In a several-part series, I plan on explaining how taxes have gone from funding the general security and function of the government to funding stupid programs that waste more money than they help.

To be clear, I am not an economist or an accountant. The point of this post — this blog! — is to provide a common-sense light to things that our government is doing. While there are things that require Ph.D to understand, some things, like money, should be fairly common sense. However, the more I live here, the more I’m finding that common sense is actually not that common.

Income tax started at the beginning of the Civil War. Money was needed to pay for the guns, uniforms, etc. to fight the south. The south procured the majority of its funding from England. After the war, the tax stayed to keep the status quo of the military and to be the strength of the executive branch. As time went on, Congress realized the need for a regular funding and passed the 16th amendment.

What started as a very lean budget grew substantially as special interests gained more traction than citizens. The budget for 2007 was $2.8 trillion. For comparison:

$1 million: $1,000,000

$1 trillion: $1,000,000,000,000

(Despite what you’re told, the War on Terror is not a budgeted item. It is appropriated. In short, anytime the President or Congress thinks the military needs more funding, it is voted on each and every time.  The DOD annual budget takes care of the maintenance and upkeep of the military.)

The vast majority of revenue comes from income taxes, which is what I’ll be focusing on for this blog entry.

The concept of the income tax is a bit stupid if you ask me.  All my life, my parents raised me to do well in school and so that I can be successful in life.  A part of that was earning money and building wealth.  Ask any person what they consider to be success they will say money!  But doesn’t it seem odd that the only entity that punishes you for making money is the government?

Think about it: the majority of Americans (including myself) are in the middle-income bracket.  This is roughly defined as an annual income $35,000 to $75,000, depending on region.  As you make more money, the government punishes you (e.g. taxes you) for being successful.  The government provides very little incentive for you to increase your tax bracket.  In fact, people are often worried that a raise or a bonus will push them into an upper tax bracket.

It seems to me that the government would want to encourage people to make more money, not punish.  Many liberal thinking people – I’m talking to you Obama — say that income taxes “redistribute” the tax burden to the wealthy.  But like most things, it sounds nice and looks pretty, but you can polish poo all you want but it will still stink like poo.

When Obama says redistribute, he’s right.  But it doesn’t redistribute taxes.  In fact, it redistributes debt.

The “rich” (as Obama defines them) make about 2% of the population.  Let’s make this 10% just for effect.  Obama has said that he wants to lower income taxes for anyone not in this top 10%.  Being charismatic, let’s say that this is a 20% reduction.  Now, this money has got to come from somewhere, right?  He said that he will increase taxes on the rich.  And let’s be modest here.  Let’s say it’s only going to be a 1% raise.  Who’s going to notice an extra penny per dollar right?

So here’s the question: is it fair to charge a minoriaty of people the majority of the taxes?  A man who has championed changed, who himself is a minority*, wants to charge a select group of people more because of who they are.

That’s not all: people don’t get rich because they give money away.  People get rich because they save!  Because income taxes punishes income, people do not have an incentive to save.  In fact, people have an incentive to SPEND! Take a look at the economic situation right now.  We’re in this mess because the government encouraged people to purchase homes instead of saving! The result is people purchasing more house than they could afford, causing banks to foreclose, forcing credit to go down the tubes.  Is it any surprise that the people who are weathering this credit storm have a great amount of savings?  And contrastly, the majority of people who are losing their homes not only don’t have a savings account but are maxed out on credit cards?

The income tax that Obama proposes will only increase this cycle of debt, trapping millions of Americans.  When you increase taxes on the wealthy, they are less inclined to spend because they want to save.  They will put more money into the market to shelter their income, contribute more into tax-free vehicles such as IRAs, 401ks, and they will donate more to non-profit organizations for tremendious tax breaks.  In the end, the wealthy will probably not pay much more taxes than they do now.

So the question remains, where will this money come from?  The middle and lower class.  Many of these people don’t have savings accounts because they have no incentive to.  They can’t shelter their money because they don’t have as much of it as the wealthy and they need it liquid.  The middle and lower class will see relief in the very short term — until democrats realize that the rich aren’t paying as much taxes as they realized and so have to raise taxes for everyone.

The best way to increase revenue is to sell bonds because it encourages tax-free investment. Everyone — including 2 year olds with at least $50 — can purchase government bonds.  They are guarenteed by the government to earn a steady interest, which you won’t pay taxes on.

Come tax season, the question on everyone’s mind is, “Do I itemize or take the standard deduction?”  If you itemize, you look for every nook and cranny to make sure you get every tax break afforded to you, don’t you?  I have yet to meet anyone who actively has given the government MORE money than they needed to.

Find me that person and then I’ll believe in an income-based tax system.  Until then, it’s clear that income-based taxes don’t help the middle-lower class; it chains them to debt.

Obama will lower taxes on the middle and lower class, but it won’t last. It will be a good short-term measure because it sounds great in a campaign.  You’ll know that it’s not working when you notice the market start to go up and bond percentages go down.

To be clear, I would rather increase taxes on the middle and lower income ranges (which I am in) and decrease taxes on the rich than Obama’s plan. In a common-sense world, taxes wouldn’t be based on income.  But until then, Obama can keep his change.