Wednesday, July 11, 2007

Triple Taxation 03-03-16

Government should address triple taxation
Birmingham News

President Bush and his Cabinet have been on the road promoting his new economic stimulus package and the looming war on Iraq, for which no money has been allocated. The deficits are soaring again, and Bush wants to cut taxes for the wealthy a tax cut that even Federal Reserve Bank Chairman Alan Greenspan finds ill-advised.

"It is unfair to tax money twice," Bush said as he presented his economic stimulus proposal in his State of the Union message. "There is a principle involved. The government ought to be content with taxing revenue streams or profits one time, not twice."

His rationale is that corporations pay taxes on their net profits. Part of that is distributed among the shareholders as dividends; therefore, the shareholders should not be taxed again on that income. It is logical, and if it is a matter of principle, Bush should also be against another form of double taxation the Social Security tax.

It is a more regressive form of double taxation and, in some cases, triple taxation. It affects every working American, from all tax brackets. Meanwhile, taxes on dividends are paid by only about one-fourth of all tax filers, and most of them have small investments; the lion's share of benefits goes to the people in the highest tax brackets.

The Social Security tax is deducted from our paychecks by a government mandate to eventually help us through our retirement years. It is a good program. But we never volunteered for it.
The tax rate has increased from 1.5 percent on the first $3,000 of earnings in 1950 to 6.2 percent on the first $87,000 of earnings in 2003. Employers also pay an equal amount on our behalf and the government's behest, effectively bringing the total pay-out to 12.4 percent.

Triple taxation:

The federal government imposes this tax on us, out of the goodness of its heart.
However, we pay income tax on the amount already deducted for Social Security. This is taxation on a tax already paid.

But that is not all: Millions of retirees pay income tax again from 50 percent to a maximum of 85 percent on their Social Security benefit if their income plus half of Social Security exceeds $25,000 a year for a single person and $32,000 for a married couple. This is triple taxation.
Plus, the base taxable income is not inflation adjusted. Therefore, with inflation pushing up incomes, the number of retirees paying the triple tax will rise each year.

The difference between the double taxation of dividends and the triple taxation of Social Security is enormous for an average citizen. Most people do not own stocks. Of the one-fourth of the tax filers who do own stocks, most have them in their 401K plans, which won't benefit from the dividend tax relief because it is deferred income.

In addition, even most of the people who own stocks that pay dividends won't see much savings because they own only a few hundred shares. For example, Microsoft declared a dividend of 16 cents a share. If you own 100 shares of Microsoft stock, you'd get $16 enough to buy a cheap meal for a family of four.

Bill Gates, however, who owns 612 million shares, gets $97.92 million. Of course, he gets more because he owns more stocks. The bottom line is that about 6 percent of the taxpayers will get more than two-thirds of the benefit of the $147 billion windfall.
Here's something else to consider: The full 6.2 percent Social Security tax is paid only on incomes up to $87,000 a year. Income above that is not subject to this tax. Thus, as a percentage of income, the tax decreases as the income rises. On a million-dollar income, it is effectively one-half of 1 percent.

Thus, if the tax on the tax paid for Social Security is exempted, an average family earning $75,000 a year would save about $700. And the rich and the poor would benefit equally.

Cost of business:

In the case of dividends, two different entities pay taxes on the same income. It is a cost of doing business in a peaceful, civil society that the government provides for the business to flourish. Tax on dividends is a tax on a commodity, in this case money, as bankers, brokers and the government view it, use it and get rich in the process.

Conversely, the Social Security tax and the tax on that tax are paid by the same individual. The majority of Social Security taxpayers are middle- and lower-income earners. Sweat of their brows makes the economy work and enables the wealthy to have the privilege of paying taxes on dividends. Most people work hard and would love to be wealthy enough to own stocks and to pay taxes on dividends.

The greatest difference is that the corporations and people who control corporations have money to grease the political machines. Members of Congress routinely sneak special provisions into unrelated bills to give special tax breaks to corporations.

Bush and the Republican leadership were impassioned in their arguments against restrictions on large political contributions. They equated large financial contributions to free speech. The rich buy a lot of "free speech;" the average citizens cannot, because they do not have the means.
We agree, Mr. President: Double taxation is wrong. But let us start with relief from triple taxation.

Mirza A. Beg is a geologist who lives in Tuscaloosa. His e-mail address is

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