US_Ch6_webquest2-income-tax

=**Was the income tax created to make the rich pay their fair share and do tax cuts only benefit upper-income Americans?**=

The Founders provided that all government revenue would come from two sources - import tariffs (sales tax on imported items) and land sales (major portion of revenue before the Civil War). The Supreme Court had even declared an income tax to be illegal. The Constitution didn't set up direct taxes - ones made directly on the people - which was experienced by the Founders in colonial times under British rule. Progressive historians have routinely complained that the income tax was not put in sooner and/or wasn't more aggressive. The objective of the 16th amendment was abundantly clear as one historian of American income tax wrote: "Support for a radical progressive (use of progressive in this case means the more you make the higher the percentage of your income is taxed) income tax had far more to do with the search for social justice (as Progressives wanted in terms of taking from the haves and redistributing to the have nots) in an industrializing nation than with the quest for an elastic (expansive) source of revenue."


 * 10. In your own words (not the quote), what was the original intent of the income tax by those who strongly pushed it?**

The rates were initially low, which is a major reason it wasn't strongly opposed (keep in mind, to amend the Constitution, there needs to be widespread support). However, it didn't take long for the U.S. government to raise the rates as within six years of its passage, the government used the excuse of wartime needs and pushed the rate on top income earners from 6% of their income to 75% of their income. Even the lowest rate for the lowest income earners stood at 1% and skyrocketed to 25%. These would be the rates under President Wilson in 1919 after the war as well.


 * 11. If you were a business owner and earned a lot of wealth, would you be okay with being taxed 75% of your income or would that cause you to not hire as many workers or would that give you less incentive to run and operate a business?**

Progressives believe higher rates will generate more government revenue and in turn allow more government spending. However, tax revenues dipped steadily with each new tax hike. When discussing government revenues or receipts from taxes, income tax certainly isn't the only tax. The wealthy or top income earners account for most of the consumer spending and of course do the hiring. When the tax rate was/is high, the businesses tend not to buy as much or hire as much, which in turn means less people actually paying income tax and less people spending on taxable items. This is what is meant by tax revenues dipped steadily with each new tax hike. Andrew Mellon (from Pittsburgh - namesake of Mellon Bank) was Secretary of the Treasury in the 1920s and said that "the result of higher tax rates is that sources of taxation are drying up; wealth is failing to carry its share of the tax burden," or that higher rates on higher income earners was not bringing in the revenue many anticipated. The decline of taxable income was seen from 1916 to 1921. Both the number of tax returns and the net income resulting from the top wealth holders plunged with returns falling by 4/5 and income falling from $1 billion to $153 million - put simply, with higher rates, people in America were not earning as much income and therefore the government wasn't getting large amounts of revenue. The "rich" began putting their money in tax-exempt bonds rather than investing in economic growth (which would mean expanding business and hiring more workers) because their profits were being heavily taxed.


 * 12. Why were Wilson's skyrocketing tax rates on the wealthy NOT bringing in more revenue since the theory was tax the rich heavily to get more revenue from taxing their income?**

Mellon's plan passed Congress and the top rates were reduced down to 24% and the lowest rate to 5% of income. These rates were higher than the original, but a lot lower than under Wilson. As a result, more revenue was coming into the government from the wealthy than ever before. In 1921, those earning less than $10,000 paid a total of $155 million in taxes and after the tax cuts "on the rich" the lowest income group paid only $32 million. Those making over $100,000 - the "rich" - paid $194 million in 1921, but after the tax cuts "for the rich" these "rich" paid $361 million - because the lower tax rates gave incentive to expand business, businesses made more money and therefore paid more (not a higher rate) in taxes. Put in simple terms - if I made $100,000 and was taxed 75%, that means I'd pay Uncle Sam $75,000...but if there was incentive for me to earn more (which was the case with tax cuts in the 1920s) and I made $400,000 at a rate of 25%, that means I'd pay $100,000. "Tax the rich" is good politics as it gets one elected since most people aren't considered part of "the rich" and are therefore envious/jealous of those who are, but it's bad economics - and historical statistics prove this to be the case.

Tax cuts always brings in more revenue from the most wealthy groups according to historical evidence. JFK's tax cuts produced more federal revenues than expected and revenue from the wealthy almost doubled and taxes paid by lower classes fell. Reagan's tax cuts saw the federal income rise by more than 40% and gain more as more money was coming from the rich. Anti-Reaganites point to budget deficits under Reagan - government spending was higher than government revenue - but as history proves, higher tax rates won't bring higher revenue. Since income tax was put in, the combined federal, state, and local tax burden on average Americans has grown immensely. Higher tax rates on the rich have historically proven that the rich will pay less.


 * 13. Based on historical evidence, if the government wants to increase revenue, should the government cut taxes or increase taxes?**
 * 14. Those who favor tax cuts are accused of favoring the rich. However, using history as a source, what do tax cuts on the "rich" actually result in (in terms of government revenue)?**
 * 15. Agree or disagree: Higher taxes on the rich may be good politics or campaign slogan, but it's bad economics. Explain why you agree or disagree.**

Look at the table below to answer the next questions. This table shows that the wealthiest 1% pay 38% of all the income taxes in the country. The 5% richest Americans pay nearly 60% of all of the income taxes. 50% of the nation barely pay any income taxes. This chart is evidence that the wealthiest are already paying the largest share of taxes. Obviously the rich already pay their fair share of taxes without any doubt. So, those that say "the rich should pay their fair share" either (1) are saying that to get votes from Americans who are not aware of these stats or (2) want to punish those who have earned wealth through higher taxes even though history proves that this hurts the economy, or (3) they themselves are not aware of the reality of the rich already paying the bulk of the taxes in the nation. You'll notice from this chart that about half of the country doesn't pay any income tax (if your income is below a certain level you get all tax money that came out of your paycheck back when file for your income tax return by April 15). The argument that tax cuts only benefit the rich is also around this very day. Even if taxes are cut for all income levels, you will still here that it benefits the rich. But this chart shows that the rich are already paying the overwhelming majority of the taxes. See, if we lower the income tax rate by 5% for everyone...if you are already paying $0 in taxes because you're retired and living on social security or you are poor and get any money taken from any paycheck back or you don't work at all and so don't earn income then you won't receive a benefit from a tax cut...there isn't a number lower than 0! Also, if you make $1,000,000 a 5% cut means you pay $50,000 less in taxes. If you make $100,000 a year, you pay $5,000 less in taxes but progressives will say that's not fair because the millionaire is getting more back than you! Income tax was new starting in 1913. You will see from that point until the present that in times where taxes were cut including for the rich, the economy did great and in times when taxes were increased over businesses (those who hire, set prices, and make the stuff we want to buy) the economy did worse. However, still to this day, "tax the rich" sounds good and gets votes, but it is a very very misleading and historically inaccurate position to take...popular yes, realistic benefit for the economy, no.


 * 16. Which group accounts for 97% of the income taxes paid in the U.S.?**
 * 17. Are the rich paying their fair share? If yes, explain why. If no, explain what you think the percent of income taxes paid should be per income category.**
 * 18. Candidate A wants tax cuts. Candidate B wants to raise taxes "on the rich." Which candidate does __historical evidence__ show will generate more revenues for the government?**


 * OVERALL CONCLUSION: What did you learn from this web quest that you didn't know before?**

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