The Problem with our Tax System
There is a basic principle that should be the foundation of our tax system: If you have been blessed with much, then you have an obligation to give back more than those who have been blessed with less than you. This principle is common to most faiths and societies. For Christians, that truth is illustrated in Luke 12:48.
From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked. Luke 12:48 NIV
Our current system of taxation is not based on this fundamental principle. Instead of those who have been given much paying a greater tax burden, our system imposes a greater burden (relative to resources) on the poor than on the rich. Here is an example:
Bill Billionaire makes the vast majority of his income from buying and selling stocks, bonds, and other investments that will qualify as a capital gain. The current Capital Gains Tax rate is a maximum of 15%. So his effective tax rate is about 15%.
Let's compare Bill Billionaire's income with William Worker's. William is also single and earns wages of $100.000. He will pay an income tax of $18,964 and $5, 650 in Social Security and Medicare. That is $24,614 in taxes for a total tax of 24% of his earnings.
We depend on small businesses for job creation. So, let's also compare Bill Billionaire's income with Sam Smallbusinessman's, who is single and opened his own business this year and earned a profit of $100,000. Sam will pay two taxes. He will pay Self Employment Tax of $12,283. He will also pay Income Tax of $16,981. That is $29,264 in taxes for a total tax of 29% of his earnings.
As you can see, the middle class worker and American businessman pay the government a much higher percentage of his or her earnings than the wealthy American investor. It should be just the opposite. Our current system is wrong, and it is hurting our economic recovery. We are losing billions of dollars that could be used to balance the budget and reduce our national debt. Our tax system can be repaired by implementing the fundamentally fair and sound principle stated in Luke 12:48. This would be a system where those who have been blessed with great wealth pay a higher aggregate tax rate than poor and middle class Americans. This can be accomplished by making the capital gains rate and dividend rate the same as the income tax rate, which currently does tax the wealthier Americans at a higher rate.
Republican Objections to this Fundament Tax Principle
Mitt Romney paid an effective tax rate of 13.9% on $21.7 million in income in 2010. See Senate Rejects Buffett Rule in my Research tab. He does not want to pay the 24% that William Worker pays or the 29% that Sam Smallbusinessman pays. Neither does Rush Limbaugh, Kenny Marchant, or other rich conservatives. Mitt Romney has stated that those who want to correct this tax inequity are motivated by "envy" of the wealthy. See Obama v Romney-income inequality in my Research tab. Well, I am not neither wealthy nor poor, but I can assure you that I am not motivated by anything other than developing a fair, sound tax policy which will lead to a healthy economy. Warren Buffett and other wealthy Americans do recognize this truth and have stated that they are willing to pay higher taxes. Republican Congresspersons do not support this principle that should be the foundation of our tax system.