Taxes - Not Getting Your Money's Worth

Preparing Dinner in Nepal - Photo by JoAnn Sturman

Scott Sturman
fliesinyoureyes.com

It is unreasonable to expect good governance without a tax code that mirrors this ideal. Theoretically tax revenue pools resources to provide benefits tax payers cannot obtain individually. Now into my fifth decade of paying taxes, it is apparent most of these funds are spent unwisely, and politicians have lost sight of fiscal responsibilities and adherence to the provisions of the Constitution.

Taxation is more than redistribution of money. A social engineering component is inherent in any system which rewards or punishes behavior by establishing arbitrary deductions, credits, and incentives or levying penalties and fines. Powerful interest groups are able to influence law makers to enact rules and regulations that benefit the well connected and their constituents. Senior committee chairman solidify their coveted positions by doling out favors and making deals that are not in the best interests of the country. Economic choices are made based on the tax code rather than efficiencies. Compounding the problem is the prodigious amount of time and expense necessary to compute tax bills. These are strong arguments for scrapping the graduated income tax and establishing either a consumption or flat tax.

However small the portion, everyone should pay federal and state income taxes. As fewer people pay taxes, the tax burden becomes “someone else’s problem,” and there is no impetuous to correct underling problems or demand financial prudence.

One of the most unfair and egregious acts perpetrated on my children’s generation is the manner in which the Security System has been administered. They are expected to pay for the retirement of others, including those who never paid into the system, but unless changes occur there is little chance they will receive similar benefits. These are regressive taxes, where everyone pays the same rate irrespective of income. One can argue the relative merits of a government sponsored retirement system, but the original intent of the social security trust fund was to set aside these savings for future retirement. However, during the Johnson Administration, Congress shamelessly made these monies available to the general fund, where they were no longer safe from free spending politicians.

The next generation cannot expect the political establishment to solve these problems without intensive voter involvement. A politician may go to Washington, D.C. or the state capital with the best interests of the electorate in mind. Yet with rare exception, it is too difficult to maintain ones innocence and integrity. The mantra for the next generation should be term limits, social security taxes spent only on retirement benefits, abolition of the graduated federal and state income tax systems, and the initiation of a flat or consumption tax.

Are Social Programs Like a Bad Marriage?

Ambulance used on Mount Kilimanjaro, Tanzania, to evacuate climbers suffering from acute altitude sickness. It is the prototype transportation device for the Obama National Health Care Plan.

Scott Sturman
fliesinyoureyes.com

Bliss is the honeymoon - a care free time filled with optimism and mutual infatuation. As the romance matures and novelty gives way to routine, the marriage will be confronted by a number of challenges, not the least of which are financial. If the couple fails to save and spends beyond their means, the union is in trouble.

Social Security and the American people exchanged vows in 1935 with promises to live prudently in order to provide retirement benefits for generations to come.

“I love you, sweetheart. I'll take care of you forever. Social Security is voluntary and will cost only 1% of the first $1400 of your yearly income.”

“I love you too, honey, but do you think we can afford it?”

“Trust me. It's not a problem. Our payments will top out in 1949 at 3% based on a maximum $3000 annual income. Next year I'll give you a pamphlet which will promise this is “the most you will ever pay.” (This claim actually was printed in 1936 and sent to the American people!)

Social Security is now the largest government program in the world and the single greatest expenditure in the federal budget. Presently the taxation limit is 6.2% for both employer and employee calculated on a maximum $106,800 annual income. Despite the ever larger appetite for tax revenue, the Chief Actuary for the Social Security Trust Fund in 2008 calculated $13.6 trillion of unfunded obligations. Clearly, this marriage foundered due to unreal expectations, too many credit cards, and way too many dependents.

When it comes to betrothals with social programs, the American people have polygamist tendencies. President Johnson presided over the next ceremony in 1965 as Medicare stood at the altar with a naive bride-to-be. The couple's financial plan was initially modest as they pledged to live modestly and carefully watch expenses. The monthly Part B Medicare payment was set at $3, but by 2009 it soared to $96/month, while wealthier retirees owed between $135 and $308. By this time the 45 year long marriage had plunged so far into debt the only hope was to sell the family farm and move into a commune.

When examining the history of Medicare, it is clear as more benefits were added to the program red ink cascaded over the balance sheet. Patients viewed all aspects of their health care as insured and lost the connection between supply and demand. Politicians, never having demonstrated far sighted financial judgment, eagerly acted like credit card companies sending unsolicited credit applications to teenagers, promising more benefits to increase their chance of reelection.

Obama Care transfers control of the medical industry to those who repeatedly have shown they cannot manage anything very well, but this time things are different. The marriage has a savior – Barrack Obama, the best marriage counselor available. It was reassuring to hear him comfort us a few weeks ago when he stated this massive, convoluted program is actually a “middle of the road solution.” This is good news! Never mind the legacy of the United States Postal Service, Medicare, or Social Security. This is not business as usual. The President promised it will save money, not ration health care, and he will love me in the morning.