Taxes and the Two Party SystemOctober, 2023
Opening up your first paycheck can be an incredibly special feeling. Although it may not ultimately be going to you to spend in one fell swoop, knowing that you have earned something tangible to use introduces you to the real world. However, that first shift of $12 an hour inevitably turns into $10 per hour after taxes. As we transition into the real world, it seems like the taxes just keep piling up, ranging from social security taxes, to property taxes, and even vehicle taxes. Most of us have just accepted it, with the average American paying around 24 percent of earned income to taxes according to taxfoundation.org, though the percentage is probably higher for the average Princetonian. After all, taxes are the price we pay for a functional society, funding our government and many public services that benefit the entire population. In the U.S., we follow a progressive tax system, where individuals and households with lower incomes pay a smaller tax percentage than those with higher incomes. But wealthy individuals often don’t have income in the traditional sense and our current system of taxation propped up by our two party system allows them to circumvent taxes.
The American system of taxing earned income disproportionately burdens income-earning working class Americans whilst letting the wealthiest individuals and corporations who own assets off the hook. For instance, the carried interest loophole, still hasn’t been addressed or patched to this day, even after both the Democratic and Republican parties had majorities in the legislative and executive branches. It allows managers of certain investment funds, like private equity and venture capital funds, to pay a reduced tax rate on their income. Other legal tax avoidance technicalities involve the ability to borrow against one’s asset to avoid capital gains taxes, the 1031 exchange, the avoidance of estate tax using trusts, and the use of side hustles as a way of reducing one’s tax liability. The truth is that these issues are so complex that many Americans have turned a blind eye because understanding them would simply take too long. Voters have short attention spans, and tax loopholes are often overlooked by social justice issues, which nowadays take up most of the stage in our current political landscape. In fact, Political factors represent the most significant obstacle in implementing tax reforms.
Political parties require loads of money to be elected into power and stay in it. Funding mainly comes from wealthy constituents and mega-donors who contribute tens of millions of dollars to campaigns. These donors often have their own special interests, mainly involving keeping tax loopholes in place, and politicians cater to their demands to gain more funds. Politicians are no longer serving the American public, but rather a handful of rich constituents. Sometimes, these donors even hide their identities through dark money groups, preventing the general public from knowing their true intentions. The wealthy are the single greatest influence in politics, as they alone prevent most positive changes from happening due to their desire to preserve the current rules set in place that benefit them the most.
Our two-party system uniquely allows this outsider influence. It only takes corporations influencing a few politicians to create a blockade for the whole system. Our country has become increasingly polarized, and considering how narrow majorities are in Congress, just a couple of defecting senators or congressmen can derail the agenda of a whole party. Why do you think that the most prosperous industrial executives, mainly rooting from oil companies, are bipartisan donors? While they primarily support Republicans, in 2021, a $2.2 trillion climate and social spending bill garnered increased support from both Democrats and mega-donors alike. Do these wealthy people really support both Democrats and Republicans, even with both parties being so divided over many issues? The answer is no. They frankly don’t care about any social issues or societal changes. All they need are some members from each party to be on their side to achieve their own personal goals.
Oftentimes, we are stuck choosing between the two least corrupt politicians or the politician we disagree with the least. We are reluctant to vote for any third-party candidate despite any closely aligning views, because these third-party candidates have very little chances of winning, sometimes even skewing the vote in favor towards the more disliked bipartisan candidate. In a more ideal situation, the U.S. could implement ranked choice voting, forcing voters to rank multiple candidates by preference and revoting multiple times after removing the lowest-performing candidates. This way, all third-party candidates have a greater representation in votes. However, implementing it would require support from both parties, which is near impossible given the lack of strong support from them both.
Addressing the complex issues surrounding taxation as well as many other pertinent issues may not rely on directly electing certain politicians, but instead on dismantling our current bipartisan system, allowing for a greater spectrum of views in the political sphere. And, while we high schoolers don’t have the means to initiate a change of that scale by ourselves, we can all start by taking small steps, like having conversations with the peers around us and bringing awareness to future political changes. This could be as simple as explaining what ranked choice voting is or identifying how political donors have influenced legislation. This way, when one day ranked choice voting is put as a ballot initiative, we’ll all be educated enough to vote for it.