The Cranky Voter

Tax the Rich - What is Fair?

September 26, 2011 – 11:53 pm by Cranky Voter

Debt is at an all time high in the United States. Some say that Revenues are just not keeping pace with the cost of government. The left proclaims that the problem is the Bush Tax cuts. Those tax cuts made it completely unfair to the working middle class of America and some point to these very tax cuts as the cause of our deficit and huge debt. If the rich would only pay their fair share then everything will be right in the world. The debt would become manageable and the deficits would disappear. The rich wouldn’t mind paying their fair share, just ask Warren Buffet and that guy from Microsoft .. Bill Gates.

The Rich shouldn’t mind paying more in taxes, I mean after all they make more money. We hear the Super Rich tell us again and again that they don’t mind. Everyone from Barbara Streisand to Matt Damon to that guy who got stoned in the van in Fast Times at Ridgemont High  .. what was his name .. Spicolli … oh yeah it was Sean Penn  .. yeah Sean thinks he is a serious actor now and has important things to say, things like the Rich need to pay their fair share. Good old Mr. Penn he has no time for comedy, the comedy that launched his career, now he just wants to lecture the country on what we should do. Maybe he should focus on acting and leave adult conversations to adults. Or should we bow down before the mighty Spicolli Penn  and immediately pay more taxes because he has such gravitas and knows what is best for us mortal men. However, there are a couple of little secrets that they are not telling you. Spicolli is either hiding the truth or maybe he doesn’t understand the truth.

The first little secret is that most of the Super Rich wouldn’t be affected by a higher tax rate for a couple of reasons. The first reason is that Super Rich already made their riches. Income Tax is based on the amount of income that you make in a given year. Money invested in Real Estate, or Stocks and Bonds, or Companies that they own, or invested overseas or even hidden under their mattress doesn’t get taxed as Income Tax. So ask yourself what is the portion of actual new Income that Warren Buffet has to pay taxes on? Is it the 60 some odd billion that he is worth? Probably not .. and the return on the investments that he earns is usually considered a Capital Gain which is taxed at a lower rate. That lower rate in intended to provide incentive to Warren Buffet to invest in the economy which he does. As a result most of the income that Warren Buffet earns is not a salary like you and me so the question is who is impacted by increased tax rates. The answer is the middle class. That is why Warren Buffet can get away with saying something so outrageous as his secretary has a higher tax rate than he does. But who do you think pays more in taxes? I would bet that Warren pays more in taxes and his comment is a bit misleading on purpose.

The Middle Class used to be those hard working Americans that were trying to work hard enough to earn enough money to attain the American dream and increasing their taxes just keeps them farther from attaining that dream. Now Middle Class has been translated somehow to mean the working poor or the oppressed masses getting screwed by the Rich. We forget that it is the people with money that help provide the masses with jobs. I don’t know about you but I never got a job from someone who had no money. But isn’t part of the American Dream to work and save and maybe even start your own business? To earn a little bit more than it costs to survive to you can live the good life. To buy that big screen TV and the nice house. To open that grocery store on the corner or save enough to be able to invest in a Wendy’s Franchise? However now even the so called poor have big screen TVs. The children of the so called poor have ipods and ipads and fancy clothes with their food being bought by food stamps and even a free lunch at school. The poor don’t pay income taxes anymore but they get a refund or tax credit. Most Americans don’t pay any income tax thanks to those same Bush Tax cuts that everyone is complaining about.

The second little secret is that the Super Rich can afford to high tax attorneys and lawyers to figure out how to reduce the taxes that they owe. If they wanted to pay more taxes, the IRS accepts checks and are very willing to accept more money than you owe. As a matter of fact if you don’t claim your overpayment after 3 years, by law, you lose that money all together. But the Super Rich don’t voluntarily donate money to the IRS, yet they are more than happy to suggest that other people pay more in taxes. They use the money that they don’t pay the IRS to hire those Accountants and Lawyers that are searching for ways to save them more money. To take every advantage of the tax law and make sure that they utilize every loophole to pay less in income taxes. You and I can’t afford to hire dozens of Accountants and Lawyers to save us money on our taxes, but the Super Rich think that we can afford to pay more in taxes. I don’t mind the fact that the Super Rich are Super Rich. I don’t mind that they try to figure out how to pay less in taxes. I do mind that they seem to be volunteering those hard working Americans like you and I to pay more taxes. I do mind that the tax code is so complicated and convoluted that it requires a whole army of Accountants and Lawyers in order to file our taxes and maximize the savings. I do mind that the tax code seems to punish hard working Americans for working hard and earning more money until you truly attain the status of Super Rich. Oh yeah, and the best part is that if they itemize their deductions, the money that the Super Rich spend on those lawyers and Accountants is Tax Deductible.

The third little secret is that the numbers that they use to identify the Rich are misleading. Obama says again and again that if only the Millionaires and Billionaires would pay their fair share and yet they define a Millionaire as a family making only $250,000. Now that might seem like a lot of money, but someone making $250,000 is certainly not a millionaire or a billionaire. The number seems so arbitrary, why did they pick the number 250 thousand dollars? What happens if they change their mind and make it $200,000. Or $100,000. Who gets to decide where to draw the line? Eventually they might get to the amount of money that you are making. And can you afford a fancy accountant or lawyer to help you keep some of the money that you earned and now owe the government? You might have thought that the amount of money that you were paying to the Federal Government was fair, but someone in the government decided that it wasn’t. That you need to pay more, so that you can pay your fair share as defined by them. What if they decide that your fair share is not 39% of your income but 50% of your income. What if they decide that you need to pay 75% of your income? What is the definition of your fair share? Who gets to decide what is fair? The answer is that it is not fair to make an arbitrary segmentation of income and decide what is fair and what is not fair. The answer is that there should be some sort of objective standard to segmenting the amount of taxes we pay. Why is it fair to pay more and more of your income just because you earn more? Why should hard work be punished in this country?Why should a person have to pay a larger percentage of their income just because they work hard and earn more? What happened to the American Dream?

Another little secret is that a dollars worth of income is not the same depending upon what part of the country you are living in. People living in New York City have much higher expenses than those people living in other parts of the country like Texas or Florida. Food costs more. Gas for their cars cost more. Clothing costs more. State Income Taxes and Property Taxes cost more. When the weather gets colder heating and electricity costs more. So is any of that fair? Is it fair that a gallon of milk or a loaf of bread should cost more in New York than in Florida? Is it fair that in New Jersey a gallon of gas costs about $3.50 but when you drive through the tunnel into New York that same gallon of gas costs $4.00? So if we were really going to be fair shouldn’t we start charging a variable Federal tax rate based upon the cost of living and where you live? just to make things really fair shouldn’t we take some of these other costs into account? The definition of fair seems to be a very subjective measurement. A definition that I have never heard the President define. Perhaps as I tell my children we should all realize that sometimes life isn’t fair as you define it.

Another secret about Federal taxes is about who pays taxes and who doesn’t. It turns out that there are a vast number of Americans who don’t pay Federal Taxes at all. If we are talking about fairness, shouldn’t we all be contributing to the running and functioning of the Federal Government. I understand the theory that the more money you have, the more money you should pay in taxes. But what I don’t understand is how is it fair that some people don’t pay any Federal taxes at all. If I earn $250,000, living in New York City, with New York State Income Tax, NYC Income tax, Property Tax, School Tax as well as dealing with higher costs for food and energy I can understand the argument that I should pay my fair share, but who decides what is fair and is it really fair that I have to pay the same amount as someone living in Florida that has no State Income Tax, or City Income Tax or where the cost of living is so much less. Is that fair that we pay the same amount in Federal Income tax and the result is that the person living in Florida has much more money left over after taxes? And why should someone earning $50,000 pay no Federal Income taxes or actually get a check back from the Federal Government thanks to a Tax Credit? Shouldn’t everyone pay something? Isn’t that fair? Sure pay a lot less if you earn a lot less, but is it fair to pay nothing or to get a check back?

Now here is the most important secret about this whole conversation. Increasing the tax rate on the so called Rich would not solve our Deficit Problem. Even if we raised taxes on everyone, the government would still not collect enough money to reduce the deficit. Over time the amount of money that we owe is going to continue to increase unless some fundamental changes are made to the way government works. Currently, for every single dollar that we are spending, over 40 cents are being borrowed. Our government budget increases every single year by at least 7% even if no additional spending is passed by Congress and the President. That’s like saying at your job you are guaranteed a 7% salary increase every single year regardless of how well you perform your job. How many people in today’s economy get a 7% increase every single year? There is only one that I know and that is the Federal Government. Every year the amount of money that the government has to spend increases by 7% and when anyone tries to reduce the amount of the increase it is called a cut. If your boss told you that you were only going to get a 5% increase next year instead of a 7% increase, would you consider that a decrease in your salary? Some people in government claim that only increasing the government budget by 5% instead of by 7% is a cut. That sounds like an increase to me. Increase by a smaller amount, but an increase none the less.

In addition, as the Federal budget is rigged to continually increase, so is the amount of interest that you have to pay on the debt that we owe. As the debt increases, the amount to maintain the debt increases. So think about it as the loan you have on your house. Every month, if you own a house, you pay a fixed payment to pay off principal and interest on your house. When you do that, the bank let’s you stay in your house another month. The amount of principal that is paid reduces the amount that you owe and therefore reduces the amount of interest that you have to pay each month. As a result, the longer you make payments on your mortgage the lower the outstanding balance and the less the amount of interest that you are paying to maintain your loan. Now imagine you have an interest only loan. The amount that you pay every month goes completely towards paying the interest on your loan. The amount you owe does not decrease and therefore the amount that you have to pay in interest each month stays the same. Now imagine that every month you keep borrowing more money. As a result the amount that you owe increases every month. Therefore the amount of money that you have to pay in interest increases every month as well. That is what the government does. They pay interest only and every month they borrow even more money. As a result, the month that they have to pay in interest every month keeps increasing. The other thing is that the interest rate on the US debt is very low, but if the interest rate increases we will have to spend even more money just to maintain the loan. That over time is not sustainable.

We can argue over what is fair and what is not fair, but regardless of how much we all pay in taxes, fair or not, it will not solve our debt problems. We should all understand that we have a spending problem and not a taxing problem. Even if you raise the taxes as the Democrats want, it will not cover the amount we are spending and will certainly not keep up with the automatic increases in spending. So lets create a objective way to pay taxes that is more fair but first lets focus on reducing spending.

Now that might sound a little cranky and it probably is, but that is because I am the Cranky Voter!