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50% of Americans Don't Pay Income Tax

 by Thomas F. McMasters           Written during 2010 bid for Congress

The problem with the tax code is it is too convoluted.  About 8 or 10 years ago the political leaders realized that the way Social Security, Medicare and county sales taxes were applied made it so people that work in low to medium wage jobs paid a larger percent of their wages in taxes then most of the people making large amounts of money. This is because the Social Security tax ends at $106,800, you don't pay Medicare of Social Security taxes on dividends or capital gains.  I proposed years ago that we should change the way we apply Social Security and Medicare taxes.  That is - I do not think Social Security / Medicare contributions should start until the person or family earns more than the poverty level.  

Beyond fixing the disparity where the working poor were paying more overall taxes than the super rich, waiting to charge SS and Medicare taxes until after clearing the poverty level, also helps address another high interest political issue.  Making this change will help reduce the economic advantage of paying workers "under the table".  Eliminating the practice of paying off the books will reduce the demand for illegal employees and it will help level the playing field for start-up companies that play by the rules.  

True to form the political leaders of the last 10 years did not adopt my suggestion instead they decided to play with the income tax code.  Adjustment in the income tax code included tax credits for kids and the earned income credit.  With these adjustments the political leaders have managed to equal out the percent of total taxes paid by the low and high income class.  The problem is the formula for figuring this out is convoluted.  It works out that the working class pays little income tax but pays 16% in Social Security / Medicare and another 8% on most of the money they spend.  The high income workers pay Social Security taxes but the tax is only charged on a small portion of the money they make so the percent of their income going to SS is low compared to their total income.  Those with large incomes end up paying higher income tax rates at the top end of their paycheck but get big tax discounts on capital gains income.  

Though the objective was sound and the Congressional leaders over the last couple years successfully leveled out the percent of total tax paid by both the rich and poor they did it in such a convoluted way the media could spin it to make it look like the rich are oppressed.  Worse yet there was a better way to correct the percent paid by the low income people so they weren't being taxed at a greater percent than those at the top end of the income ladder.  This better way would provide a significant benefit to the country.

I didn't accept campaign contributions when I was running and I'm not yet (as of Oct 2010) taking subscriptions to the magazine.  I do appreciate feedback and seeing that people are reading my articles inspires me to write more often.  So if you believe I offer insight into the issues and propose better methods than those that have had the opportunity to lead over the last 10 or 18 years please pass my name and website to your friends and neighbors and send me a note of encouragement.

Thanks

Tom McMasters