Inequalities within the American Tax System

Alright, y'all! Let's talk tax inequality here in America..

Because jeebus does it become more apparent every day.

There are many who claim that the progressive tax rates we have are what reduce inequalities.

That's dandy in theory, however, loopholes and deductions often benefit the wealthy disproportionately.

Let me back up a bit - the US tax code was built and intended to be progressive. Meaning that those who earn more money are supposed to pay a higher percentage of their income in taxes. This was true in the 50's when "The American Dream" was available to the average citizen because the progressive tax rates were appropriately in effect.

Then loopholes and deductions started to be passed by high earners in congress that benefit said high earners.

Which is why it irks me endlessly that they're now trying to cut things that benefit low earners but I digress..

And let us not forget that these inequalities disproportionally impact the BIPOC community, historically, with heavy racism involved.

Capital Gains:

After graduating with my Finance degree, I went to ONE interview in the field because my professor referred me (not to toot my own horn, but I was pretty good).

Genuinely, my professors were incredible.. I even remember a time when one of them was explaining 'short selling' and bluntly said "and you guys can be the judge of the morality of it all" thanks Mr White

But by the time I realized how much the stock market went against every fiber of my being, I was pretty far into my degree.

Don't get me wrong, I have an IRA and my husband has a 401(k). So I don't completely reject it and I'd never judge anyone for partaking in it. It just doesn't work for me.

All of this is to say that I have big feelings about capital gains being taxed at a lower rate than income tax.

If you don't know, capital gains are the profits you get from selling an asset like stocks or real estate. Luckily, there are safety nets in place for selling your personal residential home, so please don't be fearful of capital gains tax if you are selling your home! Talk to your tax professional and they can explain how it all works, my friend.

The glaring issue I see is that capital gains for stocks are being taxed at a lower rate than income from a job, which means that wealthy individuals, who make most of their income from investments, pay lower percentage of their income in taxes than working-class people.

Fundamentally disagree with this.

Tax Codes:

Did you know that big oil is able to take advantage of special tax breaks and deductions that aren't available to other industries?

Same with real estate, tech, agriculture, etc.

On the surface, I do not have an issue with these pillared industries getting industry specific tax codes.. genuinely I don't. I think it makes sense.

What does NOT make sense is that they were created and implemented in a way that they are not only taking government tax dollars via subsidies, but also not paying taxes and raking in billions in PROFIT.

Meaning after all expenses were paid and depreciation was applied.

This is yet another tool for the elite to continue funneling money to themselves.

Tax evasion:

First, there's off shore tax evasion that's primarily about the rich moving their money to bank accounts that can't be audited so it's a LOT more difficult to get to the bottom of it because they moved it so they wouldn't have to claim it.

Shady, right?

Have you also noticed how there has been a huge push by the political right to continue to defund the IRS and to pull the funding that the Inflation Reduction Act provided?

So much fear and lies have been spread about this, it makes my nerdy blood boil.

Let's break it down -

Currently, the lowest earners are getting audited at wildly higher rates than all other tax brackets. This is because its way easier and cheaper to audit someone with a few documents to go through than it is a high earner that potentially have millions of documents.

Shitty, right?

This is what the continual defunding of the IRS has led to.

A watch group at Syracuse found that in FY 2021, 54% of all correspondence audits (where it's not in person) were for returns claiming less than $25,000 gross income and taking the earned income tax credit, which is one of the largest and most successful welfare programs in the country.

Then we have politicians like "Former Sen. Richard Lugar of Indiana, a respected mainstream Republican, ran for president in 1996 on a platform of abolishing the IRS. A Republican congressman in 1998 introduced a bill to repeal the Internal Revenue Code by 2002. “Abolish the IRS” remains a potent talking point. Ted Cruz, the Republican senator from Texas, campaigned on the slogan when he ran for president in 2016." Click here for the full article.

They made up lies, paid actors and got bills passed to limit the collecting power of the IRS and widening loopholes for bad actors.

All based on lies.

Sounding familiar?

It's rinse + repeat.

Seriously, if you get a chance, read this article.

In conclusion:

It's not all bad news. Luckily we're still in a republic where the people can bring a voice to the inequalities within our system.

We could make capital gains tax to be more in line with income tax rates, reduce loopholes and require the elite to pay their fair share.

Its not radical, its ethical.

What do you think? Do you agree or do you have another perspective?

Comment below or send me an email!

I love hearing from you:
audrey@thegracefulpenny.com