Sunday, April 17, 2011

Taxing the Rich

The Democrats want to tax the rich. They are going to repeal those tax cuts given to the rich by the Bush administration.

The concept of being rich to the voter is something entirely different than what Congress is talking about, but they’re not about to correct Joe Six-pack's misconception. The average person envisions a rich person as someone with gobs of money that doesn’t have to work. So go ahead and tax the rich bastards. The trouble is, this is not the group Congress wants to pick on.

In order to pay taxes, you have to have earnings or a big healthy retirement plan. You can’t really tax a millionaires savings to death. Three million in the bank might return 30K a year but the taxes are a measly 4K.

The people the Democrats are targeting are the high wage earners and families where both the husband and wife work. Many of these people run businesses that have employees. If their future taxes increase, they will contemplate moving offshore. So we have more taxes and Obamcare for this group of rich people. If you’re an employer, it really puts a crimp in your bottom line. From off shore, the employer gets to keep the $12 profit per shirt and claim a modest one dollar profit as a jobber supplying imported product to the US. Notice how the taxes and labor costs drop out of the equation. I don’t think Congress can assume that rich people are stupid and are going to wait in line, to pay the new taxes.

The Democrats don’t need to tax the rich; the inflationary spending policy of Congress (printing money) does a superb job. Anyone with a savings account has lost 30% of their purchasing power over the last 10 years and we are liable to lose another 30% before the next election. That gentleman in the example above with three million in the bank now has the buying power of 1.5 million and he hasn't lost a dollar, kinda sucks doesn't it?

This snowball started rolling down the hill way back in FDR’s time. Very few people lived to collect Social Security at age 65 back then. Social Security in the beginning was a carrot on a stick. In today’s world, we either need a longer stick or a hell of a lot more carrots.

So rally around the Democrats, they are going to tax the rich and big corporations (who also pay no tax, the consumer pays it, it’s in the price tag). They are going to save Medicare and Medicaid for the elderly and keep those nasty Republicans at bay. “Nobody gets thrown under the bus.” Just love these analogies. Does Congress have a waiting list for people to be thrown under the bus?

We are spending 1.5 trillion more dollars than we take in, in taxes. If we cut out discretionary spending and the military, this budget could work. What’s left, is the money needed to service the national debt, Social Security, Medicare and Medicaid. And look out, here comes Obamacare entitlements.

People are beginning to realize that the budget has grown absurdly large and is very unrealistic. In Congress it is business as usual. By God, we are going to tax the rich and raise 50 billion. Of course we’ll need to raise the national debt limit up another trillion dollars. Do you get the idea that Congress is doing something incredibly stupid? Of course, it appears to be working so why worry.


Anonymous said...

Dude, the budget is large because Bush and Company thought that God would provide if they did his work (i.e. spent like no tomorrow in two wars) and Greespan and Company thought we could survive on sugar with no cavities (i.e. free-for-all interest rates). I agree that the middle class is and will foot the bill, but it's time to turn off the spiget for the rich (i.e. those that can afford to hire lobbies). The Republicans are taking us down and will continue on this path without a leader like President Obama. Time to start thinking for yourself and realize the Heritage Foundation is selling fantasy.

Anonymous said...

The Democrats are poison. Always have been. Socialism, entitlement and big government is not the way the USA was supposed to go. The Republicans are just as bad and just as responsible for our woes. The Dems tax and spend, the Repubs borrow and spend. They both need to go as they are destroying any remaining chance of this country continuing as a viable power. We need a new party, new blood, new system, new game plan. I hope for a rebirth once this country is in ashes.

Jim in San Marcos said...

Hi Anon 2:25

I think we need to look at two items.

One, the President of the US does not pass the laws, Congress does.

Second, anything done during the President's administration has a lag time of 2 to 20 years. And if you bring up FDR, your talking a lag time of 75 years.

As for the rich, you could confiscate every dollar they own, and you have only paid one years taxes. What do you do the following year?

45 percent of the households in this country pay no Federal income tax. Do you take all the money away from 3 million people or go after the 45% who pay no tax? In my book you go after the 150 million free riders, there is where the tax money is.

As for Obama being a leader, sticking a broomstick into a bees nest is not what I call leadership. The mess in Congress is all his fault.

I'm not trying to sell one party over another. That goes nowhere. We can't spend our way out of a debtor's prison. I suggest if you want someone to save you, embrace a religion.

Jim in San Marcos said...

Hi Anon 3:07

Common sense suggest you're right, but the third party usually collects enough votes to let the incumbent win.

The thing to look at, and it is hard to change, is voter qualification. I would like to see it, where you get votes according to how much tax you pay. The more tax you pay, the more votes you get to cast(maybe this is what lobbyist's are all about in Congress).

The way it works now, the entitled get to vote without paying any taxes. I think that this fact alone could end what we refer to as Democracy. The free ride has to end.

Anonymous said...

You are right. Property owners and tax payers should get more vote. Otherwise we are at the mercy of the great mass that receives gubmint handouts. It's also a moral hazard cuz the politicians keep bribing them for votes which makes the entitlement mentality worse and worse.

I don't know. Maybe I should lose my job, let the government pay for my babies, collect unemployment and welfare, hang out with the boys at the local liquor store, stop by the grocery store to spend some of my food stamps for some snacks; sit on the couch with a bag of cheez doodles and a 6 pack and watch TV all day and night, and always vote to keep my socialist politicians in the city, state and federal government, laugh at all the hard working, tax paying jerks out there.

Damn depressing ain't it?

AIM said...

The only point that matters is that the producers are going to be taxed and the freeloaders continue to freeload and not pay taxes. Just keep taxing the producers and keep the entitlements going to the non-producers who don't pay taxes (which equates to penalizing the good guys and rewarding the bad guys) and you will destroy this economy/country.
The producers are the ones that create jobs, consume and stimulate the economy with REAL business, employment and growth. That incentive is being destroyed by our government, especially by the liberal- socialist-democrat philosophy that exists within government.

"Tax the rich" is the classic statement that the Dems use to get re-elected by the massive "poor and entitlement" constituency... which happens to comprise a very large percentage of the population.

These dems and freeloaders aren't smart enough to realize that they are killing the golden goose -- the productive people who breath life into this country. They'll only realize it after the boat sinks.

frakrak said...

Jim, 45% do not pay income tax?
Taxation should be a no-brainer for everyone. It should be one item on the governments agenda that doesn't require wisdom, ie, everyone pays (contributes). Foreign policy should be the more complicated, wisdom evoking platform for the government to deal with!!
The point is reform is going to be harder in your country now, because of the rich/poor divide. You simply don't have a big enough middle class to buffer the hard decisions.

Anonymous said...

The statement 45% pay no tax is a mantra taught to fledgling Republicans that is not based in fact. Everyone who breathes in the USA pays taxes, even if they are not working, through sales taxes, licenses, permits and fees without number.

In 2008, the average American spent 9.7% of their income in state and local taxes of all types.
The reason the country is in such a mess is that for the last 30 years the upper income ranges level of taxation is half what it was in the 1960's.

Jim in San Marcos said...

HI Anon 3:39

45 percent pay no Federal Income tax.

Everyone is paying taxes to some degree.

Anonymous said...

I do everything that I can to not pay state and federal income taxes. I haven't paid taxes in 20 years. I use every strategy I can (convert my earned income to passive income, use losses, use depreciation and expenses of my rental properties, deductions deductions deductions). I'm not gonna give any money to a government that spends it on entitlements, war and giveaways to foreign countries. I'll only support a government that is truly for its people. That ain't the USA.

Jim in San Marcos said...

Hi Frakrak

I would guess that our middle class is pretty good size. The problem is that the government has borrowed all of the savings of the middle class and the rich.

If the government was to raise the taxes of each wage earner about $4,000 a year, we could probably cover the expenses of government. The Obama health care plan would be a tax increase of that magnitude, but the forward promised benefits offset each other. They are just kicking the can down the road for 4 more years.

Our government for 75 years used the surplus Social Security earnings to supplement the budget and that is no longer producing a surplus to spend.

If the government foolishly continues to spend, hyperinflation will trash the savings of the middle class. At that point you have a nation of very upset poor people wanting revenge.

I think if there is some sanity among our leaders, taxes will have to be raised (doubled) and entitlements will have to be slashed. The problem is, non of our leaders has ever been accused of having common sense, so as you suggest, its going to be difficult

Jim in San Marcos said...

Hi Anon 6:28

You sound upset, but I think if you give it some thought, where would you move to get a better deal?

I know how you feel about paying taxes, nobody will overpay on purpose.

My only tip is, don't claim the blind exemption if you prepare your own taxes;>)

frakrak said...

Jim, Anon 6:28's comments got me where I live ... if it is lawful why not? it has so many solutions to so many problems:)
It seems that everyone wants to be taxed fairly and the government to spend wisely?
To find an example of this one would have to defy the laws of astrophysics, find a wormhole and travel to a parallel universe, good luck:)

AIM said...

Government is so dumb. Raising taxes historically always lowers government revenue. Lowering them raises revenue. Duh.

The government would obtain more revenue by dropping income tax and switching to a consumption tax.

Could also boost tax revenues by higher taxing of products coming in from China... by making government smaller (get rid of Dept of Energy, Education, etc.)... by cutting back on 50% of our overseas military bases (where a presence isn't required), cutting back on defense, and weaning the public off of some of the entitlement give aways.

Fat chance. That would only be done by someone who wants to solve problems.

goodrich4bk said...


I always like to test somebody's assumptions by looking for examples in history. Let's try that with your assumptions.

You assume that increasing the highest marginal tax bracket from the current 35% (the lowest in over 70 years) to the Clinton 39.6% is not going to reduce the deficit and/or will hurt ordinary two-income taxpayers.

It was 91% under Eisenhower, 50% under Kennedy, Johnson, Nixon and the first term of Reagan. I am 55 years old and recall that during all of those years American families were able to buy a home, send their kids to college and pay most of the government's expenses from current revenue. What is your recollection and how does it square with your assumption that higher taxes on the "rich" is a bad idea?

Anonymous said...

The USD had a lot more purchasing power back in those days. A man could work a job and support his whole family. The cost of energy and food was very low. What you are missing is inflation acting as the hidden tax. What you are missing is that government has become huge and is spending and borrowing itself into extinction. We all should refuse to pay taxes until the government goes onto an austerity program and shrinks itself back to a viable size.

goodrich4bk said...

"I would like to see it, where you get votes according to how much tax you pay."

Jim, we've tried this. It's called an Aristocracy. It usually ends badly for the rich, who lose their heads to those who somehow believe they are equal regardless of how much money they have.

Or maybe we could give the vote to only those who have lost a limb in war. Or only those who work in soup kitchens. Or maybe only white people. Or hispanics.

Or, if you really learned your history, only members of a single governing political party should be able to vote. After all, they are uniquely positioned to know what the government's needs are and where the revenue can be found to fund it, no?

You see where your idea leads?

Anonymous said...

Right. The government is like a heroin addict. There is only one solution-- you cut off his connections, you cut off the people he hangs around with, you give him the proper medical and nutritional handling, and you throw him into a padded cell and force him to go through cold turkey and beat his addiction. Once clean you train him and give him skills to go out into the world and exchange value for value and become a contributing member of society (his pride and sense of worth has been restored). He gets a warning too: this was your last chance. Do it again and you will be removed from the society because you will be considered a menace and a danger to the people.

Man addicted to -- heroin

Government addicted to -- printed money, credit created out of thin air, treasuries, tax revenues, federal reserve, etc. etc.

If you don't handle the drug addict now, he will someday appear in your bedroom in the middle of the night and stab you to death so that he can get the money he desperately needs for his next fix.

That is the analogue: unless we step in and HANDLE the criminal government NOW, it will wind up, out of desperation, murdering this country in its sleep.

If an individual ever acted like the US government acts that individual would be put in prison!

goodrich4bk said...

Jim, you are cherry-picking your tax facts. While I commend you for correctly noting that 46% pay no federal INCOME tax (some people falsely claim that 46% pay no tax or no federal tax), everybody pays payroll taxes and these taxes are used to support all of the government's programs, not just Social Security and Medicare.

Of course, everybody also pays sales taxes, which in CA are almost 10%.

So here is the tax your rich person pays on his $100,000,000 of wealth:

4% tax-free return on a portfolio of muni bonds is $4 millian a year. He spends $1 million on taxable goods and pays $100k in state taxes. This is .1% of his wealth and 2.5% of his income.

I am worth $500k, earn $75k a year and spend $25k on taxable stuff. All my income is self-earned, so I pay a 15% payroll tax, or $10k. I pay $2,500 in sales taxes. And let's say I pay NO FEDERAL INCOME taxes because my home mortgage makes me one of the 46%.

My taxes are $12,500, or 2.5% of my wealth and 16.67% of my income. The "rich" guy pays only .1% of his wealth and only 2.5% of his income.

But you want to give him a greater say in how our combined taxes are spent.

Got it.

Anonymous said...

Check out Mish's blog on Sandy Springs, GA, the city that outsourced everything.

Jim in San Marcos said...

Hi Jeffery

Don’t assume that a 90 percent tax rate brings in more revenue than a 30 percent one. The rates only show the investor what not to invest in, and if they are high enough, they will skip it. The tax rates only determines how and where you will invest.

I contribute to an IRA, not because I don't know how to save and invest, I do it to get a 2,000 dollar deduction on my income taxes. People out here are installing Solar Panels because of tax incentives.

There is a distinction between taxing the high income earner and taxing the rich. Congress’s plan of taxing the rich is to tax high income wage earners not people with accumulated dollars in a bank. But when you hear them talk, it is “Tax the Rich,” and that’s a vote getter!

You example of someone with 100,000,000 dollars in the bank, he has been taxed by inflation 50% over the last 10 years. Inflation is a government tax and the wealthy get to pay most of it. The trouble is, inflation doesn’t just single out the rich, it nails retirees royally.

I stand by my statement

"I would like to see it, where you get votes according to how much tax you pay."

I don’t see where being poor entitles you to live in this country for free. The Romans (of old) charged every man one month of labor every year for taxes. Let’s do the same. We get 70 years on this planet to live, pay your way.

When this country was founded, only male land owners could vote and they didn’t even get to vote for the candidate, they voted for someone else who would cast his vote. Today, anyone can vote even if they’re in the country illegally. When you register, see if they even ask you for any identification or proof of citizenship. All they want is your address. This country is headed for the poor house, because the voters want more, but they don’t want to have to pay for it. I believe that taxpayers have some skin in the game; where as those just receiving benefits are not necessarily acting responsibly. The elderly have needs, but Congress can’t say no to them. Some tough choices have to be made and Congress has no guts.

frakrak said...

Jim without an appearance of fence sitting; what if all the comments above have merit, and truth? One overlooked part of all this could be another parallel debate
What if you were given a mandate to rip the largest economy the world has ever seen apart, send its collective wealth offshore, and then give its populace a bill for fuelling these offshore factories for two decades on cheap credit (because they no longer have the means to create wealth to pay for these goods). Your mandated target was 3 trillion dollars, and then just before the currency does a lemming over a cliff, create QE, that sends nearly all this newly created money offshore at the expense of the tax payer to pick up the tab, and your mandated target for this is now 5 times the previous amount? And what if you were told you had fifteen years to not only take all the wealth, but put them in debt so great; their children’s children would only just start repaying the principal? Oh and if you choose to accept this mission, the populace needs to be pointing the finger at each other for the blame?
I know it could never happen, but what if?

Anonymous said...

What I have learned is that I'd rather be the rich guy than Jeffrey.

steven said...

I love reading your blog because it has very interesting topics.

Anonymous said...

Tax the rich? Humbug.
They pay high end tax attorneys to figure a way around the tax laws. If new tax codes come into being, these geniuses figure a way around them for the rich. The rich have no qualms paying $20,000 to one of these tax sharpies so that they only pay $50,000 in income taxes instead of $2,300,000.

Jim in San Marcos said...

Hi Anon 7:09

You grip about the rich not paying their fair share, how about the poor paying their fair share?

An awful lot of people in this country work in the underground economy and pay no taxes like hookers and drug dealers (pretty much anyone self employed).

Why should the rich be singled out and be made to pay taxes for those who don't have to?

When I lived in an apartment in College, we divided up the rent and phone bills equally. Nobody paid less because they were poor.

IMHO, it's the poor that need to pay their fair share in this country. The rich are tired of paying for their free ride. Pay no taxes in, collect nothing in return.

Anonymous said...

I'm not whining about the rich not paying taxes, I'm just telling you what they do. I'm in full agreement with you -- everybody needs to carry the load. But I don't believe in income tax. It is unworkable for many reasons (mostly because it kills incentive and it also demoralizes those who pay and who see that others are not). I believe that a consumption or purchase tax would be much more workable.

My personal solution for financial survival is to not be an employee and avoid payroll taxes, run my own business out of a corporation (one has a lot of expense writeoffs and trick that can be used, and the first 50k of profit is only taxed 15%) and to convert all my income to passive income (which is taxed less -- no social security/medicare tax). Gotta keep working at beating the system and not paying taxes. Why? because the government is criminal, corrupt and too big and in violation of our Constitution. Screw em! They've betrayed our trust a long time ago. It's every man for himself now -- and the government is responsible for creating this mindset in its citizens. They have failed us.
Anon 7:09

Unknown said...

Everyone's taxes need to go up, but the high income earners need theirs to go up more.

Not that I was ever convinced that tax cuts create jobs, but after the Bush tax cuts, where are all the jobs? Instead of hiring more workers, large companies hired overseas at roughly the same rate they downsized in the U.S.

Yet the average pay package of the average S&P 500 CEO was $11.4 million in 2010, an increase of 23% from 2009.

So, the rich downsized their payroll costs while they also got a tax cut.

Most people just want a decent job that doesn't abuse them too much with a salary that allows for them to keep their family comfortable, good schools, and pothole free roads. Everything else is gravy.

Now, the roads are crumbling, public transit has been cut to being unusable, teachers are being laid off, and worker are being told they'll have to take yet another pay/healthcare/retirement cut while the guy in the corner office is already spending his next tax cut on 20 day trip to Germany for European delivery of his new 750iL.