Common Sense Conservatism: Taxes and the Size of Government

How much of your income should the government be able to take? Think about your answer as you read the rest of this post.

The first permanent, broad-based federal income tax went into effect in 1913 and placed a 7% tax on the top 1% of wage-earners in the United States. Within five years it had risen to be a 77% tax on the top 6% of income earners. In 1913, Americans paid between 1% and 7% on income over $20,000. However, in 1918 every American paid the tax, and those making less than $4,000/year paid 6%. Once the door was opened to an income tax, the government abused the privilege. For the record, the top tax bracket reached 94% in the mid-1940s. Imagine having to fork over 94% of your income to the government.

So here we are almost a century later, and the top income tax bracket pays 35% with those earning less than $16,750 pay only 10%. However, with the Earned Income Tax Credit, deductions for children and dependents and the ability to write-off health care costs, real estate taxes, charitable donations and other expenses many Americans earning less than $25,000/year pay no federal income tax. Some Americans who pay no taxes actually receive a refund, meaning the government sends them a check simply for being a low-income earner.

The federal government does need revenue in order to pay for the services it provides, and it certainly doesn’t have the ability to earn money of its own. Therefore, it is up to Americans to cover the costs of these services in the form of taxes. Since it is our hard-earned dollars being used by the federal government, there are obviously disagreements on which services the federal government should provide. Many on the Left believe that the government should be a force for good, and use those dollars to help people whenever possible. Those on the Right believe the Constitution outlines the responsibilities of the federal government, and anything outside of those duties should be handled at the state level or through individual choice.

The position taken by many on the Left isn’t a bad one in theory, but where do you draw the line when it comes to helping people? Does the federal government have an obligation to ensure all Americans have access to food and shelter? The answer is “yes,” as we have Section 8 housing and programs like welfare, food stamps and WIC. But how far should the federal government go in taking care of its people? Should the government be providing homes and cars for those who can’t afford them? How about computers with internet access? This is where opinions begin to divide.

Conservatives tend to believe the U.S. Constitution provides a clear-cut answer on the role of government. When our country was founded, the 13 colonies-turned-states created the federal government to handle matters of national interest. They were clear, however, through the 10th Amendment, that the states reserved the right to handle everything else. Matters of national interest include protecting us from foreign invasion, defending us against foreign threats and maintaining a three-branch government including the Presidency and his cabinet, Congress and the federal court system. Nowhere in the Constitution is the federal government granted the right to meddle in education, the environment, health care, automobiles, and many other areas where their presence is very obvious today. Those issues were historically handled at the state level, until such a time when they weren’t.

So back to my original question: How much of your income should the government be able to take?

The appropriate answer to that question depends on how much the government spends, because the more it spends, the more you’ll have to pay. Now both liberals and conservatives have good points when it comes to the role of government. It would be great for the government to be able to take care of everyone, but we must remember that they are paying for that care with the hard-earned dollars of working Americans. It would also be great if government was small so that all Americans were free from government intervention in their lives, and can keep more of the money they earn. But we must also remember that there are programs that are necessary and they must be paid for with our tax dollars. We must find ways to address legitimate problems without unfairly hurting others in the process.

Just like the federal government abused their ability to tax Americans in the first half of the 20th Century, Americans are noticing a disturbing trend today. In addition to paying federal income taxes, most Americans pay a state income tax. They also pay half of a 2.9% Medicare tax, and they pay into Social Security, which may not be around in a decade. We are not only taxed on our income, but we are also taxed every time we move. We pay taxes on our property, a home that we own. We pay taxes every time we pay our bills for electricity, water, gas, cable, internet, phone and other utilities. If we want to leave our house, we get taxed on our car in the form of registration fees, inspection fees and of course the gas we use for fuel. If we go to the supermarket, we are most likely taxed on prepared foods and most non-edible items. If we go to the liquor store we are taxed on all alcohol, from as little as $1.50 per gallon in Maryland to $26.45 in Washington State. For everything else we buy, there is a state sales tax between 2.9% and 8.25%, depending on where you live. We are taxed every time we turn around and usually on goods and services purchased with money we’ve already paid taxes on. Doesn’t that sound oppressive to you?

Here’s a simple exercise to show you how crazy this all is:

You are a single person living in California. You earn $34,000 per year, or $2,833 per month. The federal government takes 25% for income tax, 1.45% for Medicare and 6.2% for Social Security. The state of California takes 6.25%. Let’s say you spend a generous $100/week on groceries, which are tax-free. The rest will be spent on utilities, gas for the car and other small purchases. These purchases are ALL subject to tax, which is a double tax. The state sales tax is 8.25%, so let’s use that as a basis. You still have to pay one month’s share of your yearly property taxes and motor vehicle registration fees (roughly $275), leaving you with $943, plus your $400 in tax-free groceries.

You earn $2,833 per month, but you actually receive $1,343 in tax-free profit, a whopping 47% of your income. That means your $34,000 per year only amounts to just over $16,000 per year in your pocket, with which to pay bills. It should be noted, that even with tax rates at this level, the federal government is $13 trillion in debt and our example state of California is bankrupt.

How have we arrived at a point in our lives where we only get to keep 47% of the money we earn, and our state and federal governments are in debt? These numbers are disturbing, and it only gets worse the more money you make! If you earned $82,400 you’d pay an additional 8% in taxes, taking home only 39% of your income.

So is it unreasonable for conservatives to feel there needs to be a limit on how much money the government can take in taxes? Can we really keep creating more programs that rely on our tax dollars?

Today, our national debt sits at $13.4 Trillion. That comes out to be $43,173 per citizen – every man, woman and child in America. That figure does not include our unfunded liabilities including Social Security and Medicare, which totals another $110 Trillion ($355,296 per citizen). Good thing that’s not due yet! It also doesn’t include state debt, which is as high as $16,296 per citizen (New York).

The current administration, and the Democrat-controlled Congress, passed a trillion-dollar health care reform bill which doesn’t go into full effect until 2014, a $26 billion bailout to the states, and a failed $878 billion stimulus bill. They still have plans to pass Cap & Trade ($200 billion/year), a bailout for Fannie & Freddie ($148 billion), and a potential second stimulus bill ($50-$80 billion). Citizens Against Government Waste also identified $16.5 billion in pork in 2010 (and $19.6 billion in 2009), from an administration that promised to reform the earmark profess and cut wasteful spending.

So, how much of your income should the government be able to take? Maybe the better question is: How much should the government be able to spend?

Either way, it’s currently too much. And sometimes the “Party of No” is saying the right thing.

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16 thoughts on “Common Sense Conservatism: Taxes and the Size of Government

  1. Regarding the role of government in taking care of its citizens, you know the government has gone too far when the following occurs:

    Getting off the government dole puts a person in a position that is worse than staying on the dole.

    How many people stay on Welfare because of the free health insurance coverage that comes with Welfare? Can you blame them?

    If you are on income based subsidies, the more you earn the less subsidy you receive. So that kills the incentive to earn more money because the extra pay goes to cover lost government subsidies. If you earn an extra $25 per week and lose $25 per week or more in government help then you are no better off.

    Working for a living should never be a negative option vs. staying on the dole. Sadly it is a negative option. When you toss is the overrding post LBJ sense of entitlement people have, then you learn quickly why working the system becomes a career all on its own.

  2. “Does the federal government have an obligation to ensure all Americans have access to food and shelter? The answer is “yes,” as we have Section 8 housing and programs like welfare, food stamps and WIC. ”

    Show me where in the U.S. Constitution it says that? Don’t give the Preamble with its promote the common good part.

  3. I think we would have much more of an uproar about taxes if we didn’t have payroll deductions. If everyone had to write a check once a year for his taxes (preferably right before election day) I can assure you people would be more sensitive to the reality of taxation. I say that if the government wants to provide some services let them, but let them do it in the market, competing with the market and charging for each service. So if I don’t need to use a government service, I won’t be taxed for it. Income taxes are, I think, wrong

  4. I don’t even want to talk about taxes. We just got audited, and of course we had to write the IRS yet another check. In addition to the check we wrote them earlier this year.

    And with the crap that is now being circulated about cutting veteran benefits (not, however, welfare programs), I feel even more angry about writing those checks.

    We give a good percentage of our income to charity, and a large amount of time. And I don’t begrudge that at all. In fact, if I could give the same amount of money we pay in taxes IN ADDITION to the money we already give – all to charity – I’d be happy to write those checks. In fact, if I could send my IRS checks to specific accounts for programs I’m willing to fund, I’d write the checks without needing to hit the heavy bag for an additional hour.

    This is such a sore subject right now. 🙂

  5. All of my life I have been sick about seeing a large portion of my paycheck being taken away when my own family needed that money.

    Who decided that other families who came to the U.S. deserved more of my check that my own family? Who decided that families who didn’t work deserved that money from my work? Why can a woman that I work with tell me that she will let the “government” take care of her children rather than she and the father of those children?

    This is before Obamacare has kicked in and he wants more money that he can triple tax.

    He borrows from us, lends it to us with another tax and interest. Then they add that to your income and tax it again. Triple taxed.

    Where does this end? Now more people are living on government…meaning our tax paid money, than ever.

  6. “I think we would have much more of an uproar about taxes if we didn’t have payroll deductions.”

    That is 100 percent correct. That’s why we have payroll withholding so people “never miss it.” Also, how many people are going to save up what they owe in taxes and hand it over every April 15th? We have a big problem in this country with people who can’t pay what they owe and they have income tax withheld.

  7. Suggesting that the “Party of No” is saying the right thing couldn’t be more wrong. Regardless of whether the president was a Democrat or a Republican, regardless of whether Congress was controlled by Democrats or Republicans, U.S. government spending has been greater than tax revenues for at least forty years.

    Both Republicans and Democrats have their constituencies that want to be bribed with government tax and spending policies. Perhaps the author should ask and attempt to answer another question. What is the proper function of government and how much should it cost?

    The author misunderstands how tax brackets and tax rates figure into how taxes on income is computed. Just because someone is in the 25% tax bracket doesn’t mean that all of their income is taxed at 25%. Only that portion of income that is in the 25% tax bracket is taxed at 25%. The portion of income that is in the 15% tax bracket is taxed at 15% and the portion of income in the 0% tax bracket isn’t taxed at all. There is a page in the Form 1040 instructions on how to compute taxes without using the tax tables. This explains it. Most state income taxes work the same way but with different brackets and rates.

    Any rational discussion of Social Security and Medicare will not include bringing up the notion of unfunded liabilities, particularly when figures of $100 trillion are quoted. That’s nonsense. Social Security and Medicare actuaries tell us that between Social Security and Medicare payroll taxes and the U.S. Treasury securities in the related trust fund accounts, which are part of the national debt quoted in the article, full benefits can be paid into fiscal year 2037. That’s the year the trust fund accounts will be depleted. We must decide what we are going to do about that.

    As of now, Social Security and Medicare benefits are paid wholly out of payroll taxes. There are surpluses which go into the trust fund accounts which are used to buy U.S. Treasury securities. The trust funds are part of the national debt because Congress and the President take the money and spend it.

    Sometime this decade there will be no more surpluses. Sometime this decade some of the money that Congress and the President have been borrowing through those payroll taxes for decades will have to be paid back. Neither Congress nor the President have figured out what to do about that.

    We faced a similar situation back the early 1980s. Then there was a commission chaired by Alan Greenspan that recommended raising payroll taxes and raising the retirement age. The commission’s recommendations were included in a bill approved by Congress and signed into law by President Ronald Reagan in 1983. So much for just say no.

    Back in the early 1980s I thought the system should be privatized. I still do except that now I think the government owes me a bunch of money. The problem with privatization is that we must use the force of law to cause people to adopt conservative behaviors. We have to use the force of law to cause people to save for their retirement and we have to use the force of law to cause the people that are managing those funds to manage them conservatively. The requirement for people to behave conservatively doesn’t stop there.

    Unfortunately, there are many who call themselves conservative who think that using the force of law to cause people to behave conservatively isn’t very conservative. It’s more likely those people are really Libertarians.

  8. “Back in the early 1980s I thought the system should be privatized. I still do except that now I think the government owes me a bunch of money. ”

    Unless you are currently drawing Social Security benefits, the government owes you nothing. Social Security is an insurance system. If you live long enough to qualify for benefits then you get benefits. If you don’t live long enough you get nothing.

    I get a great laugh out of people who think they are owed something by Social Security. They are owed one thing: their monthly benefit if they are collecting it and only that. If you die 10 days after getting your check then it is game over.

    Why people put up with this form of “Insurance” amazes me. As far as insurance policies go, it’s a lousy policy.

  9. John – speaking of Social Security “insurance”, we’ve gone through hell with the government and government benefits system (as well as the legal system, but that’s a whole other story) dealing with my MIL’s descent into dementia over the last several years. The one main lesson I got out of it is that as the Boomers age, we are truly in for hell. The system is NOT set up to handle this; not economically, not legally, and certainly not culturally.

    The entire time we have been dealing with this matter, the most common comment we hear is, “Most families don’t bother with this.” Apparently, it’s every person for themselves, because the government will step in when it comes to elder care. And elder care is EXPENSIVE. My MIL’s in particular, as she needs alzheimer’s care (she has non-alzheimer’s dementia, but it’s treated much the same way).

    Our system can’t handle it. It’s going to be VERY ugly, and medicare/medicaid/Social Security (and certain aspects of the legal system) is going to implode over it. I truly think this, and not in a Doomsday sort of way. I don’t think it will be the end of the world. I think a lot of elderly people are going to end up homeless, abused, or severely mistreated while it works itself out.

    I give it ten years at the most.

  10. AFW:

    Elder care is a time bomb waiting to go off. Social Security and Medicare don’t pay for nusing home care.

    I have a friend who runs a board and care home for elderly people. She does an excellent job taking care of her patients. Most of her patients are suffering from dementia/Alzheimer’s. The rest are very old and the show the physical impact of growing very old. She is a glorified babysitter and I mean that in a good way. Her patients are like adult infants.

    Here is a typical scenario that she dreads.

    The rack cost is $4,000 per month per person. For that you get 3 hots (meals) and a cot (bedroom). But you have to share the room. If you want your own room, tack on another $1,000 per month. That is what she needs to cover her costs and make a profit.

    When a patient runs out of savings then usually the only benefit left is their monthly Social Security check. I don’t think anyone gets $4,000 per month of Social Security. A typical Social Security check is about $1,000 to $1,800 per month. That doesn’t even come close to covering the $4,000 minimum.

    Her first option is to try to persuade the family of the patient to cover the difference. That seldom works. How many families can afford to pony up $2,200 to $3,000 per month? Even if you divide that by four adult children or more that is still serious cash out per month.

    Her next option is to try and place the patient in the only state funded Medicaid nursing home in the county. Is the wait list a mile long? Of course not. It’s 20 miles long. It’s 20 miles long in every county in CA. It doesn’t matter how many state funded nursing homes a county has, they are all full up.

    When that fails, she has to place these people in a downscale board and care home. In her words, “I would not put my dog in most of these homes.” There are deep discount board and care homes with cockroaches and that fresh smell of urine at no additional charge.

    Does she hate doing that to her patients? Hell yes she does. But she has no other option. She either does that or goes bankrupt. She can’t afford to rack someone up for 50 cents on the dollar and expect to keep her business running.

    What’s really sad is when one of her patients runs out of money, they have often lived in her care home for 2-4 years. They think of the place as home. Then they have to move again. Their only “crime” was out living their money.

  11. It is a scary thing to think about the coming trauma (and I believe that’s the right word) to be faced by our growing elderly population. I am not a boomer, but from where I sit I think many boomers are naive about their own prospects in retirement. Many of them will face very dire consequence of their generations collective failure to make corrections in the fiscal outlook of the country, not to mention the consequences for the rest of us. What will happen will be a massive transfer of wealth from the young to the old, as boomers vote themselves benefits that have to be paid for by their children and their children’s children.

  12. theblackcommenter – I don’t see how any Boomer benefit voting could be sustained, honestly. I’m sure it will be tried, and I understand why. But eventually those people who are supposed to support will end up revolting. I don’t mean a violent revolution, obviously. But it just cannot be sustained.

    I think the government security net has given too many people a false sense of safety. Previously, the elderly were the responsibility of the family and I do believe that it will come full circle to that again. There is really no other way. Unfortunately, there are a lot of people out there that are not willing to shoulder their familial responsibilities (yet another nasty side effect from our cultural downsliding), and the road back to that point will be rocky. I feel awful for those who will enter their senior years while we work this out.

  13. There is absolutely nothing that the government currently does in the way of public programs through the government that cannot be done by private economic forces–and with greater efficiency and wealth retention for everyone. The problem is–Republicans long ago “gave up the philosophical ghost” and conceded the Democrat’s premise that it is the government’s job to take care of people; at whose expense? with whose money? Wealth has to be created before it can be distributed. The Republicans argument should be, “No, Leftists–you are wrong. It is not the governments job to take care of people. It is governments job to create the conditions under which free-individuals can work, self-actualize, and lead their own lives. I don’t accept your premise because your premise, Lefties, is the premise which leads to Communism and Fascism. The good is the free individual; the evil is that which destroys the individual–i.e. the collective.”

    You hear the Left defend their collectivism all the time by worthless comparisons to public tax dollars being used for things like roads, police, fire-fighters (some of those are privately funded), etc. Look at the condition most roads are in that are funded through public means–they’re lousy! Can you imagine how much better our roads would be if independent construction contractors had to compete for their road-building jobs with each state and the Federal Government in the case of Federal roads? You would have better maintenance because they wouldn’t want to lose their contracts for the business, you would have better roads because only the best builders would be hired by the citizens to build their roads, and those who did lousy jobs would be let go. Everything state & Federal Government does publicly can be done privately–but, the Republicans, who supposedly are the champions of the individual, conceded defeat to the collectivists because they don’t know how to defend their positions philosophically. They don’t know how to get it across to the public with out making it sound like everyone is going to be “hung out to dry” with no public programs to fall back on.

    Social Security–why does this need to be saved? If our political leaders simply made sure that working individuals were provided, by their companies, with adequate private sector insurance-like savings programs, with a guarantee that if a particular company went out of business or went bankrupt the money could be rolled over into another company–people could save their own money AND get interest to boot! To the best of my knowledge–all the money people contribute to Social Security doesn’t collect interest–I could be wrong–but I don’t think so.

    My mother said to me the other day, “Well, what about those who truly can’t help themselves like the mentally retarded or disabled?” Again–why do those hospitals NEED to be run publicly. Can’t private citizens and agencies advocate for funds from privately held companies and corporations to help with funding for things like that?

    Every time you filter money from the tax-payers through the government–the politicians piss it away–every time. And then we sit around and wonder why the nation is going broke.

    No man can have a claim, by “right,” on another man’s life and work–at least not by force; not in a free-society. Voluntary assistance through private companies and wealth-creators is the only way to keep everyone from falling into the black-hole of collectivist hell. Those who advocate and preach that a government can be “compassionate” don’t understand the nature of human beings and political personalities. Politicians who want to keep their jobs ALWAYS–feel like they need to DO something to get elected. That…is the canary in the coal-mine.

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