Taxation: Changing the perception

I know the common perception of conservatives or at least the perception that seems to be perpetrated by many of the pundits whose politics fall to the progressive side of the spectrum is that conservatives are greedy lot who want something for nothing-- that we want all of the services provided by our government without having to pay for them. 

Whereas the view from this side of the political spectrum is that money is earned and hard work should be rewarded and not punished by higher taxes.  That is to say, our income is generally EARNED.  It's not given freely.  We have to work for it but before we get that earned income chunks of it get taken out and given to the public sector to pay for these services.  Some may argue the semantics and say that with the current income tax structure the money is merely being "payroll deducted" for the goods and services the government provides much like health insurance, 401k, etc. already are.

We are expected as individuals and families to balance our budgets and be fiscally responsible.  The money we pay in taxes, we expect to be spent responsibly and we expect the services the government provides to be delivered in the most cost-efficient manner possible. 

Our government is supposed to represent us.  We're supposed to elect our best and brightest to represent us in this little representative republic of ours, yet how can we be expected to be fiscally responsible when those who are spending our money lack that same sense of responsibility?

Recently my state increased the income tax by 66% (from 3% to 5%).  The corporate tax was also raised and the state unemployment rate is over 10%.  Let's reiterate, in a struggling economy with high unemployment the tax rate was RAISED.  Now this wouldn't be as bitter a pill to swallow if the state had at least made some attempts to cut spending first.  Unfortunately, the bill to increase the Illinois state income tax increased after midnight on the last day of the previous legislative session. 

In contrast, and normally I'm not a fan of Governor Moonbeam, but Jerry Brown is announcing massive cuts in government spending in California.  He's said that he might still have to raise taxes but he's going to do his best to make up their budget shortfalls by cutting spending so that even if he does have to raise taxes he won't have to raise them as much.  Did Governor Quinn even try to cut anything first?  There were small cuts made, but they were largely symbolic.  While Quinn inherited a bit of a budget mess from Blagojevich (a governor who added a tremendous amount of programs to the government without a means to pay for those programs) his first instinct was not to cut spending but to raise taxes.

I understand there are basic services that are provided by our taxpayer dollars but there are other states that are the same size as Illinois or larger in population that are able to provide those services more efficiently with a considerably smaller chunk of tax income than Illinois does. 

Illinois has one of the most corrupt and nepotistic state governments in the Union which explains the waste and general inefficiency of our government.  And I acknowledge the state needs to pay its bills for services rendered.  That is part of fiscal responsibility.  But if we don't make the necessary cuts-- and many of them will be painful-- it doesn't matter how much our taxes get raised because we'll always be falling short.  Maybe raising taxes will allow the state to pay its bills now but without some necessary cuts, how can we be guaranteed that we won't be perpetually in this situation?  The more taxes get raised the more business unfriendly this state becomes-- the more business unfriendly the state becomes, the fewer people there are paying taxes and thus the taxes will continue to go up for those of us who remain here. 

But lets rewind a bit-- what if we were taxed not on what we earn but on what we spend?  We already are to some extent (via state and local sales taxes). The perception of those tax dollars would likely change as we'd be paying into our government money we were spending, not money we were earning.

When we pay for something, we are giving money in exchange for goods or services rendered.  The money ceases to be ours at the point of exchange.  Thus if we were taxed on consumption rather than income it wouldn't be viewed as the government "taking" our money, the perception would be that we're "giving" our money to the government.  This creates the perception (rightly or wrongly, depending on your POV) that we have some semblance of control over where our money is going. 

Critics of this idea cite the potential for abuse-- the legislation of our behavior by our government via taxation.  The easisest way to control behavior, after all, is through our wallets and bank accounts.  For example, if the government were to raise taxes on foods that are high in sugar it would likely decrease our consumption of those foods (depending on how high the taxes on those goods is).  That being said I can certainly see how this would actually be seen as a positive not a negative in some circles.

I guess it comes down to-- taxes are necessary, but would you rather be taxed on the money you earn or on the money you spend?

The dangers of over-taxation of the wealthy

A friend of mine shared the following tale with me for explaining how taxes work...  I just wanted to share.  I'm not sure where he got it from but I know I'd seen it before he shared it with me... Feel free to dissect, refute, and/or completely tear this apart if you like... I'm actually putting this "out there" because I'd like to generate some discussion:

Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men, "the poorest" would pay nothing; the fifth would pay $1, the sixth would pay $3, the seventh $7, the eighth $12, the ninth $18, and the tenth man  "the richest" would pay $59.

That's what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement ? until one day, the owner threw them a curve (in tax language a tax cut).
"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20." So now dinner for the ten only cost $80.00.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six ? the paying customers? How could they divvy up the $20 windfall so that everyone would get his "fair share?"

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, Then the fifth man and the sixth man would end up being PAID to eat their meal. So the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so the fifth man paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $59. Each of the six was better off than before. And the first four continued to eat for free.

But once outside the restaurant, the men began to compare their savings. "I only got a dollar out of the $20," declared the sixth man who pointed to the tenth. "But he got $7!"

"Yeah, that's right," exclaimed the fifth man, "I only saved a dollar, too . . . It's unfair that he got seven times more than me!".
"That's true!" shouted the seventh man, "why should he get $7 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison, "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up. The next night he didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered, a little late what was very important. They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!

And that, boys and girls, journalists and college instructors, is how the tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore.

Your thoughts?