What is Tax? Questions, and opinions.

“Death and taxes” said Benjamin Franklin, but what are taxes, where do they go, and is their imposition on citizens ethically justified?

In terms of quantity, tax is a portion of a person’s income that is extracted through various methods, either directly through an income tax or less directly by means of sales tax. In terms of use, tax is the lifeblood with which all public services subsist. It funds a number of things such as education, infrastructure, and countless other services provided by the Federal Government.

Over the years, these notions of taxes have been blindly accepted by society regardless of the rate or the use. However, what we fail to recognize is the direct impact they have in both domestic and international terms, as well as the means by which they are collected.

In 2015, ACS reported that the average household income was approximately $55,775 per household. This means that according to the current tax brackets, the average household gives up approximately 13% of it’s income to the government, or about $7400. If we multiply that by the number of households in the United States (approximately 124.6 million) we get a total tax revenue of approx. $1.01 trillion. This isn’t far off from the estimated $1.7 trillion in expected individual tax revenue for 2017.

No matter how you cut it, that’s quite a bit of money going towards…what exactly?

Politifact senior correspondent, Louis Jacobson provides us with a statistically adjusted pie-chart that while more accurate and well-divided after accounting for both discretionary and mandatory spending, still demonstrates how large an amount we spend on over-inflated programs. For the sake of simplicity, we will look at only the three largest of these programs: military, health and social security.

In 2015, approximately 16% of the U.S. budget (including the deficit) was allocated to military, or $241 billion in terms of contributions from individual incomes. Dividing this by the number of households gives us an average household contribution just shy of $2,000 towards the armed forces. This is something that we pay whether or not we agree with the proxy war being fought in Syria or not. This is also part of what allows the Pentagon and the CIA to arm both sides of the Aleppo conflict. Why don’t we get to decide whether this happens or not, and instead spend this money on funding other more domestic services for those in need here at home?

According to the same metrics, social security accounted for approximately 25% of the federal budget in 2015. While this is undoubtedly one of the more welcome portions of the budget as it distributes benefits to the retired, orphaned, widowed and disabled, it comes with a number of problems for future generations. As baby boomers begin to age, a large number of them become eligible for social security. This means that with the current trend, social security will contribute more to national debt than any other program in the form of an indisputable amount of our income. Theoretically however, for retirees, wouldn’t the $3,000 of individual household contributions, when invested wisely effectively enable individuals to pay for their retirement on their own?

Health constituted about 28% of the federal budget or $3,400 in household contribution in 2015. This funding went to programs such as Medicaid, Medicare, the CHIP and the Affordable Care Act. Out of these four, the one that I disagree with the most is the Affordable Care Act.

The Affordable Care act or “Obamacare” has two stipulations which a junior economist like myself, can’t agree with. One is that insurance is now mandatory for every man woman and child, and two is that insurance companies must sell insurance regardless of who the person is and what their medical history may be. As heartless as it sounds, tax dollars going towards a funding the insurance premiums of a person who has a malignant and practically fully-developed brain tumor, seems like a poor investment. Next, by taking away the freedom to decide whether or not you want health insurance, the government effectively forces you to buy a product that you may or may not want or even need.

There are of course arguments to this, but the one I make is an ethical one.

Are taxes 100% justified? I for one don’t think so. Looking at the way funds are handled, where they go, and what their consequences are I can’t bring myself to say that I fully, much less to any degree agree with the concept of taxation. Personally, I like to know exactly what my labor and my money goes to and whether or not I like it.

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