Common Sense Conservatism: Taxes and the Size of Government

How much of your income should the government be able to take? Think about your answer as you read the rest of this post.

The first permanent, broad-based federal income tax went into effect in 1913 and placed a 7% tax on the top 1% of wage-earners in the United States. Within five years it had risen to be a 77% tax on the top 6% of income earners. In 1913, Americans paid between 1% and 7% on income over $20,000. However, in 1918 every American paid the tax, and those making less than $4,000/year paid 6%. Once the door was opened to an income tax, the government abused the privilege. For the record, the top tax bracket reached 94% in the mid-1940s. Imagine having to fork over 94% of your income to the government.

So here we are almost a century later, and the top income tax bracket pays 35% with those earning less than $16,750 pay only 10%. However, with the Earned Income Tax Credit, deductions for children and dependents and the ability to write-off health care costs, real estate taxes, charitable donations and other expenses many Americans earning less than $25,000/year pay no federal income tax. Some Americans who pay no taxes actually receive a refund, meaning the government sends them a check simply for being a low-income earner.

The federal government does need revenue in order to pay for the services it provides, and it certainly doesn’t have the ability to earn money of its own. Therefore, it is up to Americans to cover the costs of these services in the form of taxes. Since it is our hard-earned dollars being used by the federal government, there are obviously disagreements on which services the federal government should provide. Many on the Left believe that the government should be a force for good, and use those dollars to help people whenever possible. Those on the Right believe the Constitution outlines the responsibilities of the federal government, and anything outside of those duties should be handled at the state level or through individual choice.

The position taken by many on the Left isn’t a bad one in theory, but where do you draw the line when it comes to helping people? Does the federal government have an obligation to ensure all Americans have access to food and shelter? The answer is “yes,” as we have Section 8 housing and programs like welfare, food stamps and WIC. But how far should the federal government go in taking care of its people? Should the government be providing homes and cars for those who can’t afford them? How about computers with internet access? This is where opinions begin to divide.

Conservatives tend to believe the U.S. Constitution provides a clear-cut answer on the role of government. When our country was founded, the 13 colonies-turned-states created the federal government to handle matters of national interest. They were clear, however, through the 10th Amendment, that the states reserved the right to handle everything else. Matters of national interest include protecting us from foreign invasion, defending us against foreign threats and maintaining a three-branch government including the Presidency and his cabinet, Congress and the federal court system. Nowhere in the Constitution is the federal government granted the right to meddle in education, the environment, health care, automobiles, and many other areas where their presence is very obvious today. Those issues were historically handled at the state level, until such a time when they weren’t.

So back to my original question: How much of your income should the government be able to take?

The appropriate answer to that question depends on how much the government spends, because the more it spends, the more you’ll have to pay. Now both liberals and conservatives have good points when it comes to the role of government. It would be great for the government to be able to take care of everyone, but we must remember that they are paying for that care with the hard-earned dollars of working Americans. It would also be great if government was small so that all Americans were free from government intervention in their lives, and can keep more of the money they earn. But we must also remember that there are programs that are necessary and they must be paid for with our tax dollars. We must find ways to address legitimate problems without unfairly hurting others in the process.

Just like the federal government abused their ability to tax Americans in the first half of the 20th Century, Americans are noticing a disturbing trend today. In addition to paying federal income taxes, most Americans pay a state income tax. They also pay half of a 2.9% Medicare tax, and they pay into Social Security, which may not be around in a decade. We are not only taxed on our income, but we are also taxed every time we move. We pay taxes on our property, a home that we own. We pay taxes every time we pay our bills for electricity, water, gas, cable, internet, phone and other utilities. If we want to leave our house, we get taxed on our car in the form of registration fees, inspection fees and of course the gas we use for fuel. If we go to the supermarket, we are most likely taxed on prepared foods and most non-edible items. If we go to the liquor store we are taxed on all alcohol, from as little as $1.50 per gallon in Maryland to $26.45 in Washington State. For everything else we buy, there is a state sales tax between 2.9% and 8.25%, depending on where you live. We are taxed every time we turn around and usually on goods and services purchased with money we’ve already paid taxes on. Doesn’t that sound oppressive to you?

Here’s a simple exercise to show you how crazy this all is:

You are a single person living in California. You earn $34,000 per year, or $2,833 per month. The federal government takes 25% for income tax, 1.45% for Medicare and 6.2% for Social Security. The state of California takes 6.25%. Let’s say you spend a generous $100/week on groceries, which are tax-free. The rest will be spent on utilities, gas for the car and other small purchases. These purchases are ALL subject to tax, which is a double tax. The state sales tax is 8.25%, so let’s use that as a basis. You still have to pay one month’s share of your yearly property taxes and motor vehicle registration fees (roughly $275), leaving you with $943, plus your $400 in tax-free groceries.

You earn $2,833 per month, but you actually receive $1,343 in tax-free profit, a whopping 47% of your income. That means your $34,000 per year only amounts to just over $16,000 per year in your pocket, with which to pay bills. It should be noted, that even with tax rates at this level, the federal government is $13 trillion in debt and our example state of California is bankrupt.

How have we arrived at a point in our lives where we only get to keep 47% of the money we earn, and our state and federal governments are in debt? These numbers are disturbing, and it only gets worse the more money you make! If you earned $82,400 you’d pay an additional 8% in taxes, taking home only 39% of your income.

So is it unreasonable for conservatives to feel there needs to be a limit on how much money the government can take in taxes? Can we really keep creating more programs that rely on our tax dollars?

Today, our national debt sits at $13.4 Trillion. That comes out to be $43,173 per citizen – every man, woman and child in America. That figure does not include our unfunded liabilities including Social Security and Medicare, which totals another $110 Trillion ($355,296 per citizen). Good thing that’s not due yet! It also doesn’t include state debt, which is as high as $16,296 per citizen (New York).

The current administration, and the Democrat-controlled Congress, passed a trillion-dollar health care reform bill which doesn’t go into full effect until 2014, a $26 billion bailout to the states, and a failed $878 billion stimulus bill. They still have plans to pass Cap & Trade ($200 billion/year), a bailout for Fannie & Freddie ($148 billion), and a potential second stimulus bill ($50-$80 billion). Citizens Against Government Waste also identified $16.5 billion in pork in 2010 (and $19.6 billion in 2009), from an administration that promised to reform the earmark profess and cut wasteful spending.

So, how much of your income should the government be able to take? Maybe the better question is: How much should the government be able to spend?

Either way, it’s currently too much. And sometimes the “Party of No” is saying the right thing.