’s work together to enact a
bipartisan, balanced budget with a mix of reforms, cost reductions and
revenue.”
It turns out that even Rauner
recognizes that taxes are necessary. The budget impasse in Illinois has mainly
hurt the poor, by reducing their social services, by cutting MAP grants which
help poor kids go to college, by threatening the existence of Chicago State
University, whose students are the least advantaged.
Nobody is proposing reducing
the burden on the poor. In that way, the Illinois tax system and the larger
federal system are bipartisan and tilted toward the rich.
Steve Hochstadt
Jacksonville IL
Published in the Jacksonville
Journal-Courier, May 3, 2016
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