L.T. McRae
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President Ford's proposed tax surcharge, the tax
embarrassment . of Richard Nixon, and the oil companies
soaring profits have all focused new attention on the federal
income tax. Any attempt to discuss or even catalogue all the
questionable provisions of the Internal Revenue Code would
require several volumes; all I can do here is to suggest some
general considerations. .
The broadly-based income tax is a relatively recent
innovation in the United States. The constitutionality of
taxes on the incomes of individuals or corporations was
dubious until passage of the Sixteenth Amendment in 1913
gave Congress explicit power to impose such taxes. Tax rates
were low and applied only to high incomes until World War
II. The tax system in more or less its present form was started
during the wartime emergency. Like so many other
emergency measures, the federal income tax has long
outlived the emergency and by now has been with us so long
that we regard its basic premises as natural, if not sacred.
Proposed reforms usually involve nothing more than modest
changes in the existing structure.
The basic premise of the federal income tax is that those
who earn most should pay most Increments to income are
taxed at successively higher rates, reaching 70 per cent of all
taxable income over $200,000 a year. Corporations are taxed
at a rate of 22 percent of the first $25,000 of profit and 48 per
cent of everything over $25,000. The basic system resulted
from the populist notion that the way to happiness is to make
the rich pay for everything, (or, "squeeze them until the pips
squeak," as British Prime Minister Harold Wilson put it).
The progressive income tax is a Robin Hood scheme
intended to redistribute income from the rich to the poor and
thus make the after-tax income distribution more even than
the before-tax distribution.
The most recent study of the incidence of taxation is Who
Bears the Tax Burden? (Brookings Institution, 1974), a book
by Joseph A. Pechman and Benjamin A. Okner. Pechman
and Okner's study reaches some intriguing conclusions, only
part of which are mentioned here. For one thing, the
effective rate of taxation is nowhere near the theoretical rate.
- ; ' - YP7
For example, by my calculation, a family of four with a total
income in 1973 of $250,000 should pay a tax of $120,430,
assuming that deductions total 15 per cent of income and
that all income is from salary. That is a tax rate of about 48
per cent. However, Pechman and Okner found that the
average effective tax rate on families with incomes in this
range is somewhere between 15 and 18 percent, or between
$37,500 and $45,000 on an income of $250,000,
Another intriguing conclusion is that the federal personal
income tax is mildly progressive (that is, the tax rates rise
with income) up to the range 100,000 to 500,000 per year.
Beyond that level effective personal income tax rates
actually decline. Finally,' the study notes that the effect of all
taxes federal, state and local on the redistribution of
income in the United States is negligible.
The wide disparity between actual and theoretical tax
rates is created by so-called "loopholes" in the tax code. .
Starting from the basic progressive structure, Congress
attached special provisions and exemptions until the tax
structure looks like a Christmas tree decorated by a band of
demented six-ar-o!ds. Some of these provisions were
intended to exempt taxpayers from taxes on receipts that did
not actually represent spendable income. Thus, taxpayers
are allowed to deduct a wide variety of business expenses
from their gross income before calculating their taxes. Some
provisions were meant to induce behavior the Congress
regarded as desirable, such as home buying, which is
encouraged by the deduction allowed for interest payments.
Some other provisions seem to be outright raids on the
public treasury, adopted at the urging of special interests.
For example, an oil company is allowed to deduct royalty
payments to private owners of oil wells before calculating
their taxes, just as they would any other business expense.
But if the royalty is paid to a foreign government, it is
considered a tax payment to that government, against which
the company receives no credit on taxes due the U.S.
Government. In the first case, the IRS loses 48 cents for
every dollar in royalty payments, and the oil company loses
52 cents. In the second case, the I RS loses a dollar for every
dollar in royalty payments, and the company loses nothing.
The tax system that has resulted after all these loopholes
were included is, first of all, fraudulent in that it pretends a
progressivity it does not possess. Secondly, it is so complex
that ordinary citizens find it incomprehensible. It keeps an
army of lawyers and accountants employed in figuring out
ways to beat it, an effort that is essentially useless from
society's standpoint.
Finally, the tax system has had unforeseen side effects.
Businessmen do not invest for profit, they invest (or after-tax
profit, which is an entirely different matter. The result has
been a serious distortion of economic effort in the United
States, a distortion that probably no one understands fully.
In principle there is nothing wrong with using the tax system
to encourage activities deemed to be socially useful, but it is a
power that ought to be used with utmost care since "socially
useful" is really a value judgment.
Larry McRae is a graduate student in economics.
The Daily Tar Heel
82nd Year Of Editorial Freedom
All unsigned editorials are the opinion of the editors Letters and
columns represent the opinions of individuals.
Janie Clark
Founded February 23, 1893
Tuesday, October 22, 1974
Commission decision on utilities sale
ignores question of service, quality
comfosiiimfio ffkir
Second in a three-part series
The Wilmington textbook
controversy is directly related to an
issue which has occupied, and
bewildered, the Supreme Court
since 1957: the definition of
obscenity. Today, after 17 years of
grappling with the issue, the Court
has only given us enoueh law to hold
the loopholes together, and enough
loopholes to let obscenity slip,
through.
The Court began in Roth v. U.S.
with the assumption that obscenity
is not covered by the free speech, free
press clauses of the First
Amendment. This was its fatal
mistake : because once the Court
outlawed obscenity, it had to decide
what it is. The high tribunal held
that obscenity is "prurient, prurient
is determined by the community,
and local mores are the attitudes of
the average citizen in that
1957 formula, with the corollary
that obscenity has "no redeeming
social value, has remained the basic
rule to the present day.
Two cases in 1966 further
expanded the definition of obscenity
to include "the commercial
exploitation of erotica. Pandering
was the informal title of this offense,
and it sent Ralph Ginzburg. to
prison, the first publisher convicted
on obscenity charges in 15 years. A
Mucngni io tne rulings was mat
when pornography is directed
toward a deviant group, the Roth
community rule is applied to the
average deviant..
two cases m lv- aaaca ine
"patently offensive definition to
obscenity. The Court claimed (1)
that there is a ''nexus between'
antisocial behavior and
pornography (contrary to the.
President's Commission on
Obscenity), (2) that states are not
required to enforce their obscenity
laws (thus side-stepping the problem
altogether), and (3) that "consenting
adults are allowed partial, but not
absolute; Constitutional privacy
rights. The' latest obscenity case,
.;:-V r
decided in 1974, further modified
the Roth community rule by
deciding that local juries do not
necessarily have the ultimate say in
determining obscenity in the
community.
If the above decision progression
seems confused, that's because it is.
The best legal scholars in the
country have not been able to
analyze its path.
But there is a solution, and it is to
reject the initial gambit. Justices
Black and Douglas have taken that
course since 1 957 by including
obscenity under the First
Amendment. At First it seems wrong
to condone obscenity, but it
certainly has its advantages. The two
Justices stance not only has the
virtue of consistency (and
predictability) but it saves an
already overburdened Court from
reviewing every porno-flick and
pulp magazine which makes it way
into the courtroom.
It is not an ideal solution, but it is
at least a solution, which is more
than the Court's majority has been
able to offer. Essentially, Americans
are limited to three choices: (1) a
Victorian fig-leaf decision-rule
which would outlaw any and all
displays of genitalia whether on a
Renoir or an exhibitionist, (2) the
current confusion, or (3) the non
censorship stance of Justices Black
and Douglas. When one thinks of
the double standard already applied
to the media (lots of violence but no
sex, the "redeeming value criterion
applied to sex novels, but not James
Bond or TV) the non-censorship
stance seems the best answer
available to us now.
! 1 For all the Supreme Court's fancy
formulations, Justice White best
expressed its policy in his dissent in
Jacob ell is, "I know it when I see it.
That is what the citizens of
--Wilmington have suddenly decided.
But they face the hopeless and unjust
task of forming a consistent
community rule on obscenity. And if
you can't make a good law, or even a
fair one, it is better to do without.
Which question is more important to the
Chapel Hill utilities consumers? This is the
issue the Church Commission supposedly
addressed. The conclusion they reached
actually answers neither question.
The Student Consumer Action Union,
with the aid of Dr. Howard Rockness of the
UNC School of Business and members of the
Orange County Citizens for Alternative
Power, undertook a projective analysis of
the price of the different bidders on the
utilities to the consumers. This analysis does
not show major price discrepancies between
the bidders, but the Church Commission did
not consistently recommend the bidders that
would cost the consumers least. Witness the
following excerpt from the SCAU Analysis
of Telephone and Electricity Bids.
These are the projected 1976 rates on
electricity and telephone as they pertain to
the per-month cost to consumers:
Residential electricity (based on 1000
KWH usage): Duke Power, $28.72 per
month; Consumers Utilities Corporation,
$25.78 per month.
Telephone (basic private line service):
Southern Bell, $6.66 per month; Consumers
Utilities Corporation, $7.42 per month.
Obviously Duke Power as electricity
owner would cost the Chapel Hill consumer
more. And while the cost of Southern Bell in
1976 would be less than the Consumer
Utilities Corporation, $7.42 per month is still
less than the $7.50 per month we pay now.
Even though the Church Commission did
not fully address the matter of price to the
consumer, it is hard to argue that they
addressed the problem of quality of service.
Perhaps the belief was that as experienced
distributors of electric and telephone service,
Duke Power and Southern Bell would give
consumers efficient, responsive service. Ask
present Duke Power consumers how much
spend the money they collect from their
consumers. A lot of it is spent on tax
deductible projects such as the 1972 $ 120,500
contribution from Duke Power to the
Perkins-Daniels-McCormack law firm. And
the rates for Duke Power were just raised
because the cost of producing electricity is
rising. Why doesn't Duke Power spend the
money it has on producing electricity instead
of giving it away?
In the summary of SCAU's utilities
analysis, five points are made explaining the
advantages in quality of service Chapel Hill,
Carrboro and Orange County would have
with a locally-based utilities distributor such '
as the Consumers Utilities Corporation
(CUC). Among these points is the inclusion
of the assured returns of the profits from rate
collection to the system to produce its
services. CUC would be a non-profit
organization. There would be nd tax-exempt
contributions to firms and organizations
that do not have anything to do with the
direct production of services to the
consumer.
If the figures and facts in this column
disturb you, write the Utilities Commission
at 1 W. Morgan Street in Raleigh. You might
Bob Jasinkiewicz
include a note to the attorney general at the
same address. Copies of SCAU's utilities
analysis are available for reference in the
SCAU office in Suite B of the Carolina
Union.
Notice to Consumers
Kroger's grocery store in the Kroger Plaza
does not have a listed phone number. SCAU
has their number if you wish to get in contact
with the store. SCAU also' has a question.
Why would a store which serves the public
insist on having an unlisted phone?
Janie Clark is head of SCA V.
The
imiver
sal
rates went up while a perfectly good coal
mine lay idle during the dispute between
Duke Power and its mineworkers in Harlan,
Ky. Duke Power was not responsive to its
workers' demands until a man was actually
murdered during the strike.'
But the Brookside Mine dispute may be a
remote argument to use when discussing
University consumers. There is a clearer
argument that will speak to residential users
of electricity. Recipients of Duke Power in
Greensboro can, in some neighborhoods,
simply expect to be without power whenever
there is a thunderstorm. The argument those
consumers are given when they call to.
complain (if their phones are working
Southern Bell works there, too) is that the
consumers would have power if they did not
have so many trees in their yards. People
have known since the invention of the
telegraph that falling trees knock down
wires. The remedy for this problem has also
been available for years bury the wires.
' The "feeder" wires which provide electricity
have not been buried.
The SCAU report on the utilities also
- shows how Duke Power and Southern Bell
Somewhere in the back of everyone's education, one
learns that the shortest distance between two points is a
straight line.
The most unfortunate and dangerous part of that
education is that rarely does one learn that the distance
between a problem and a solution is no straighter or shorter
than the curvature of a paradox, for nature abhors straight
lines as well as vacuums.
Just as in any race to cover a distance, then, how one
finishes is often dependent on how one begins.
So let's begin with some basics. .
Everything divides in half, symmetrically, and every
uniform object so divided will reflect all of its parts like a
mirror turned inward on itself. Each has characteristics of its
other parts and characteristics of the whole.
A cell splits into a double likeness of itself and constructs
being. An atom divides and forms energy. Out of the infinite
dynamics of cells and atoms comes life. And life is the only
uniform substance that cannot divide itself and survive, in
spite of our persistent attempts.
Unlike the dynamics that make it function, life for us may
not be an infinite process that will endure in spite of
ourselves for we are intricately bound to that process as both
master and slave, and we are capable of ending it as well as
having it end us. For every action there is indeed a reaction.
When Thoreau wrote of man's "quiet desperation," he was
merely reflecting on the dynamics of survival, and survival
dictates a policy of necessity, not of opportunity. ' -
We are one species composed of a variety of different
parts, but we are still reflections of the whole. Yet we divide
ourselves into artificial compartments, like the carriages on a
circus ride, and because we go around in circles we think our
every movement means progress.
In a world of beautiful symmetry, we merely see ourselves
symmetry
in others.
An energy crisis strikes, for example, and instead of
appreciating the intricate framework of mutual dependence
on which life is hung, we accuse another part of ourselves
with greed for maintaining "artificial" price levels on oil, an
accusation that is really a projection of our own greed in
trying to corner the market on the world's resources., Yet we
haven't calculated the price of survival once the wells run
dry. ' "
One part of us at least is learning that economy means
nothing more than operating within a well-defined balance
of nature, while the other part of us continues to operate on
assumptions governed by the desperation of the New York
Stock Exchange and by the self-destructiveness of mass
consumption and mass waste.
The politics of necessity dictate that we make concessions
and conserve; the politics of opportunity dictate that we
spend now arid pay later.
The survival of the fittest refers to the survival of species,
not individuals. Yet we divide ourselves into categories
communists and capitalists, farmers and workers, creditors
and debtors, and even our creative efforts into eastern and
western civilizations. But nature divides us in opposites in
only one instance, and that only for the biological survival of
the species.
For those who concur with Marx that the history of man is
the history of struggle within the species, and for those who
concur with Darwin that the history of man is the history of
struggle between species, look to the whirlwind.
In a world of beautiful balance, the interest rates on greed
and affluence are compounded infinitely.
Bob Jaskinkiewicz is a graduate student in journalism.
The
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Tar Hee
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