letters

A Taxing Response

This letter is in response to the May 25 cover story “Death & Taxes” by David Cay Johnston.

I read David Cay Johnston’s two-page article on taxes and was amazed to see how he could write so much, yet say so little, about how to “fix” the federal government’s budget crisis. I would not dare question the validity of Mr. Johnston’s facts as he has clearly spent a lot of time and research investigating the tax system. At the same time, I would like to comment on some of the details Mr. Johnston seems to have omitted.

The easy question to ask the author is, “So you spoke about the revenue side of the budget, what about the expense side?” No assessment of our federal budget can be complete without also expressing an opinion on how much we spend for our government, and I do mean for our government. I don’t know much about government programs and structures in other countries, but I do know that the complexity and massiveness of our federal government certainly provides ample room for analysis by scholars such as Johnston. Maybe in a future article he can share with us how he would take on our spending habits.

Item 1. Poor Americans do pay taxes.

Agreed. When it comes to sales taxes on what they purchase, taxes on cell phones, gasoline and heating bills, etc., everyone pays that. On the other hand, low-income earners not only don’t pay federal income tax, they actually get money back from the government in the form of the Earned Income Credit. My guess is that at least some of the personal taxes noted above are offset by this federal “rebate.”

More importantly than failing to note this, Mr. Johnston provides no opinion on what to do about this situation. Would he suggest that when we pay our local taxes we also submit our W-2 form so the tax collector can then calculate what our tax should be? Low-income earners pay no tax on their phone bill while high earners pay double? This is not to say that low-income earners have it easy. I find it amazing that the working poor get by when I know how expensive things are today. What I am saying is that this is just the first example of where Mr. Johnston identifies an “unfairness” without providing any details on how to correct that injustice.

Items 2 and 3. Ah, those evil rich guys.

Would someone in Mr. Johnston’s position, for once, specifically identify who he classifies as wealthy? Calling out Warren Buffet, Donald Trump and hedge fund managers is a well-used canard by those looking to provide examples of the unfairness of the current tax code. However, when Washington talks about the wealthy they mention two wage-earner households making $250,000 or more. I do believe Mr. Buffet’s and Mr. Trump’s incomes well exceed that level and, let’s face it, the super-wealthy will always find a way to “hide” their cash.

The real issue is what federal tax level would Mr. Johnston like the $250,000 couple to pay? Would he distinguish between couples living in the Liverpool suburbs from those living in New York City or Los Angeles? As the professor must know, eggs are cheaper in the country, so he must be aware that $250K living in Liverpool ain’t the same as $250K living in the big city. Now, of course, these examples could be endless, but you get my point. This is just one of those many unanswered questions I am still waiting to get clarification on by those who lament how little the wealthy pay. One person’s rich bastard is another person’s middle-class family.

Items 6 and 7. Let’s see how we can simplify the world economy and break corporate decision-making down to a simple calculation about avoiding taxes. Really, Mr. Johnston, corporations are not investing profits because their federal tax rate is too low? Couldn’t some of their resistance on investing in the United States have to do with uncertain federal regulations, bloated federal bureaucracies that will fine or investigate you without warning, world markets that are driving down profit margins and local property taxes that seem uncontrollable? How about investors (the “rich” again) who are looking for a return on their investment? Don’t businesses have to take that into consideration when making spending decisions? And again, Mr. Johnston focuses on the big multinational businesses when our job growth now comes from small business. Oh, I am sorry, that takes us back to items 2 and 3 again. Those $250K earners are the small business owners who I think Mr. Johnston wants to raise taxes on.

Item 9. Other countries do it better. This is my favorite part of Mr. Johnston’s analysis. I will not get in to the health care side of this topic because as everyone knows this issue can be twisted in almost any direction and my head has exploded many times these past few years trying to figure that out. But college tuition is another story. Mr. Johnston is correct when he states that in Germany college tuition is free. It occurred to me that while the tuition is free, they must have some baseline to determine the cost of that education. So I looked at what the tuition is for a master’s degree—students have to pay for tuition above an undergraduate degree in Germany—and the cost for that degree is $6,360 per year. Ask any U.S. parent who has put their kid through college in the last 10 years and they will tell you that tuition in many cases has increased by $6,360 the four years they were in college.

Without a significant change in the cost of college all of the professor’s analysis on this point has little or no value.

In conclusion, let’s go back to this expense/cost issue. Without dealing with the cost of our local, state and federal governments, Mr. Johnston’s article does little to clarify or improve the debate on how to fix our problems. I admire the knowledge and passion that Mr. Johnston brings to the problem he addresses. I am sure he believes wholeheartedly in the position he takes and his opinion should be an important component of the national debate. However, I would ask that he also think as aggressively about specific solutions to the problems he presents and that those solutions are presented in the context of the American system of politics.

Not the German or Chinese or Norwegian form of government, but the U.S. form of government. Lamenting about how we need to be more like other countries fails to acknowledge the great and needed aspects of our own society. Too much is left out of Mr. Johnston’s article and that is a shame. We need new ideas if we are to move forward and what he presented failed in that challenge.

—James Keib Liverpool