Nobody likes taxes! Not the Republicans, not the Democrats, not the conservatives, not the liberals, not the rationalists, not nobody, no how! Anyone who paints any one of these as liking taxes or wanting tax increases is a low-life pandering to an uneducated electorate. However, we all do want our governments to provide the necessary services and essential functions – and we know that we have to pay for them. What we all want is a fair and reasonable tax system that is optimum for our country and all Americans.
All I know about taxes, I learned from the Old Testament. The story goes that Joseph’s ten older brothers were jealous of their younger brother Joseph, who was his father Jacob’s favorite. So one day they sold Joseph into slavery, an act that led to him ending up in Egypt. Being a very bright Jewish boy, one thing led to another and at age 30 the Pharaoh appointed him Governor of all of Egypt. Joseph’s tax policy was to increase taxes in the years of plenty, pay off all of Egypt’s debts and deficits, and build a big surplus (much like President Clinton did during his terms in office). Joseph then cut taxes in the lean years and spent off the accumulated surplus to put the country back to work building pyramids and other infrastructure. This tax strategy was very successful – set a tax level that pays for essential government services and functions, in times of plenty raise taxes on all and accumulate surpluses, and in lean times cut taxes on all and spend off the surpluses. Good, sound economic principles. Violate them at your peril, and pay the piper. That’s why we are paying the piper now.
Using this tax strategy, we would not have relied on the Fed to cut interest rates to bail us out of a recession – creating a terrible 100% inflation of property values, extensive turmoil in the financial markets, despicable lending practices, and dreadful suffering of the last buyers into the game. Now all are paying the piper. Cutting interest rates again to bail out the financial markets that caused the current situation and to rescue the unthinking come-lately buyers will just compound the problems that are catching up with us.
I have a lot of rich friends. Many are millionaires. Many are multimillionaires. Many are multi-multimillionaires. Many were like me and were dirt poor growing up. Some of the rich (not necessarily my friends or acquaintances) have annual incomes of over $50 million, over $100 million, or even over $1 billion. And that’s great! What a wonderful country we live in that provides and allows this kind of opportunity for those who are blessed with wonderful genetic talents or wealthy parents. Those of us who have achieved some measure of wealth owe something extra to the country that enabled our success. That something extra usually takes the form of paying taxes – a progressive tax that increases as income and wealth increases – the more we benefit from America, the more tax we pay. On the other hand, someone who has not participated in our blessings perhaps because of illness or disability (mental or physical) is not expected to pay as big a tax bite as we do – in some cases, someone who works but does not earn a living, may actually receive a subsidy at tax time.
The worst taxes of all are the flat and sales taxes where rich and poor pay the same tax rate (8.25% in California). The poor who can afford to buy only necessities may go hungry because of this regressive tax. At least in California, food and medicine are exempted from this tax – unfortunately, the rich (who have plenty of money to pay it) are exempted as well.
Here are the facts of our current tax system (2006). The super rich after running out of tax shelters pay the long-term capital gains tax rate of 15%. The not so super rich who have incomes primarily from employment or short term non-qualified dividend gains over $61,300 pay a tax rate of 25% (married filing jointly) or over $336,550 pay a tax rate of 35%. Thirty-five percent (35%) is the top federal rate – but don’t forget the state rate of 9.5% max in California, – 44.5% total tax federal and state combined.
So the problem is that the rich pay federal taxes of 35% but the super rich pay only 15%. Is that fair? Obviously not!
So what to do? Right now the tax burden is falling on the shoulders of the middle class and near rich. More of the burden should be placed on the super rich giving them an opportunity to pay back America for creating the environment that allowed or enabled them to be super rich. But care must be taken that the incentive remains for purchase of dividend paying stocks – after all, isn’t that why we own stock, to share in a company’s annual profit? Prior to recent tax changes, qualified short-term dividends were taxed as ordinary income so the incentive was to buy only stocks that appreciated for long term capital gains; dividends were out of favor so the stock market became badly skewed as a result. (Bush got this one right!)
What’s best for America is a progressive tax system that increases as income and wealth increases yet incentivizes buying dividend-paying stocks. Tax cuts for only the super wealthy hurt our economy – look at what happened when a large tax cut for the super wealthy was made just before the great depression – soon thereafter America sank into the great depression that lasted until FDR created jobs (but didn’t go as far as he should have) and WWII federal spending finally ended joblessness. Look where we are today after the recent huge Bush tax cut for the super rich. Soon thereafter, the country slipped into a deep recession and the Fed had to drastically cut interest rates and thus caused huge real estate inflation where home prices doubled in three years, gasoline prices tripled, and food prices almost doubled. (Read any newspaper and it will cover the fiasco the mortgage lending institutions have made out of these drastic interest rate cuts.)
Now we are to sliding back into recession with some hoping that the Fed will again bail us out with ill-advised interest cuts and forgive the excesses of the mortgage lenders –which won’t fix the problem. Now, at least, no one is stupid enough to want to give the super rich another tax cut – thank goodness! The way to get our economy going is to raise taxes on the super rich so they pay their fair share and spend the money creating jobs that benefit all Americans – roads, water supplies, power, transportation, research, education, and health care. Whatever we do, we shouldn’t cut interest rates again – they are already at historic lows.
Tags: Tax on the Rich
