Will Our Taxes Ever Come Down?

According to Gerald Prante and Scott Hodge of The Tax Foundation, a pro-tax reform group, the average American must work until April 23 each year before he/she makes enough money to pay off their annual tax obligations (federal, state, and local). In other words, every American must work nearly four months before they begin to see any of their own money. Most Americans agree that their tax burden is too heavy, yet rarely challenge their representatives to do anything about it.

April 15 tends to remind taxpayers just how much of their hard-earned money goes to the government each year. While everyone can be frustrated about the situation, an opportunity now exists to join a movement that will change the way taxes are collected and may actually mean less to pay each year.

Part of the movement involves not only a revamp of the tax code, but a push to end deficit spending and cut pork barrel projects. President George W. Bush, like many recent Presidents, has asked Congress to give him the line item veto power, which would allow him to break down a bill and approve or reject individual projects in the bill. Currently, the President can only approve or veto the bill as a whole. This often leads to unscrupulous congressmen to add "riders" to a bill, often unrelated to the bill's original intention, to fund government or local projects that may not survive scrutiny on their own. It is a bipartisan problem, but during the Bush administration, Republicans (while they controlled Congress) tried to pass the line item veto several times, to no avail. A majority of Democrats, and some Republicans, blocked the measure. Now that Democrats control Congress, it is doubtful the line item veto will see a Congressional vote.

Democrats have also opposed renewing President Bush's middle class tax cut, saying it favors the rich. In actuality, a Tax Policy Center analysis states that taxpayers earning between $20,000 and $75,000 earned significant tax cuts, usually in excess of $1000. This is well over half of the population. It is true that those who make more, including those who make more than $1 million, also received a tax cut, but considering the rich pay a much higher rate than most in the middle class, the cut is not substantial and not as advantageous as many would have you believe. Those making more than $1 million a year still pay most of the individual taxes the IRS collects in a year.

Congressman Pete Sessions (R-TX) has introduced a bill and announced his support for several initiatives that he believes will lighten the burden on taxpayers and reduce spending by the government. The bill he has introduced, called the Fair and Simple Tax Act (FAST Act), will simplify the tax code and reduce tax returns to a single page. The tax code will be simplified into three brackets: anyone making less than $40,000 will pay a flat 10% tax rate, 15% for income over $40,000 but less than $150,000, and 30% for income of more than $150,000.

The FAST Act also makes changes to spur investment and help small and growing businesses. It eliminates the gift and estate taxes, which have long plagued mourning families. It makes permanent the Research/Development Tax Credit and Business Expensing, which will spur more innovation and help growing businesses. The act would also index the Alternative Minimum Tax for individuals and businesses to inflation, to keep it equitable. It would also reduce the corporate income tax from 35% to 25%, which should spur job growth. The FAST Act would also reduce the Capital Gains Tax for Individuals from 15% to 10%, and would also index it to inflation. Tax relief acts for small businesses from 2001 and 2003 would also be made permanent.

There are several other initiatives supported by Sessions and other members of Congress which could allow taxpayers to save more money tax-free. Flexible tax-free savings accounts will allow anyone to open new retirement or lifetime savings accounts and save $5000 a year tax-free. Lifetime Skills Accounts would allow workers to save $1000 a year tax-free for future training and education. A new proposed health care deduction would allow those without health insurance a deduction of $7,500 for individuals or $15,000 for families.

As the increase in demand for oil and other natural resources from developing countries like China and India wreak havoc on world markets, the Democratic majority in Congress has chosen to increase taxes and spending, rather than address the core problem or support the FAST Act. In fact, this past March, they approved a federal budget that increased taxes by $683 BILLION over the next five years, the largest such increase in American history. Democratic presidential candidate Barack Obama has proposed similar tax increases if he is elected.

The Democratic Congressional Majority has proposed the Tax Reduction and Reform Act, details of which can be found in H.R. 3970. Rather than reducing taxes as the title suggests, the act raises taxes by $3.5 TRILLION over the next ten years, adds a 4% surtax on some taxpayers' incomes, and eliminates tax cuts we have been given since 2001.

According to Sessions, the 4% surtax would be particularly harmful to small business owners, who create most of the jobs in America's economy. "The way to increase jobs and raise the standard of living in America is to recognize the economic benefits that tax relief holds for individuals, businesses and the U.S. Treasury."

Sources: Congressman Pete Sessions (R-TX), The Tax Foundation, The Tax Policy Center