Business Top Tip

Barack Obama’s bid to place a new Social Security tax on very high incomes is either a bold or foolhardy plan, depending on who critiques it. But its potential impact is almost impossible to gauge because he is providing few details on basic questions such as what the tax rate might be, what types of income would be taxed and how the taxpayers’ benefits would be affected.

The Democratic presidential candidate says he would work with lawmakers from both parties to resolve such matters. Voters generally applaud bipartisan cooperation, but they apparently will go to the polls this fall with only a vague notion of what Obama has in mind.

Obama made headlines June 13 when he called for a Social Security payroll tax on incomes above $250,000 a year. Currently, the tax is levied only on the first $102,000 of each worker’s income. That covers the entire salary of most Americans.

Obama would not apply the Social Security tax to annual incomes between $102,000 and $250,000, a move meant to avoid alienating several million upper-income voters. His proposed change would apply only to those earning more than $250,000 a year, or about 3 percent of all taxpayers.

When he outlined his idea in the battleground state of Ohio, Obama said it is unfair for middle-class earners to pay the Social Security tax ?on every dime they make,? while millionaires and billionaires pay it on “only a very small percentage of their income.” He also said the Social Security program needs revamping to bolster its long-term viability.

With Obama offering few details, several news accounts suggested that his proposed tax on very high incomes would be applied just as the existing Social Security tax is levied on incomes up to $102,000.

All workers pay a 6.2 percent Social Security payroll tax on such income. Their employers match it, for a total tax of 12.4 percent. The tax applies only to earned income, not to passive income such as dividends and interest.

In recent weeks, Obama aides have quietly indicated that the proposed tax on incomes above $250,000 might be different in key aspects. The rate probably would be about 2 percent to 4 percent, not 6.2 percent, they said. It’s also possible that it would apply to more types of income, including dividends and investments.

As for benefits, the campaign has not said how the proposed tax on very high incomes would translate into new retirement income, if any, for those who pay it.

The concept of taxation dates back to ancient times and it had a large impact on the creation of the United States. I mean, who hasn?t heard the phrase ?no taxation without representation,? at least a dozen times in grade school? But how often do we stop and think about the real reasons we pay taxes? In fact, there are four main ideological reasons we pay taxes, and in this entry I have examined each of those four reasons.

1. Revenue
The most important purpose, taxes raise revenue for the government to spend on education, transportation, jobs, local governments, military, and judicial systems. Without taxes finding funding to build schools and buy books for them would be incredible difficult. Our country, as well as many others, is literally funded by our own taxes. Individuals, companies, and small businesses all get taxed for certain endeavors and those funds then go back into our economy. As long as a country is thriving, there should be revenue coming in through taxes. However, concerns have arose in the past few years as to whether or not the United States is meeting expected revenue. Experts claim the economy is protected enough to let the low revenue affect taxpayer?s day to day lives.

2. Redistribution
Many debate the purpose of using taxes for redistribution, but the main idea is to tax those who can afford it (i.e. the wealthy) and use the money to fund programs for lower income families. Debate rages on as to whether or not this tactic is fair or if our government is even properly redistributing in the first place. Current presidential candidates disagree on the President Bush tax cuts in particular, which democratic candidates Sen. Barack Obama and Sen. Joe Biden feel give tax cuts to the wealthiest Americans, completely defeating the purpose of redistribution in our tax system.

3. Re-pricing
The tax system is also used to discourage and encourage. Taxes on things such as cigarettes and liquor discourage the intake of substances. The idea of implementing a carbon tax encourages fuel efficiency, but again is much like a penalty. Re-pricing is another main purpose of the inner workings of our tax system, because it is a large and equal flat tax, given to any and everyone indulging in such taxable items. Re-pricing happens all over the market in multiple ways in order to keep a sort of balance and subtle control on spending.

4. Representation
American revolutionists often coined the phrase ?no taxation without representation,? so taxpayers know the government may be able to tax them, but accountability is mandatory. It is important for United States citizens and the government to be on even terms with taxes, and that all reasons and uses for said collected taxes are available to the public in multiple forms. It?s hard to remember that taxes are there to help us, but representation will always keep the information available.