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Sunday, February 12, 2012

TAXES: Who’s Paying What to Whom?

According to a post by Kevin McCormally, Editorial Director, Kiplinger.com, October 13, 2011:
“The latest numbers from the IRS -- based on 2009 tax returns -- show what it takes to be among the top 1% of income earners: adjusted gross income of $343,927 or more. The 1.4 million Americans with this elite status reported 16.9% of all the country's taxable income.   But that same tiny group also kicked in 37% of all the taxes paid.

“How much do you need to make to be in the top 50% of earners? Just $32,396.
Fall below that level and you are in the bottom half, along with nearly 70 million of your fellow taxpayers. All told, that bottom group earned just 13% of the income reported on 2009 tax returns. And they coughed up 2.25% of all the income taxes paid.

(Note that these figures include only federal income taxes. According to one study, more than half of all wage earners pay more in Social Security and Medicare taxes than they do income tax. The percentage of those paying more payroll tax than income tax soars to nearly 90% if you count both the employer and employee share of those levies.)

For historical perspective, back in 1986, the top 1% of earners reported 11% of all income and paid 26% of the income taxes; the lower-earning 50% made 17% of the income and paid 6% of the nation’s individual income tax bill.”

Want to find out where you fall on this spectrum?  Take a look at the calculator tool developed by Kiplinger.com.  Enter the AGI from your 2009 or 2010 tax return (line 37 if you used the Form 1040, line 21 on Form 1040A or line 4 on the 1040-EZ. Or enter your annual salary; the IRS categories are broad enough that your result will likely be the same) and you’ll instantly know the answer.  How did you make out?  Were you Surprised?  Satisfied? Horrified?  About where you expected?

Where does it all go?
I found another fascinating tool on Wheredidmytaxdollarsgo.com.  You can enter the same information (your AIG from 2009 or 2010 or your gross salary) into a calculator and it will bring up for you a chart that is interactive, allowing you to click on pieces of a pie that will then give a more detailed analysis of where your dollars specifically end up; based, I assume, on percentage distributions of overall tax revenues.  Nonetheless, it provides a telling portrayal of what our tax dollars are supporting.  The chart uses statistics from 2009, as did the previous calculator, because that is what is available from the IRS right now.  I’ve pulled in an example of what you’ll see if you try it.  Go ahead--try it!

image

       For an income of $50,000
Federal Taxes: $4,955
(Filing as Married (Filing Jointly), your adjusted gross income was $38,600 after a standard deduction of $11,400)
Social Security Taxes: $3,100
The first $106,800 of your total income is taxed at 6.20%.
Medicare Taxes: $725
Your total income is taxed at 1.45%. There is no upper limit on your taxable income here.
The employer pays an equal amount ($3,825) of Social Security and Medicare taxes on your behalf
Your Total Taxes were $8,780, an effective tax rate of 17.6% for a SALARIED PERSON
(NOTE: The standard deduction is used here.  Your actual tax liability will vary based on the deductions and exemptions you may qualify for)

Using this example, the contribution to Income Security was around $1,406
(notice this piece of the pie above is pulled out from the rest).  Here’s where some of that money goes in this category:
$336    Unemployment Trust Fund
    3.8% of total

$131    Civil Service Retirement and Disability Fund
    1.5% of total

$128    Supplemental Nutrition Assistance Program
    1.5% of total

$95    Military Retirement Fund
    1.1% of total

$88    Supplemental Security Income Program
    1.0% of total

$34    Tenant Based Rental Assistance
    0.4% of total

$32    Temporary Assistance for Needy Families
    0.4% of total

$31    Child Nutrition Programs
    0.4% of total

Who and what are your tax dollars supporting beyond the usual budgetary process?

An article written in 2010 by Lily Batchelder and Eric Toder for Americanprogress.org gets at the heart of where so much of taxpayer dollars end up.  These particular payments are “under-the-radar” so to speak, as they do not fall under the usual budgetary process of the Congress.  As the article explains:

“When policymakers look to trim fat from the federal government they too often ignore half the problem: the vast and complicated set of spending programs administered by the Internal Revenue Service. These programs are often referred to as tax expenditures, but…  they should be viewed just like any other type of government spending.

’Tax expenditures’ are government spending through the tax code. They are distributed through deductions, exclusions, credits, exemptions, preferential tax rates, and deferrals. What makes them look different from grants or checks is that they are delivered through the tax code as part of tax expenditure spending programs.

In fiscal year 2011 we will spend over $1 trillion on tax expenditures. That’s more than three-fourths of all corporate and individual income tax revenues and more than one-and-a-half times the cost of all federal domestic discretionary spending. If all these programs were repealed we could cut corporate and individual income tax rates by over 40 percent and still collect the same amount of revenue.  (OK, Tea Partiers -- where are you when we really need you to pay attention to tax cuts?)

These programs fly under the radar of media and popular opinion for two reasons. First, almost all IRS-administered spending programs are not subject to the same annual appropriations process as discretionary spending. Just as with big entitlement programs like Social Security, Medicare, and farm subsidies, their costs depend on formulas created by Congress that once set are rarely changed. Spending on them rises automatically with increases in eligible beneficiaries and changes in economic conditions, such as health care costs or interest rates.  Second, IRS-administered spending programs appear to be tax cuts instead of spending because they transfer funds to businesses and individuals through rebates that reduce tax liability. But make no mistake: These programs are the same as spending by other agencies.”
 
If you took your tax dollars and paid corporations directly, instead of through the IRS, you might see your outlay in a different light.  Onenationundermom.com gives an example of a taxpayer owing $2,324  in taxes for 2010 which would be divided between the following companies:
Exxon Mobil: $95
Monsanto: $89
General Electric: $62
Archer Daniels Midlands: $83
Lockheed Martin: $143
DuPont: $139 
and 27 other checks to corporations utilizing the balance

Oil companies pay less in U.S. taxes in part because they receive generous tax subsidies. For example, in 2009, Exxon Mobile paid no taxes and continues to pay at least 10% less than it would in non-US countries.  In other words, Exxon’s U.S. “effective tax rate” is made lower by tax subsidies.  These subsidies will cost the U.S. taxpayers about $3 billion next year in lost revenue and nearly $20 billion over the next five years.

These tax expenditures can amount to a significant portion of federal subsidies for oil and gas. The cost of tax expenditure programs for oil and gas companies made up about 88 percent of total federal subsidies in 2006 (Americanprogress.org).

While we’re at it, let’s mention a few more subsidies or tax expenditures that might not get reported with any great transparency:

--Among the members of the 112th Congress who collect subsidy payments from USDA are six Democrats and 17 Republicans. The disparity between the parties is even greater in terms of dollar amounts: $489,856 went to Democrats, but more than 10 times as much, $5,334,565, to Republicans.  Several new members of Congress who won with tea party support have been less than eager to talk about farm subsidies ever since the news broke last year that they, or their families, personally benefit from those very taxpayer dollars. (www.ewg.org)

--Millionaires in the United States receive about $30 billion annually in government subsidies according to a report released recently by Senator Tom Coburn.
The 37-page report, dubbed 'Subsidies of the Rich and Famous,' details government payments provided to individuals with annual gross incomes of at least $1million.  These subsidies come through unemployment checks, Social Security payments, farm subsidies and numerous tax credits.  (www.dailymail.co.uk)

--The extensive federal welfare system for farm businesses is costly to taxpayers and it creates distortions in the economy. Subsidies induce farmers to overproduce, which pushes down prices and creates political demands for further subsidies. Subsidies inflate land prices in rural America. And the flow of subsidies from Washington hinders farmers from innovating, cutting costs, diversifying their land use, and taking the actions needed to prosper in a competitive global economy.
 
Farm subsidies transfer the earnings of taxpayers to a small group of fairly well-off farm businesses and landowners.  Although policymakers love to discuss the plight of the small farmer, the bulk of federal farm subsidies goes to the largest farms. Since 2000, the USDA has even paid $1.3 billion in farm subsidies to people who own land that is no longer used for farming. (www.downsizinggovernment.org)

--The government paid millions of dollars last year in farm subsidies to wealthy city-dwellers – many of them receiving taxpayer dollars not to farm their rural country estates, according to a new report by the Environmental Working Group.  According to the group, 290 people in New York City received farm subsidies in 2010 and raked in a total of $880,887, 734 "farmers" in Chicago got $2,173,344 in federal subsidies, and 203 people in Miami got $2,472,071 worth. On the West Coast, 179 people in San Francisco were paid $1,094,172.  (ABCnews)

--How would you like to get the Federal Government to invest with you in a hot new business in the global market? For every buck you put up, the government, in the form of something called the Overseas Private Investment Corporation (OPIC), puts up two bucks. Best of all, if the deal goes sour because of a crumbling economy, currency devaluation or some other unforeseen event, you won't have to pay back the government's share.

Sound too good to be true? It is, unless you have $1 million or more to put in the pot. That's most often the minimum investment required for one of these deals. As a result, investors fall into three broad groups: wealthy individuals, institutions such as pension funds, and large corporations like GE and Citicorp.

In the 1990s, the Overseas Private Investment Corporation established 26 funds, which have invested $3.2 billion in businesses in Europe, Asia and Latin America. The U.S. Agency for International Development (AID) has established 11 other funds with 1.4 billion taxpayer dollars.  In the case of AID's so-called enterprise funds, the investment dollars are supplied directly by you, the taxpayer.  (www.cps-news.com)

My point?  Don’t be BAMBOOZLED by all the political rhetoric that says the only way to deal with our deficit is to cut budgetary discretionary spending, and to raise taxes on the rich.  Although necessary to some extent, both remedies are short-sighted and inadequate.  The off-budget expenditure of tax-payer dollars is far more out-of-date, over-blown, unregulated, and costly to your tax-paying wallet.  Let’s get real.  It’s time to look at tax expenditures as we would at all those budgetary expenses and excesses.  Corporate welfare is eating up our tax dollars like nothing else, and makes welfare for the poor look like a pittance in comparison.