TAXES: Why do we have them? Are they fair?

Students explore the question of taxes, Obama's recent 'Buffett Rule' proposal, and Republican charges of 'class warfare.'

To the teacher:

In protests in New York City and other cities, demonstrators are demanding that we "tax the rich." It's a teachable moment for a discussion about taxes: why we have them, who pays how much, and whether the current rates are fair.

When President Obama stated a few weeks back that the wealthiest Americans, many of whom are taxed at remarkably low rates, should bear part of the burden of reducing the budget deficit, he was accused of waging class warfare. The term "class warfare" was traditionally used by socialists to describe a struggle by workers to challenge capitalism and create a more equal society. What President Obama proposed would instead level out the playing field somewhat by expecting the very rich to pay the same overall tax rate on their earnings as other taxpayers.

President Obama called his plan the Buffett Rule, after Warren Buffett, the billionaire investor who has pointed out repeatedly that the wealthiest Americans pay a smaller percentage of their earnings in federal taxes than the middle and low-income people. Buffett illustrates this by pointing to his secretary who pays a higher tax rate on earnings than he as a billionaire does. The top U.S. tax rate on regular income (wages) is 35%. Most very rich Americans get most of their income not from wages, however, but from selling stocks and other financial maneuvers. This income, called "capital gains," is taxed at only 15%.

In the following lessons, students explore the question of taxes, and discuss opposing views on tax fairness.

 

Objectives

Students will:

  • Explore why we pay taxes and the tax rates various Americans pay on their earnings;
  • Look at the pros and cons of President Obama's proposed "millionaire's tax," and discuss them as a group

Social and Emotional Skills:

  • Considering different perspectives on the same issue
  • Conflict resolution skills
  • Critical thinking skills

Materials Needed:

  • Today's agenda on chart paper or on the board
  • Chart paper, markers and tape
  • Handouts (attached PDF and at the bottom of this lesson plan)

 


Gathering 

(5 minutes)

Ask a few volunteers to share what they've heard about President Obama's proposal for a Millionaire's Tax, also known as the Buffett Rule. Have they heard other discussion about "taxing the rich"?


Review Agenda

(2 minutes)

Explain that in today's lesson you'll be exploring the idea of taxation in the context of President Obama's proposal to have the wealthiest one percent Americans pay a higher percentage in income tax than they are currently paying.


Exploring Taxation

(20 minutes)

Ask students for their free associations with the word "TAX/TAXES" and record their ideas graphically on a web chart.

Making webs can stimulate creative thinking and allows for different voices and perspectives to be raised. Remember in a brainstorm there are no wrong or right answers and all (appropriate) responses should be charted.

To make a web, write the core word or phrase, in this case "TAX/TAXES" in the center of the board, or on chart paper, and circle it. Chart students' associations and connect them to the core idea by drawing lines or spokes radiating out from the center. Related ideas can be grouped together.

Continue the brainstorm while energy is high. If needed use prompts like:

  • What do taxes consist of?
  • Who pays taxes? To whom?
  • What is the tax debate in the news these days about?

When you've finished charting, discuss the web by asking students what they notice about the words in the web. Are there generalizations to be made? Is there anything that's surprising? Next ask if anyone would like to come up with a definition for the word "TAX."

Definition of TAX [from Merriam Webster online] 
a: A charge usually of money imposed by authority on persons or property for public purposes
b: a sum levied on members of an organization to defray expenses

Using what students came up with in their web and definition, explain that taxes are not voluntary. They are imposed and collected by the local, state and federal government to provide services. We don't just pay taxes on income. For instance, we pay taxes on things we buy (sales tax), and on property.

Work with students to create a list of what taxes pay for.

Answers include:

  • schools /public education
  • infrastructure - building and maintaining roads, bridges,etc.
  • public transportation
  • garbage collection and other sanitation
  • safe water, safe food 
  • military 
  • police and fire protection
  • the court system
  • libraries, museums and other places of learning
  • parks, national forests
  • research
  • student loans
  • food stamps and other supports for people with little money
  • Social Security (support for seniors)
  • public health insurance, like Medicare 
  • unemployment insurance 
  • the space program and other science-related programs
  • international aid 
  • environmental protection

Without taxes, the government would not be able to pay for these services.

Ask students: Why does the government need to provide these services in the first place? Why, for instance, don't we have individuals "pay as they go," i.e. pay for services as they need them?

Providing all the services students have listed would be too great a burden for any one individual, or group of individuals, to pay for. Instead the government imposes taxes on everyone so it can pool the money and provide these kinds of services to all people, allowing society to function as a whole. Some taxes are "progressive" in that those with high incomes pay a higher share.

After some discussion, ask students to imagine what it would be like to live in a world where you had to pay as an individual for all of the services listed above. Some people would not have enough money to pay for the services. This would have potentially deadly consequences for the individual, but would also have consequences for society as a whole.

Work with students to develop a couple of examples of what it would be like if every individual had to pay out of pocket for government services. For example:

  • Many people would not be able to afford school. A high percentage of the people in our communities would be illiterate.
  • Roads and other infrastructure would be in good condition in rich areas, but perhaps nonexistent in areas where poor people lived.
  • Sanitation would be spotty, so disease would spread.

Society pays taxes to support the general welfare and the public good. When it comes to many of the services government provides, we all suffer if they services aren't universal.

Of course, no one enjoys paying taxes, but it is important to realize what we get in return. The vast majority of people think taxes are worth it when they are collected properly and fairly. And here is the rub: Different people have different perspectives on what's fair; on what should and should not be included in what the government provides; and who should pay what to support government services.
 


Student Reading & Discussion 

(20 minutes)

Ask students to read the piece below, then discuss it with the class. Questions might include:

1. What are some ways we could help reduce the deficit?

2. Which of these ways are Democrats arguing for?

3. Which of these ways are Republicans arguing for?

4. Explain the Buffett Rule. 

5. What is progressive (and regressive) taxation? Provide examples from the article.

 


Student Reading

TAXES: Who pays what?

"Tax the rich!" is a demand voiced often by protesters involved in the "Occupy Wall Street" protest in New York City - and others like it around the country. The protesters believe that our whole society is suffering because of the growing disparity between rich and poor. They also charge that this disparity is undermining our democracy, because the very rich are able to use their money to get candidates elected who will vote in their interests. Meanwhile, Republicans are arguing that we should be cutting taxes further - and that all efforts to reduce our federal deficit should focus on cuts in public services and public workers' jobs, not increases in tax revenue.

On September 8, 2011, President Obama proposed the "American Jobs Act," which includes some new spending on things like school repair, as well as $240 billion in tax cuts to small businesses and a temporary payroll tax cut. He proposed to pay for the plan with a combination of spending cuts to programs including Medicaid, Medicare, and the militaryand by raising taxes for the very wealthy. (Taxes would be raised by closing some tax loopholes for the wealthy, increasing the capital gains tax, and allowing some of the Bush-era tax breaks for the rich to expire.)

He proposed what he called "the Buffett Rule," after Warren Buffett, the billionaire investor. Buffett has pointed out repeatedly that the wealthiest Americans pay a smaller percentage of their earnings in federal taxes than middle- and low-income people. Buffett illustrates this by pointing to his secretary who pays a higher tax rate on earnings than he as a billionaire does.

This happens because very rich Americans typically get most of their income not from wages, but from selling stocks and other financial maneuvers. And this income, called "capital gains," is taxed at only 15%. The top US tax rate on regular income is 35%.

Republicans responded that the president was engaging in "class warfare" against the rich. "Veto threats, a massive tax hike, phantom savings and punting on entitlement reform is not a recipe for economic or job growth - or even meaningful deficit reduction," charged Senate Republican leader Mitch McConnell.

So should the rich pay more in taxes? Or not? How fair is our tax system?

Assessing who pays how much in taxes is actually no simple task. In general, our federal income taxes are progressive, meaning that rich people pay a higher percentage of their income in taxes than poor people. But there are exceptions, including the capital gains tax, which enables many very wealthy people to pay less taxes on earnings. And there are many taxes besides federal, state, and local - including sales taxes, which are quite regressive (that is, low-income people must pay a much higher percentage of their income on sales taxes than high-income people).

Class Discussion & Chart Analysis (if time allows)

Share the the attached CHARTS with students and work together to interpret them.

 

Closing

(2 minutes)

Ask a few volunteers to share something they've learned from today's lesson.

 

 


Possible homework and further study:

Small Group Work & Gallery Walk 

(30 minutes)
 

Consider following up on your reading and discussion of taxes with a further discussion of the controversy over President Obama's tax plan. You might assign the handout below as a homework assignment and follow up the next day with the activity below. Or give students time in the following day's class to read the handout before doing the activity.

The handout includes quotes addressing taxation and President Obama's new proposal from different perspectives. After students have read the quotes, either at home or in class, ask them to break into small groups. Provide each group with chart paper and ask them to draw a line down the middle vertically to divide the paper in two. At the top of the first column write "for" and at the top of the second column write "against."

Based on the quotes they've just read, and on their earlier reading and discussion, ask students in their small groups to come up with arguments for and against President Obama's millionaire tax proposal. List them in the appropriate column on their charts.

When they've finished with their charts, ask students to post the charts around the room. Then ask students to walk around the room and quietly read other people's charts. This is known as a gallery walk.

Then reconvene the whole class, and ask some or all of the following questions:

  • What did you notice about the various charts? 
  • Were there similarities/differences? Describe.
  • What did you learn in this activity?
  • Did you change your views in any way? How? Why?
  • In some of the quotes, people mention "income redistribution." What does that term mean? What are your thoughts on income redistribution?
     

Student Handout 

What people say about taxing the rich

 

Quote Number One:

We are often reminded these days that the top 1% of earners in America pay about 40% of the nations federal income taxes - nearly double the share they paid in 1980. The latest to weigh in on this factoid is billionaire-mayor Mike Bloomberg, who disputed the Buffett doctrine and said that, "A very small percentage in this country pay a big chunk of the taxes."

Republicans say the high share is due to our overly progressive tax structure and growing programs for the rest of the non-taxpaying Americans. Democrats, to the extent that they even concede the number, argue that it's because the rich now make all the money. Who's right?

An article in the Economist states the answer quite simply: "In America the income share of the rich has grown faster than the[ir] share of taxes paid." ....

In other words, the top 1% share of income grew nearly five times faster than their share of taxes. .... [So] when pundits and politicians talk about the rich paying "a big chunk," they should be clear that it's because the rich earn "an even bigger chunk."

 

September 26, 2011 
Why the Rich Pay 40% of Taxes
By Robert Frank
http://blogs.wsj.com/wealth/2011/09/26/why-the-rich-pay-40-of-taxes/

 

Quote Number Two:

The wealthiest 1 percent of the taxpayers pay 34 percent of all federal income taxes. The top 50 percent pay 96 percent of the total bill. This means that the least wealthy 50 percent pay almost nothing. .... In the name of justice, the President, Congress and the American public should be demanding a tax cut that lowers the tax bill of the wealthy.

But the opponents of tax cuts do not want justice. They want redistribution of wealth. They want to confiscate the income earned by the wealthy and give it to people who have not earned it. They want the rich - which includes the most productive people in society - to be the servants of the poor.

April 15, 2002
A taxing question: Just what is fair? System puts unfair burden on wealthy
By Edwin A. Locke at articles.philly.com

 

Quote Number Three:

Ari Fleischer, the former Bush White House spokesman, once said "50 percent of the country gets benefits without paying for them."

Actually, they pay lots of taxes - just not lots of federal income taxes. Data from the Tax Foundation show that in 2008, .... millions of .... poor [Americans] do not make enough to owe income taxes.

But they still pay plenty of other taxes, including federal payroll taxes. Between gas taxes, sales taxes, utility taxes and other taxes, no one lives tax-free in America.

When it comes to state and local taxes, the poor bear a heavier burden than the rich in every state except Vermont, the Institute on Taxation and Economic Policy calculated from official data.

April 13, 2011 
9 Things The Rich Don't Want You To Know About Taxes
By David cay Johnston at 3quarksdaily.com

 

Quote Number Four:

This proposal makes sure millionaires and billionaires share the responsibility for reducing the deficit. It would correct, for example, the fact that [multibillionaire] Warren Buffett's secretary currently pays taxes at a higher rate than he does.

The other side is already saying it's "class warfare" - that's their rhetorical smokescreen for providing millionaires and billionaires special treatment.

As the President said this morning, "This is not class warfare - it's math."

The wealthiest Americans don't need further tax cuts and in many cases aren't even asking for them. Requiring that they pay their fair share is the only practical way forward."

September 20, 2011
Jim Messina, President Obama's 2012 campaign manager, quoted in "Some Thoughts on Obama's Deficit Plan, Class Warfare, and Equal Protection" by Curt Bentley at UtahPoliticalSummary.com (no longer active)

 

Quote Number Five:

President Barack Obama is right. It is time for "fairness." It is time to ask some Americans to do more, contribute more, sacrifice more.

But like most things Obama does, he has singled out the wrong group. The rich and business owners already pay far too much in taxes. They already sacrifice too much. They already share their wealth too much. The top 1 percent of income earners .... already pay 40 percent of the personal income taxes in America, more than the bottom 95 percent combined. ....

Now is not the time to target, demonize, and punish them, it's time to reward them. It's time to stop class warfare and tell the truth. ....

Yes, we need more "fairness." The problem is that Obama voters, those doing the most protesting and complaining, are the ones who need a refresher course in the definition of "fair." They want something for nothing. It's not just that they 'want' it, they 'expect and demand' it.

It's no surprise when pollsters ask Obama's voters if others should pay higher taxes, they emphatically scream "YES!" Why not? It costs them nothing, and they get 100 percent of the benefits.

So, Obama is right. Let's make the tax system fairer. Let's ask Obama's voters to sacrifice, contribute, and bear at least a little more of the load.

September 26, 2011
Rich Already Pay More Than Their Share
By Wayne Allyn Root on Newsmax.com

 

Quote Number Six:

"Nobody got rich in the US on his own, said Massachusetts Democratic Senate candidate Elizabeth Warren. "You built a factory out there? Good for you," she said. "But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory -- and hire someone to protect against this -- because of the work the rest of us did."

Warren added, "Now look, you built a factory and it turned into something terrific, or a great idea. God bless -- keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along."

September 22, 2011
Elizabeth Warren quoted at Drudge.com
http://www.drudge.com/news/148576/elizabeth-warren-class-warfare

 

This lesson was written for TeachableMoment.org by Marieke van Woerkom. We welcome your comments. Please email them to: lmcclure@morningsidecenter.org.