Big Trouble, Money – and Taking Away Some by Taxation

In the last writing I pointed to the huge and increasing public debt in the USA. In the debate up to the recent decisions in the US Senate and House the question of taxes had played a central role – I had quoted a headline saying The President Surrenders. The focus on taxes continues. And I will draw the line, at the end, also to Cambodia again.

During a televised debate among US presidential candidates of the Republican Party during the past week, a former senator, Rick Santorum, was asked if he would be prepared to negotiate tax increases, for example according to a formula like 3 dollars cut in expenses and 1 dollar in higher taxes – “Is there any ratio of cuts to taxes that you would accept? Three to one? Four to one? Or even 10 to one?” The answer was a clear No. Then the question was asked to all eight candidates present, if they would be prepared to agree to a tax raise of ONE dollar for every TEN dollars in reduced spending. All eight said they would reject any tax increase, even such a relatively small level of raising taxes.

When there is no margin of negotiations left – normally that is how politics work in a democratic society – the hardened situation indicates that there is a fixed ideological position, which cannot easily be made flexible, not by efforts of adjusting to the surrounding circumstances represented by facts and figures. The following is an attempt to show two such contexts of the debate in the USA.

Foodstamps use in the USA

Foodstamps use in the USA

New Report Shows 15% Of Americans Now On Food Stamps

A new report by the United States Department of Agriculture states that 46 million Americans received benefits from the Supplemental Nutrition Assistance Program – We help put healthy food on the table for over 40 million people each month – in May of this year… That’s a record high, not to mention a 12 percent jump from last year at this time and a 34 percent jump from 2009 [8 August 2011].

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The 400 Richest Americans Are Now Richer Than the Bottom 50 Percent Combined

Today, thanks to some quick math by the documentary filmmaker Michael Moore, there’s another way to look at how rich our leaders are compared to the rest of the country: In 2009, if you were to add up the total fortune of America’s richest 400 people, that amount—$1.27 trillion—would be more than the holdings of the bottom 50 percent of Americans, less than $1.22 trillion.

By contrast, in 2007 the bottom 50% of US households owned slightly more wealth than the Forbes 400; the economic meltdown has hurt the bottom more than the top. (And in fact, in 2010 the net worth of the Forbes 400 jumped to $1.37 trillion.)

That top 400, by the way, represents 0.0000035 percent of all households in the United States. [10 March 2011]

The brief media reports about these tax debates present figures – and the arguments against any tax increases are again centered about mathematical formula for the construction of budgets. There is not much debate about why there are taxes, and how they are structured.

The Internet encyclopedia Wikipedia has the following text from which I quote some:

Ethical Basis of Taxation

According to most political philosophies, taxes are justified as they fund activities that are necessary and beneficial to society. Additionally, progressive taxation can be used to reduce economic inequality in a society. According to this view, taxation in modern nation-states benefit the majority of the population and social development. A common presentation of this view, paraphrasing various statements by Oliver Wendell Holmes, Jr. [Associate Justice of the Supreme Court of the USA 1902-1932, “one of the most influential American common law judges,” retired at the age of 90, the oldest Justice in the Supreme Court’s history] is “Taxes are the price of civilization.”

It can also be argued that in a democracy, because the government is the party performing the act of imposing taxes, society as a whole decides how the tax system should be organized… Social democrats generally favor higher levels of taxation to fund public provision of a wide range of services such as universal health care and education, as well as the provision of a range of welfare benefits…

Views Opposed to Taxation

Because payment of tax is compulsory and enforced by the legal system, some political philosophies view taxation as theft (or as a violation of property rights), or tyranny, accusing the government of levying taxes via force and coercive means. Voluntaryists, individualist anarchists, objectivists, anarcho-capitalists, and libertarians see taxation as government aggression (see zero aggression principle). The view that democracy legitimizes taxation is rejected by those who argue that all forms of government, including laws chosen by democratic means, are fundamentally oppressive.

Walter E. Williams, professor of economics at George Mason University [since 1980], stated “Government income redistribution programs produce the same result as theft. In fact, that’s what a thief does; he redistributes income. The difference between government and thievery is mostly a matter of legality.”

After these philosophical considerations about taxation, a comparison of actual tax rates in the USA, in Germany, and in Cambodia, can serve as material for reflection: how we evaluate these different taxation systems – especially the application of progressive tax rates by which the tax increases as the taxable base amount increases. And what we consider to be goals towards which to work.

The following examples relate only to the simple individual tax rates – they can show only some general trends. In the life of a society, the situation is more complex, the way in which businesses are taxed, define the way in which economic policies work out. Nevertheless, to look at the following raw figures is revealing how financial success and public social responsibility in a state are related to each other.

The percentage rate of tax to be paid is increasing in different steps, starting at different amount limits, in different countries:

the steps in the USA are set at 10, 15, 25, 28, 33, and 35 percent
the steps in Germany are set at 14, 24, 42, and 45 percent
the steps in Cambodia are set at 5, 10, 15, and 20 percent

Tax rates

Tax rates

  • According to these table, the highest individual income tax rate in the USA is 35%.
    If someone in business makes about $370,000 per year, they contribute about $130,000 to the public.
    Any higher income will be taxed at the same rate of 35%.
  • According to these table, the highest individual income tax rate in Germany is 45%.
    If someone in business makes about $360,000 per year, they contribute already about $160,000 to the public.
    Any higher income will be taxed at the same rate of 45%.
  • According to these table, the highest individual income tax rate in Cambodia is 20%.
    If someone in business makes about $100,000 per year, they contribute about $20,000 to the public.
    Any higher, even much higher income will be taxed at the same rate of only 20%.

On 10 August 2011, The Cambodia Daily reported that just recently the Phnom Penh city administration started to collect property tax from land owners.

The government has announced it will assess property value based on location, size, materials, age, and style. The tax affects property valued at more than $25,000.00, with several exceptions such as agricultural land, foreign embassies, and state property.

An example given is about a piece of land valued at $79,750.00, for which the owner would have to pay 0.1% per year on 80% of the value, that is the annual tax payment of this land owner would be $38.80, according to information from the Phnom Penh municipality.

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