Showing posts with label Capital gains tax. Show all posts
Showing posts with label Capital gains tax. Show all posts

Monday, September 27, 2010

Whither the Tax Cuts

In what has to be the most pathetic display I have seen in quite awhile in Washington DC, it appears that the Democrats are going to wait until after the election to take up the issue of the Bush tax cuts. Why they are not taking a vote is pure stupidity.

Most Americans want the tax cuts to be extended for all but the upper 2 percent. It's a slam dunk for the Dems heading out to campaign for the month. Even if they don't have the votes, they can point to the GOP and completely illustrate which party stands for the middle class and which does not.

They can also call the Republicans on their credibility gap regarding the tax cuts and what it will mean for the deficit. The simple fact is that if the budget is to be balanced by 2020 while making the cuts permanent AND protecting the programs (Social Security, Medicare, Defense etc) the GOP (in their Pledge To America) says that they will protect, the entirety of the rest of the federal government will have to be abolished. The complete absurdity of the GOP position needs to be aired. But now with no vote in either House, this won't happen.

People need to understand some basic facts about taxes. Here is an excellent summation from a recent comment by blk.

The average guy (someone who makes, say, $100,000 or less a year) will pay the regular income tax rate, which is 28% at $100K, as well as payroll taxes (Social Security and Medicare, which is 6.2% on $100K).

Now the rich are different. Much of their income can come from capital gains, which is taxed at the 15% capital gains tax rate. So, if you're rich, you just arrange to get most of your income in the form of capital gains taxes (stock bonuses, dividends, etc.) instead of salary. That way you pay taxes at half the rate of regular guys, and you pay no payroll taxes at all.

This is why Warren Buffet blasted the Bush tax system: he paid taxes at a 17.7% rate on his $46 million in 2006, while his secretary, who made $60K, paid taxes at a 30% rate.

And it's easy to arrange any percentage of your income to come as dividends. If you own a corporation, you decide how much salary you are paid. You also decide how to distribute dividends from profits. You simply adjust the slider to more dividends and less salary if you want to pay less tax. The IRS might get suspicious if you pay yourself $1 (as the GM CEO slyly did while accepting stock in place of salary). But paying yourself a salary of half a million dollars while giving yourself ten million dollars in dividends will still mean you're paying half the tax per dollar earned than the average person, and the IRS will never blink an eye.

This point was further driven home in a recent editorial by John Verant, a lawyer here in Minnesota.

The past 30 years have witnessed the largest redistribution of wealth in the history of America. When Ronald Reagan came to power, the richest 1 percent of Americans held 20 percent of the total wealth. When he left office, that figure was 36 percent. Today it is 43. Since 1980, the wealthiest 1 percent of Americans had their share of all income increase 2 1/2 times. And the top 0.1 percent had their share of our national earnings increase an amazing six times.

And yet we hear a constant drone about the evils of "soaking the rich" and how awful that would be for the free market should the tax cuts for the upper income brackets be allowed to expire.

The problem with this argument, as even Adam Smith knew, is that the "free market" is an objective measure of value only when parties have relatively equal bargaining strength. When bargaining strength is grossly disproportionate, as is usually the case in employer-employee relationships, the market is a compass that indicates nothing more principled than He Who Has the Power.

So, all of you Smith lovers out there can find another colonial to prop up as "evidence" that your ideas actually have practical application in reality. This is our reality now and it sucks. Adam Smith is completely irrelevant.

Verant goes on to echo blk as well as make some key points as to how we arrived here.

Our leaders changed the rules of the game.
  • They changed the tax code so that Warren Buffet now pays income tax at a rate slightly less than one-half that paid by his secretary.
  • They permitted businesses to use tactics in labor negotiations that in Europe would be criminal.
  • They permitted corporations to undergo reorganizations in which they extinguished their obligations to employee pension funds, while their obligations to banks were held sacrosanct.

As a direct consequence, today the richest 1 percent of Americans own as much as the bottom 95 percent, a disparity greater than at any time in our history. Money is power, and having a tiny minority holding the bulk of the power is contrary to the most fundamental premises of a democracy.

This is the exact reason why the GOP and their supporters want the tax cuts to stay the way they are. The people that are funding the so called grass roots of the Tea Party (the Koch Brothers, for example) desperately want this system will stay in place. And who can blame them? This sort of insane disparity gives them more power.

But how can one measure this disparity?

The top 25 hedge fund managers in America collectively received $25 billion in compensation last year, an amount equivalent to that paid to 658,000 schoolteachers responsible for the education of 13 million students

The CEO of one of Minnesota's health insurance companies receives compensation equal to that of about 1,600 nurses.

These could be the Democrats talking points. They would have Main Street on their side in less than a second because this is the very essence of why our economy sucks as bad as it does right now. Enmity for Wall Street is at an all time high! But the Dems are too afraid of being called a "socialist" or "Hitler" even though there is nothing remotely socialist about having the government do their fucking job and actually defend us against these pathological scumbags.

It's no wonder the Democrat's base isn't as energized as the GOP's base. Their leaders are submitting five weeks before the election has even happened.