Tuesday, November 24, 2009

Taxes on Taxes

It's property tax time in California. YAY!!  I looked at my bill very carefully, since, like a lot of folks, I'm watching my pennies these days.  What I noticed was downright shocking. The actual amount owed was 25% greater than the levy that would prevail under Proposition 13, which set a limit of 1% of assessed value.  The bill contained 12 additional "assessments", including one for "mosquito abatement'!

The bulk of the remaining assessments went to the public school systems. Interestingly, in 1984, the California Lottery was ALSO established for the express purpose of funding schools.

To be fair, all of these extra charges were voted for by the appropriate electorate in some form of referendum or special election.  So I'm not alleging "foul play".  I'm as guilty as anyone else. What I AM saying is that this has gotten so out-of-control that voters MUST pay careful attention when they vote on any future referendums. I know it's difficult because these referendums seem to be purposely written vaguely and most people simply lack the time to gain a true understanding.  And then, of course, there are the incessant commercials which are also, for the most part, misleading.

But tax quirks don't stop there.  One is a concept known as "double taxation", which is defined as two layers of tax. One common example is the policy on corporate dividends to shareholders.  Any corporation must pay these from "after-tax" earnings, while the recipient  is ALSO being subject to tax on the income received. By comparison, debt interest is paid out of "before-tax" earnings.  Countless examples of "double",  "triple", or even "mulitiple" taxation exist. 

THE major form of "multiple taxation" occurs with the personal income tax system.  Some people are taxed federally, by their state and even by their city. Typically, the state and city taxes are deductible against the federal. However, the social security tax is not. And, of course there are a host of smaller assessments, such as State Disability Insurance, that get tacked on as well.  Are you starting to think we desperately need tax simplification?

Next we have "surtaxes", which are an extra and ostensibly temporary tax on personal income.  President Johnson employed a "surtax" to help fund the Vietnam War and it was later repealed, well before the war ended. More recently, President Clinton passed a "surtax" on higher incomes only to have them rolled back by President Bush.

Currently, Charles Rangel, Chairman of the House Ways and Means Committee, is seeking a 5.4% surtax on certain taxpayers to fund the new proposed Obamacare. Despite the implication that they are "temporary", history has shown that they are very hard to roll back once enacted. While a fool and his money will be soon parted, the exception to that rule is politicians!

Another form of "double taxation" is the "Windfall Profits Tax".  It's defined as a higher tax imposed when some entity is deemed to be in receipt of a "windfall", such as the oil companies subsequent to sudden and substantial rises in the price of oil.  President Carter enacted one only to have it repealed by President Reagan. Another Federal "Windfall Profits Tax" has been proposed in light of the oil price rise last year and again now as oil prices have rebounded. So far, they have been defeated, but I believe that this potential source of revenue will be too tempting to not ultimately pass. 

Yet, in 2008, the state of Alaska DID impose its own "Windfall Profits Tax" on state oil.  That tax was approved by none other than Sarah Palin!

I'd like to wish everyone a Happy Thanksgiving, especially to those that are really struggling in this economy. We have major challenges ahead and I'll keep plugging away at raising public awareness as long as it takes.  But, no matter what, virtually everyone has something to be grateful for, and I hope that this brief holiday break gives you a chance to reflect on that.

I'll take some time off myself and return to the blog in a few days.  As always, I welcome opinions and comments, pro or con .  If  by some chance you're bored and have liked this essay, there are now a dozen to read in our easy to access archives. 

Marko's Take


  1. Informative as always. Enjoy your break AND your Thanksgiving.

  2. Even in death, this phenomenon of double taxation perists. As executor of my mother's estate I discovered she had a large IRA. When tallying the value of the estate for Estate Tax purposes, we had to count the value of that asset at 100% of it's value at her date of death. When we eventually liquidate the IRA, it will be taxed as ordinary income, and the government will keep roughly 30%. Thus the heirs have paid estate taxes not only on the part of the IRA they will keep, but ALSO ON THE PART THEY'LL FORK OVER TO THE GOVERNMENT. Where's the sense in that?

  3. Thanks Boxer and anon. This topic could literally fill up a book. There are some things to consider. Think about car companies.
    They pay corporate taxes and each of their workers pay the crazy income taxes. Then their suppliers and their employees pay taxes, as do dealers on both a corporate level and employee level. This continues yet further since the suppliers employ various vendor who in turn pay corporate taxes and their employees pay income taxes. Wonder why we aren't competitive?
    I'd be shocked if taxes taken into account, don't double the price of every car!


Take me on!