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Fight Over Tax Rates Is Meaningless, Really

July 11, 2012 · 0 comments

I get that nobody wants to pay taxes but enough with the “word I dare not say” talk already. You know the one. I’ve made a solemn vow not to use it on my site but here’s a hint: it starts with a “T”, ends with an “N” and rhymes with “Saxmageddon.”

Over the last few days, all I’ve heard in the media is how our taxes are huge and increasing every day. And I have news for you… lean in a little towards your computer. Now, a little more. Really close because I’m going to blow your mind:

THOSE FOLKS ARE LYING.

Whew. I know I feel better.

The top marginal federal income tax rate in 2012 was 35% – the same rate since 2003. That’s practically the lowest rate since 1916 (the exceptions being two 3 year stretches in the 1920s and the 1990s).

State income tax rates in 2012 climbed a bit across the country but none were higher than 11% (thanks to that millionaire’s tax in Hawaii); most settled between 3-5%. And before it even comes out of your mouth: no, practically no one is paying the combined tax rate, really, since most taxpayers at the top rates would be deducting state income taxes paid on their federal income tax returns.

Our top sales tax rates – including average local sales taxes – topped out at just under 9.5%.

And yes, maybe those do feel high. But despite all of the news about individuals fleeing the country to avoid paying tax in the U.S., we still have it pretty good compared to other developed countries. Don’t believe me? Today, Spanish Prime Minister Mariano Rajoy announced a 3% hike in the value-added tax (VAT, kind of like our sales tax) to a whopping 21%. Top marginal income tax rates in the country increased to 52%. That is a high tax rate.

In fact, you know who pays more than we do in federal income taxes?

The UK.
France.
Germany.
Belgium.
Italy.
Norway.
Denmark.
Sweden.
Finland.
Poland.
Australia.
China.
South Africa.
Ireland.

What about sales taxes?

Argentina.
Belgium.
China.
Denmark.
Finland.
Sweden.
Greece.
Morocco.

Shall I go on?

I’m not saying that our tax system is perfect. Goodness knows it’s not. And I’m not saying that our government is making the best use of our tax dollars – you know I don’t think that’s true.

But put away the bomb shelter plans and Aerosmith tunes: the world is not ending in 2013, no matter who lands in office or whether the so-called Bush tax cuts are extended. I can’t take the belly aching anymore.

Our tax system is broken. But it’s not because of tax rates. And a few percentage points here and there won’t destroy our economy any more than it will fix it. Rates are tangible, though, so it’s sexy to talk about “cutting taxes” and using ridiculous – and I mean ridiculous – terms to describe the state of the economy. But what’s more pathetic than the rhetoric is how we, as taxpayers, eat it up.

So today, while Congress is busy planning to vote down President’s Obama’s incomplete, “half a loaf” tax plan – on the same day that Spain is raising its rates to unheard of highs – can we promise each other to talk about our tax system using real rates in real contexts? Can we talk about our tax system like grown-ups? Can we use real words like “simplification” and “consistent” instead of goofy made-up words (fun on Twitter, sure, but not on the Hill)? And maybe, just maybe, our politicians will do the same.

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