My daughter proudly announced the other day that her 15-year old son, my grandson, had his first job at the pet supply store down the street. This step toward adulthood triggered another. Tired after a day’s work, he calculated how much money he’d earned, something less than $100. His mother then reminded him that this was before taxes were taken out. “What?” he exclaimed! “How much would that be?” Well, his mother went on to explain, “You should probably figure a ballpark amount of 26 opercent.” Again, “What?”
Much to my daughter and son-in-law’s credit, they proceeded to explain what taxes are used for: clean water, sewage processing, roads, sidewalks, schools, public health systems, Social Security; etc. Oliver Wendell Holmes put it this way: “Taxes are what we pay for a civilized society.” Will Rogers put it in his own inimitable way: “Income taxes have made more liars out of the American people than golf.”
This little story about my grandson’s first exposure to income and taxes occurred the same day The Times-Gazette published a political cartoon of a little girl sitting behind a table with a pitcher of lemonade, a sign saying $1, and a troubled look on her face, caption saying, “I’ll probably pay more in taxes than the president.”
By further coincidence, the day after these revelations, newspapers reported that the president paid only $750 in 2016 and 2017 and zero taxes in 10 of 15 years. Then, USA Today reported that “the top 1 percent of American taxpayers account for 34 percent of misreported income,” according to a study by the National Tax Journal. It’s hardly breaking news that if you are wealthy and can afford high-priced tax attorneys, there are many legal loopholes for avoiding taxes, especially if you construct S-type corporations for limiting your tax obligations. According to the non-profit Tax Foundation, prescribed taxes on the upper 1 percent are 10.8 percent lower today than they were in the 1950s. All to say, it may be time for tax reform.
Arguably, an underlying problem is that the IRS taxes wages at higher rates than investment income. Over time it’s no surprise that income disparity grows. Wealthy individuals can set money aside for investments and let those investments grow at lower tax rates since capital gains taxes (15 percent to 20 percent) are differentiated from wage or salary income which can currently go a high as 37 percent. Another loophole is evidenced by how the president often avoided taxes by offsetting tax liabilities with large capital losses.
Another underlying cause? Since the year 2000, the inheritance tax exemption has gone from $675,000 to $11,580,000, securing the passage of wealth on to the next privileged generation.
The Pew Research Center reports that since 1980, income inequality in the U.S. has increased by 20 percent. While income inequality fluctuates, a 2018 United Nations report concluded that “the U.S. has the highest level of income inequality among its post-industrialized peers.”
Part of what has stimulated the Black Lives Matter social justice movement is evidenced in another Pew Research report that states, “The difference in median household incomes between white and black Americans has grown from about $23,800 in 1970 to roughly $33,000 in 2018 (as measured in 2018 dollars).”
People in survival mode, trying to keep their heads above water, forced into multiple jobs, food stamps, pantries, transportation problems, limitations on health care with little access to childcare get anxious, sometimes desperate, and not so surprisingly become susceptible to a sense of urgency about participating in protests.
Back to my grandson and Oliver Wendell Holmes. Grandson is a smart kid who has graduated from lemonade stands. I’m not worried about him following the logic of why we pay taxes, as long as they are fair. Former Supreme Court Justice Holmes was both wise and prescient; but, a calm and contented civil society, especially in democratic nations, does expect a fair deal.
History is full of examples of income inequality and despair that devolve into rebellions. We are far from the levels of discontent that existed in China in 1949, or in France in 1789. But to be on the safe side, maybe it’s time to look at tax-economic policies that accelerate wealth divisions in our country.
Bill Sims is a Hillsboro resident, an author, and runs a small farm in Berrysville with his wife. He is a former educator, executive and foundation president.