Monday, November 3, 2008

Big day tomorrow,

Tomorrow is election day. A day I would love to just skip at this point but it is inevitable.

Waking up to the news (blessed auto-tune), the topics of conversation were as expected. Almost everything was about taxes and economy. So on this subject, I will ramble.

The colonies separation from England was in part about taxes. A majority of these taxes were applied without representation from the colonies. There were still taxes after the founding of this country, however the laws governing these taxes were created by our founding fathers and WITH representation of the citizens. It was the responsibility of each state to establish what was to be taxed and the collections of the tax. Most of the revenue came from taxes on imports, distilled spirits (alcohol), tobacco, sugar, carriages and various legal documents. The most important factor in all of this I take from this Quote [US dept. of Treasury-fact sheet:taxes]

Though social policies sometimes governed the course of tax policy even in the early days of the Republic, the nature of these policies did not extend either to the collection of taxes so as to equalize incomes and wealth, or for the purpose of redistributing income or wealth. As Thomas Jefferson once wrote regarding the "general Welfare" clause:

To take from one, because it is thought his own industry and that of his father has acquired too much, in order to spare to others who (or whose fathers) have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, "to guarantee to everyone a free exercise of his industry and the fruits acquired by it."
Thomas Jefferson did not believe in the "Redistribution of Taxes" because as a successful businessman he knew it did not work.

A Federal property tax or direct tax was started in the 1790s. This was abolished by Thomas Jefferson during his Presidency. The federal government received all its revenue through excise and import duties. It raised these taxes during the 1812 war and lowered them after. This lasted 44 years.

The Civil war is when Income tax began (1861, the Revenue Act). Income taxes were a flat rate. Other items were taxed that were [I am guessing] considered non-essentials such as playing cards, pianos and pool tables. This was changed to a 2 tier system in 1962. Most of these taxes were repealed in 1868 after the war. In late 1890s, there was a push by congress for a federal income tax but it was ruled unconstitutional. In 1913, congress passed the 16th amendment (it was amended in 1916 to omit the word lawful) allowing federal income tax to be collected.

Tax rates were increased several times during WWI and taxes were placed on estates and excess business profits. After the war, taxes were reduced 5 times. The economy boomed in the 20s. "As tax rates and tax collections declined, the economy was strengthened further." In 1929 the market crashed. Tax rates were increased in 1932 and 1936, weakening the economy more.

The Social Security Act - was this the beginning of redistribution?
This Act was passed in 1935 and was to "provided payments known as "unemployment compensation" to workers who lost their jobs. Other sections of the Act gave public aid to the aged, the needy, the handicapped, and to certain minors. These programs were financed by a 2 percent tax, one half of which was subtracted directly from an employee's paycheck and one half collected from employers on the employee's behalf."

Tax increases came again in the 40s before and during WWII. "By the end of the war the nature of the income tax had been fundamentally altered." There was another aspect about the income the government received after the was, the tax payer base increased by ten fold from 4 million in 1939 to 43 million in 1945.

In 1953, the Bureau of Internal Revenue was renamed The Internal Revenue Service (IRS) and became the world larges accounting and collections firm. In 1961, computers were introduced and congress passed a law that required the use of social security numbers on IRS forms.

The tax system used from the 50s through the 70s did not allow for inflation. This led to the Economic Recovery Tax Act of 1981 by the Reagan administration. "The 1981 tax cut actually represented two departures from previous tax policy philosophies, one explicit and intended and the second by implication. The first change was the new focus on marginal tax rates and incentives as the key factors in how the tax system affects economic activity. The second policy departure was the de facto shift away from income taxation and toward taxing consumption." There was also an adjustmet to inflation and this in combination with the large tax cuts caused a small recession in the ecomomy. In 1984 taxes were raised slightly to make up for the problems of the recession. Though there was this initial recession due to the changes made in inflation, the economics of the tax cuts did take hold.

Taxes had gotten very complicated and were causeing problems because of their complexity. "Thus, in his 1984 State of the Union speech President Reagan called for a sweeping reform of the income tax so it would have a broader base and lower rates and would be fairer, simpler, and more consistent with economic efficiency." The Tax Reform Act of 1986 lowered taxes again, reduced the number of tax brackets and increased deductions. However, this act was more neutral in that it lessened tax burdens on individuals and shifted it to businesses with added complexity.

1997, the Tax Payer Relief act allowed for a per child income credit for families. This allowed familes that had negative taxes to collect a credit from the government. The 1993 tax increases pushed the burden of taxes back to middle ground. More tax cuts were introduced in 2001. This new cut played a significant part in supporting the economy that was in a down turn at the time and brought it back up. The Economic Stimulus Bill that prvided extended benifits to unemployed was also passed.

There is one paragraph That I find very interesting in in all of this:
Prior to the enactment of the income tax, most citizens were able to pursue their private economic affairs without the direct knowledge of the government. Individuals earned their wages, businesses earned their profits, and wealth was accumulated and dispensed with little or no interaction with government entities. The income tax fundamentally changed this relationship, giving the government the right and the need to know about all manner of an individual or business' economic life. Congress recognized the inherent invasiveness of the income tax into the taxpayer's personal affairs and so in 1916 it provided citizens with some degree of protection by requiring that information from tax returns be kept confidential.
How do you read this? I read this as the government has the right to invade my privacy over how much money I make and where I get that money from. What else does this give them the right to invade? Was this tax voted on by the people, or just "those that represent us." There is a difference.

How to change our tax system? Fair Tax. You can find information about it at wiki or at the Fair Tax website. This would remove all income tax and place it on consumption through sales tax and woud take the government out of our personal lives. Fair Tax is already a part of many state governments across the country (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others, New Hampshire and Tennessee, tax only dividend and interest income.) Tennesse has property taxes (county?) and taxes on car tags and has a high sales tax of nearly 10%.

The Flat Tax is another possible system to change our current economy however this once again dives into the government knowing what you make and where it comes from.

Now, I have a headache from reading and typing so will take a break from my computer.

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