Tuesday, June 26, 2007

"Thou shalt not covet.." or graduate thy neighbor's taxes

Not everyone may have excelled in story problems in fifth-grade math, but these should be pretty easy.
A Catholic, a Jew, and a Muslim are sitting next to each other at Tony's Sports Bar and Grill and each orders a $2.50 Bud Lite. Which one should the bartender charge $4.18 for the beer?

A heterosexual, a homosexual, and a transvestite order identical, $14 pizzas at Como's. Which one's bill should be $23.38 (not including tip)?

A 55-year old married man and a 25-year old single woman are on opposite sides of the island at Citgo on the corner of Nine Mile and Central roads. Both pump 10 gallons of $3.09 regular unleaded. Which one should pay $39.55?
The correct answer to all of them is, "None of the above." Why? To treat one person differently than another simply because of their religion, sexual preference or identity, age, or marital status would be discriminatory. Charging someone more for something simply because they're different is discriminatory. It penalizes them for being who or what they are.

Let's try one more.
An average Bloomfield Hills tax payer making $185,000/year and the average Ferndale tax payer making $45,000/year both file their 2007 state income tax returns in April, 2008. Which one should pay a 67% higher rate on their income?
Is your answer still, "None of the above?"

Both the Detroit Free Press and Detroit News are reporting polls that show growing support to amend Michigan's constitution to allow taxing some residents at higher rates than others. For politicians, a graduated income tax's purpose is to save them from making hard budget decisions by increasing the amount of money they have to spend. It's a proverbial win-win for politicians because they can solve their budget crisis and pander to the majority of voters who don't count themselves among "the rich."

But why would citizens be in favor it?

In the movie, The Silence of the Lambs, FBI agent-in-training Clarice Starling (played by Jodie Foster) is trying to profile a serial killer called Buffalo Bill with the help of famed psychologist and serial killer, Hannibal Lecter (played by Anthony Hopkins):
Hannibal Lecter: First principles, Clarice. Simplicity. Read Marcus Aurelius. Of each particular thing ask: what is it in itself? What is its nature? What does he do, this man you seek?
Clarice Starling: He kills women...
Hannibal Lecter: No. That is incidental. What is the first and principal thing he does? What needs does he serve by killing?
Clarice Starling: Anger, um, social acceptance, and, huh, sexual frustrations, sir...
Hannibal Lecter: No! He covets. That is his nature. And how do we begin to covet, Clarice? Do we seek out things to covet? Make an effort to answer now.
Clarice Starling: No. We just...
Hannibal Lecter: No. We begin by coveting what we see every day. Don't you feel eyes moving over your body, Clarice? And don't your eyes seek out the things you want?
It wasn't until recently I finally appreciated the difference between jealousy, envy, and coveting. The difference isn't as subtle as I had once thought.

Jealousy is how you treat, guard or hoard something that belongs to you--or that you think belongs to you. Jealous men are described that way because of their reactions to the attention wives or girl friends may attract. Jealous companies may lavish on their employees and simultaneously not allow them to attend seminars or join professional organizations for fear of losing them. Jealousy can hurt the thing your jealous of by suffocating it.

Envy is wishing you had something someone else has. You may be envious of a friend's talents or a neighbor's large-screen television or weed-free lawn. You may be envious of a co-worker's promotion or office and wish they were your own. Envy might motivate you to learn more, save more, or work harder so you may have what others have. But envy can become harmful to yourself when you go into debt to keep up with the Joneses or jeopardize your career with demands or ultimatums of your employer.

Coveting starts out as envy, but instead of using it as a motivation to do more ourselves it becomes a reason to take from others. Coveting makes us vandalize others' property instead of improving our own, sabotage others' careers instead of developing our own, seduce another's spouse rather than romancing our own, or become complicit-in or advocate raising others' taxes disproportionately higher than our own.

What are graduated income taxes?

Graduated taxes are designed to take a greater percentage of taxes from "the rich" than they are "the poor" or "the working class." The premise being "the rich" can afford to pay a greater percentage of their income than those that are not "the rich." A simple formula might be that every return less than $100,000/year in gross income would be taxed at the current 3.9%, income up to $200,000 at 6%, and perhaps those over $200,000 at 7%. The tax is called graduated because it gradually increases as gross income increases.

Of course it misses the point that "the rich," by their inclusion in that nebulously-defined stereotype, already pay more than the rest of us who fancy themselves excluded from that club. A tax return with an adjusted gross income (AGI) of $200,000 at a flat rate of 3.9% pays $7800 in state income taxes. That's four times as much as a tax return showing $50,000 AGI paying $1950.

Notice that I said "tax return" and not "tax payer." The difference is important.

According to a breakdown of Michigan's 2004 income tax, tax returns for couples filing jointly made up 41% of Michigan returns, but paid 74% of all income taxe. "The rich" aren't "the rich" because of their individual incomes. As far as their tax returns are concerned (which is all that matters because that's where graduated taxes will be assessed) "the rich's" tax returns will be penalized with graduated taxes because it combines two incomes. To borrow again from Michigan's 2004 Income Tax summary:
Married taxpayers filing jointly reported 69.8 percent of AGI and paid 73.9 percent of the Michigan income tax. Married couples tend to be older and earn higher wages, due to greater accumulated human capital. Human capital includes formal education plus skills acquired through work experience and on-the-job training. Couples also have an additional potential worker.
Some quick math tells us the average combined income of couples filing jointly was $91,544 and filing as a single was $27,800. If we applied the same graduation to Michigan's income tax as the IRS does our federal returns would indicate joint filers will pay a 28% higher tax rate than single filers, and the average Bloomfield hills tax return would be taxed at a 67% higher rate than those from Ferndale.

So, under at least one graduated income tax model (the IRS') people who are older and earn higher wages due to more formal education, work experience and on-the-job training will be rewarded with income tax rates over one and two-thirds times higher than younger people with less education, experience, and training.

If tax policy is supposed to encourage good behaviors and discourage bad ones, or to incent that which furthers a healthy society and dis-incent those that do not, exactly what goals do graduated income taxes promote?

I scream, you scream, we all scream for...

The funny thing about "the rich" is nearly everyone wants to be a member of this supposed by-invitation-only club. If we spent as much time going to school, working harder, saving money, investing money, taking risks, and reading trade magazines to improve our family's lot as we do watching TV, arriving late, leaving early, extending breaks, buying what we can't afford, and reading The National Inquirer or The New York Times, we might discover membership to "the rich" isn't by invitation--it's by ambition.

When we outwardly despise that which we want to become--or are afraid of becoming--we exhibit something the psychology profession calls reaction formation: avoiding a strong desire by taking a strong, opposite position. We'll gleefully increase their taxes and cry foul at their rebates but regularly buy lotto tickets. Many people desire greater income but despise those that have already achieved it (or appear to) and so proceed to persecute them, thinking "the rich" not as people who have worked for their rewards but as the beneficiaries of undeserved good fortune.

That sounds a lot like coveting to me, and discrimination isn't any better. Think about that the next time someone tries promoting graduated taxes. Ask them if they favor graduated taxes because they're bigoted, in denial, or because they covet.


  1. The trick with "progressive" taxation is to increase the flat rate a year before the time comes to vote on changing to a "graduated" methology. Then Michigan can promise a smaller tax burden than the current recently increased income tax for a majority of voters, as they would fall into a range that would be at a percentage slightly below the previously increased years rate.

    The real trick then is to not index the income table limits to inflation, that way each and every year larger numbers of individuals fall into higher brackets as their income increases along with inflation, and the tables remain stationary. This is the sweet spot for government...many taxpayers don't understand or care, and the income keeps growing year over year until it becomes so high that the government becomes completely reliant on such increased taxation that it isn't able to shut it down, "as promised". Such is the way of AMT, along with other "short term" tax increases of the past that became permanent with very little public outrage.

    Basically if you want to fight the out of control government taxation in a totally legal manner on your own terms, the way do so is to wake up and realize that if one lives below their means, saves 25-50% of their income for 10-15 years, pays off all debts, and invests wisely...there is no need for full time employement beyond 15-20 hard years at the grind. Thus instead of being a typical wage slave and following the instant gratifaction herd mentality of knee jerk purchases to make one short term happy, live below your means instead and work part time when you feel like it. I myself am self employed and have no desire to make above a certain limit each year...as free time is worth much more to me than being stuck inside a cube farm for the three months of Michigan summer, during the majority of my physically and mentally healthy lifetime. For me to pay 15.3% SS/Med, 28-33% Fed, and now 6-7% MI plus expenses....nada going to happen, as giving the government over 50% of my paycheck isn't worth driving the latest style automobile each year (and having to wash it every week), or eating out every night at some highly overpriced chain restaurant (and becoming obese from lack of proper nutrition). I'll live free instead and work part time when I feel like it! And when the government cranks the tax dial harder again and again and refuses to make significant budget cuts, I'll simply work less...;)

  2. Yours is a great plan and I recommend you stick to it.

    Off-line I was forwarded a story about how to catch wild hogs with free corn. Though there are a couple versions of the same story they all teach an important lesson.

    Thank you for visiting and I hope you come back and read more.