The other day, I discussed loaning free money to the government via too much tax withholding. I briefly mentioned the poor and said that while they don’t pay federal income taxes, they most certainly do pay taxes.
First, while I use the term “poor” for the purposes of this writing, a more accurate term would actually be “low income”. The income tax does not tax wealth. It taxes income. But we can make an assumption that at least most people who are really poor, also have a low income.
I hear many so-called conservatives who like to point out that the poor do not pay taxes. This is not correct, when stated like that. Most poor people do not pay any regular income taxes, but they most certainly do pay taxes.
What really amuses me is when I hear supposed conservatives say that everyone should “contribute” something. They want to raise taxes on the lower income people. These people are statists. If the income tax is unfair, it is only because it exists. When Ron Paul is asked about only half of American taxpayers paying any income tax, his response is that we are halfway there. He doesn’t want to raise taxes on anyone; he wants to cut them.
While most poor Americans do not pay any federal income taxes, they do pay many other taxes. There are payroll taxes, which are paid by anyone working “on the books”. There is also the employer portion, which is an indirect tax. There are corporate taxes, which make shareholders poorer, prices higher for consumers (including the poor), and wages lower for workers (including the poor). There are many different sales taxes and excise taxes and fees. There are taxes on gasoline, on hotels, on cars, on phone bills, on water bills, on electric bills, etc. There are car registration fees. There are property taxes, which are paid indirectly by renters through higher prices. The list could go on and on.
Most of these taxes actually fall disproportionately on the poor. If there is a one dollar tax on something or if the price of a loaf of bread goes up a few cents because of a tax, then it hurts the poor person the most, who is already struggling to make it.
The worst “tax” of all is monetary inflation. It creates business cycles, it redistributes wealth (usually from the poor and middle class to those with political connections), it discourages savings and investment, it changes people’s time horizon, and it is all done in a hidden way. Most poor people don’t realize how much they are being screwed by inflation. They don’t understand that prices are going up solely because of monetary inflation.
Again, when the price of milk goes up 25 cents, it is the poor person who is hurt the most. Their income won’t rise because of inflation until later, if they are lucky. They are already paying the higher prices by the time they see any rise in earnings.
Inflation is the worst tax of all. It can ruin a society. America had huge income tax rates in several decades of the early and mid 20th century. The highest rate was over 90% at times. And Americans were supposedly in a Cold War against communism? 90% or more sounds communist enough to me.
Yet, despite the high income tax rates, times were not always too bad. Society can survive this. The 1950’s were a relatively prosperous time, considering the high rates. The key is that monetary inflation was relatively low. In the 1970’s, income tax rates were a bit lower, although still high. But because of the high monetary inflation, it was a tough time, economically speaking.
Today is a tough time because of massive government and massive money creation. It is wreaking havoc on the economy. Monetary inflation is hurting us every day. We need to end the Fed by removing its monopoly on money. That is one sure way to help the poor.