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Tuesday, June 7, 2011

Equity and Taxes

American's making over 200K a year pay 60% of the total income tax dollars.
This strike many as unfair. Never mind that the difference in tax rates used to be much, much more substantial.

However, there are certain equity issues that have emerged that are causing serious unrest. In the last 40 years, income growth has not kept pace with GDP growth, and has barely kept pace with inflation.

So what's the deal? If the poor aren't getting the money, and the wealthy are being taxed to death, what is going on?
It appears that it's an enforcement issue. (A matter of 'creative accounting', if you will). The really wealthy aren't paying taxes, and so the tax rate has to go up for everyone else to make the difference. The higher the rate goes, the more incentive there is for people who can afford an accountant to indulge in 'creative accounting'. It's not a new problem. European nations with high tax rates (France, Britain, Italy) are famous  for their tax cheats. Some people owe millions in back taxes.

The solution lies not in more regulation, but in more enforcement. And in measures to make enforcement simpler--a simpler tax code, with fewer deductions and exemptions.