The United States of America

Does It Have The Most Inequitable Tax System?

Henry E. Pelt, PE

It is unfortunate and a bit of a joke understood by the rest of the world that most citizens of the United States have no idea how unfair and slanted towards the rich our ta system is. !ust a "uick e am#le before I be$in this #a#er to demonstrate my #oint% &itt 'omney, the Presidential (andidate in )*+), had a re#orted income of nearly half a billion dollars, and his total ta bill, includin$ Social Security, was sli$htly less than twelve #ercent. I,m not #ickin$ on &itt- this was the avera$e #ercent ta #aid by most of the nation,s wealthiest ta #ayers, and also understand that most of these ta #ayers earn even more in off.shore earnin$s which aren,t subject to US /a 0aws and on which no ta es are #aid. 0et1s use as an e am#le an avera$e u##er income workin$.class 2merican who makes a 3+**,*** a year. 4irst off, he will #ay 35,6** in Social Security and his em#loyer or he himself, if he is self.em#loyed, will #ay an additional 35,6** em#loyer Social Security match, meanin$ before he even #ays any Income /a he has been ta ed +67, which is already 87 hi$her than the wealthy citizen,s total ta bill. 2s a sin$le unmarried ta #ayer he will not #ay income ta es on his Personal E em#tion of 38,9** nor on his Standard :eduction 3;,)**, meanin$ for the first 3+*,+** he makes he will only be ta ed the +67 Social Security /a . 2 "uick calculation usin$ a ta calculator shows that he will #ay 3+<,6** on his 3<9,9** ta able income after #ersonal and standard deductions. 2ddin$ the Social Security /a es and the Income /a es our avera$e 2merican will #ay a total of 388,6** or 88.67 of his total income, or almost 8<7 of his total ta able income, over three times the ta es #aid by the nation,s richest ta #ayers. I could sto# ri$ht there and #eo#le would understand how unfair our ta system is, but the "uestion remains% How did we $et in this mess and what can be done to fi it= >ther than short #eriods durin$ and after the ?ar of @orthern 2$$ression Aalso called the (ivil ?arB and the ?ar of +<+), the United States had no income ta es and su##orted itself by ta ation on distilled s#irits, tobacco, im#ort and e #ort tariffs, and ta es on lu ury $oods bou$ht and sold by the wealthy. It was the intent of the foundin$ fathers, even thou$h most were e tremely wealthy, that the wealthy should #ay for the u#kee# and runnin$ of the $overnment, as they were the #rimary beneficiaries Aessays by !efferson, ?ashin$ton, 2dams, and othersB and until the ?ar between the States there was no Income /a . In +<;), to su##ort the invasion of the (onfederate States of 2merica, President 0incoln #ressured the Senate and House to #ass an Income /a 0aw
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of 87 for all #ersons makin$ u# to 3+*,*** and then an increasin$ #ercenta$e for all income over 3+*,***. 2fter the war, in +<5), the income ta was re#ealed, and once a$ain the $overnment su##orted itself on tariffs and ta es on s#irits and lu ury $oods. /he same ty#e of tem#orary income ta was #assed to su##ort the ?ar of +<+). In +<9C, Drover (leveland and the Senate and House instituted an Income /a which led to #rotests a$ainst the $overnment and to court challen$es. In +<96, the United States Su#reme (ourt sided with the #rotestors and found the Income /a 0aw unconstitutional. /he law was re#ealed, and for a nearly twenty years the US reverted to tariffs and lu ury ta es to #ay the $overnment. However, the +;th 2mendment to the (onstitution was #assed and ratified in +9+8 makin$ Income /a es a #ermanent fi ture in the United States. /here have been many challen$es to the +;th 2mendment "uestionin$ whether it was le$ally ratified. &any scholars and historians believe that it was not, but that,s for another discussion. /he first ta es collected under the +;th 2mendment and the laws written to collect ta es were be$un in !anuary +9+6, and ta rates were set e"uitably for all citizens with rates increasin$ from +7 for incomes below 3)*,*** to 57 for income in e cess of 36**,***. Ey +96+, the ta rates had $rown to )*7 on the first 3)*** and risin$ to nearly 9*7 for income over 3)**,***. However, this was the time when many ta breaks and e em#tions were available, and income invested in industry was ta e em#t. /his forced wealthy citizens to invest in United States industry and United States wa$es or #ay e tremely hi$h ta es. /his strate$y a##arently worked e tremely well, as the United States became the most successful country in the world. :urin$ this time there was only one ta schedule, and everyone was treated e"ually. In +96), for the first time, a new ta table was instituted for desi$nated FHeads of HouseholdsG and those so desi$nated #aid less ta es. Since then more and more s#ecial desi$nated ta tables have been instituted for &arried, &arried 4ilin$ Se#arately, Sin$le, etc. /here have been many "uestions raised as to whether these desi$nations are constitutional or not because the US (onstitution says in the 4ourteenth 2mendment all citizens will be treated e"ually. /hese rates and brackets held until +9;C when the ma imum rate was reduced to 557 for income over 3C**,*** and many of the ta investments schemes were eliminated. /he US maintained this structure with only minor chan$es until +9<*. ?ith the election of 'onald 'ea$an in +9<* and a coo#erative House and Senate, the US /a System underwent massive chan$es which led to the ine"ualities that e ist to this very day. 4irst, because e tremely wealthy #eo#le can convert most of their income to what was and is desi$nated as 0on$ /erm (a#ital Dains, the ma imum rate on this
US /a es by H. E. Pelt . )

income was set at +67. /he ta tables were revised to force lower and middle class ta #ayers to #ay much hi$her ta es, and the ma imum for the e tremely wealthy was set at a rate of 6*7. /his shiftin$ of the ta burden continues until today when the ma imum ta rate is now 8<7 but is set at )<7 for income above 3)6,***. /his means that the lower and middle income ta #ayers have ended u# #ayin$ e cessive ta rates, while wealthy #eo#le aren,t #ayin$ much if anythin$. @ow let,s turn our attention to Social Security. /he Social Security System was set u# in +985 and was to serve as a @ational 'etirement Structure for all workin$ citizens. /he ori$inal idea was that the em#loyee and the em#loyer would both contribute to this system, and all funds collected would be set aside to #ay future beneficiaries. @eedless to say, this settin$ aside of the collected funds didn,t last lon$. ?ithin a few years, the Social Security ta es were bein$ treated as $eneral revenue funds, and nothin$ was bein$ set aside for the future #ayment of benefits. 2s ta rates for the wealthy dro##ed and many #eo#le were bein$ #aid e orbitant wa$es, laws were #assed to ca# the amount any citizen would #ay into the Social Security System in a sin$le year. 2t #resent, Social Security is #aid only on the first 3+**,***. /his ca# on the #ayment of Social Security /a es, the lowerin$ of ta rates on the e tremely wealthy, and the loss of revenue from (a#ital Dains are the #rimary reasons the system is in trouble today. Understand this was a "uick and dirty overview of the US /a 0aws and Structure, and you should do more research and readin$ to become totally co$nizant of the history and laws which have led us to the mess with the deficit and lack of ta revenue we are in, but think, if we removed the ca# on (a#ital Dains and treated that income as normal ta able income, reverted back to a sin$le ta table with everyone havin$ to file as an individual, and removed the ca# on the #ayment of Social Security, our collected ta es would nearly double, and the country wouldn,t have any deficit. ?e could be$in re#air of the infrastructure which has fallen a#art over these #ast thirty.#lus years. If the loo#holes for off.shore and other unta ed earnin$s were closed there is no tellin$ how much additional ta revenue that would $enerate. Hou as a citizen of this $reat country are in char$e. Iote for and elect #eo#le who su##ort fair ta ation, elimination of off.shore and other hidden income, and the a##ro#riate maintenance of the infrastructure of our home.

Do Your art! Thin" and #ote$

US /a es by H. E. Pelt . 8