Killing The Economy

I see red every time I hear Obama say, “The rich should pay their fair share.” What’s fair about the top 10% of wage earners paying 70% of all the taxes? What’s fair about the bottom 50% of earners paying no taxes?

Then I see red when Romney was criticized for only paying 13% of his earned income in taxes. Critics forget that he gets to write off his charitable contributions. Where would the nation’s charities be without contributions from the rich? They forget that he may be getting tax free income from municipal bonds. We benefit by paying lower interest rates on capital improvements, roads, bridges, schools, etc., by the wealthier citizens buying municipal bonds and getting tax free income.

Critics forget that Romney pays lower tax rates because his income may come from Capital gains. IBD has an editorial about capital gains rates today. They argue that there are Six Reasons To Keep Capital Gains Tax Rates Low.

  • Inflation – The government is the source of inflation. It is the reason that house prices appear to increase when it’s really the dollar that is losing value. Why should anyone pay current income rates on the gains. Capital gains rates are a way of indexing for inflation.
  • “Lock-In” – taxes are assessed on the realization of gains. If capital gains rates are high, an investor will avoid a sale and that locks in capital that could start a new investment.
  • Double Taxation – shares of a company rise because of future earnings, which are taxed at the corporate level and taxed again on sale of shares. Dividends are the result of earnings which are taxed and when paid to investors are taxed again.
  • Competitiveness – “Capital has become highly mobile across borders…” when the taxes on capital are higher here, it will move to countries with lower rates and there go jobs!
  • Growth Companies – “Reduced capital gains taxes encourage entrepreneurship.”
  • Government Revenue – “A recent Congressional Budget Office study found that the longer-term responsiveness of capital gains realizations to the tax rate is quite large. It found a persistent elasticity of -0.79, which means that a 10% cut in the tax rate would increase ongoing realizations by 7.9%.”

You want to tax all income at the same rate? Then prepare for more unemployment and less revenue for politicians. You want to raise rates on capital gains and dividend income, then prepare for an economy that tanks and bigger deficits and more debt! Kill the golden goose and prepare for the young to riot for lack of jobs and the streets to be filled with rioters who want their “entitlements” which we won’t be able to afford.

2 Responses to “Killing The Economy”

  1. Accountingdiaries, as to your first point, Congress passes laws to encourage certain types of behavior, whether it’s investing long-term or buying a house. A Supreme Court justice once said there is no obligation to pay more taxes than you are legally obligated to pay. So our tax laws are so convoluted, you need a tax lawyer and a CPA to pay only what is required and no more.

    As to your second point, 20% of 50,000 is $10,000. Our tax system is set up so that anyone earning $50,000 probably pays no taxes and 20% of $1m is $200,000. That’s a lot of money and Obama doesn’t think that’s their fair share. What is fair? France now thinks 75% is fair. Before Reagan was president our top rate was 91%. Then on top of whatever FED rate you have, there’s the state rate. Oregon is 9%!

  2. It is true that the tax system is not fair. I don’t see how it can be fair to be honest. There are two big problems in my opinion. The first is that the tax system provides way too many opportunities to pay little or no tax providing that you have the money to hire tax experts and setup schemes that can help you do that.

    The second problem is that for someone that earns $50k, 20% is a considerable cost. For someone that earns $1m, it’s not that much of a cost (relatively).

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