Tom Jefferson's Complaint

In America's Declaration of Independence, Thomas Jefferson listed the many complaints against the King of England and the English Parliament. Referring to King George III, Jefferson wrote:

• He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people, and eat out their substance.

Most people recognize "Taxation Without Representation" as one of the complaints. And, there was a quite a list of other complaints which motivated colonists to rid themselves of their government. However, the specific complaint above was "eat out their substance." The British taxes included the Tea Tax, the Sugar and Molasses Tax, and the Stamp Tax, among others. The British chose to tax the basics of life, the "substance" of the colonists. In 1765, ten years before the Declaration of Independence, angry citizens burned the home of the governor of Massachusetts, Thomas Hutchinson for enforcing the Stamp Act. During these years, citizens collared numerous officials and tax collectors and told them to quit, or face tarring, or even death.

The Current Complaint

The current combination of federal, state, and local taxes adds up to the same complaint: The U.S. government tax policy is eating the substance of the American working class. What is your opinion of a tax rate that is the highest for the people making the least money? And, a tax rate that is zero for people making a million dollars per year? And, a tax rate that is zero for any interest and dividend income received? And, the taxpayers themselves, mostly the "Middling People," receive no benefit from the money taken. Would you have the nerve to construct such a system?

This table shows how the annual wage and salary income is taxed at different rates. Here's what you pay for this American income tax that "eats out our substance":

• Earn $ 25,000 per year  -- You pay 6.2%.
• Earn $213,600 per year -- You pay 3.1%.
• Earn $662,200 per year -- You pay 1.0%.

That's the Social Security tax. If you're working for a living, that's what you pay. Your money is not put into an account for you. It is transferred to senior citizens. The point is not to discredit Social Security. The point is to discredit the unfair, regressive way the money is raised as shown in the table above.

The Solution

Ben Franklin often spoke of the Middling People. Today we call them the Middle Class. The average wage or salary of the "middling" guy or gal is about $25,000 per year. The social security tax is just one of many similar taxes that fall the hardest on the first dollars you earn. The sales tax is just about the same, except that a number of states don't use a sales tax. The Medicare tax is also a flat tax where the money is simply transferred from working people to pay for medical expenses of retired people.

The one step that the federal government could take: Exempt the first $25,000 of income from federal taxation. A second step would be to automatically direct the tax savings into accounts owned by the taxpayer. Otherwise, the hope of the Middle People to save money for retirement and to buy health insurance is dashed. Here are two affordable plans:

References:

Declaration of Independence, Thomas Jefferson, July 4, 1776.