22 May

It’s Time for Leftists to Get Real About Taxes [Reader Post]

                                       

To all of the leftists out there, it is time for you to take a dose of reality when it comes to tax policy in this country. I’m not just picking on you this time – I’m throwing out a comparable reality check to my libertarian/conservative brethren. For you, it’s time to put to rest one of your favorite solutions to fiscal problems at every level of government – I am of course, referring to raising taxes.

I’ve written before about how targeted luxury goods such as yachts and jewelry have failed. I’ve also illustrated that you can raise taxes all that you like; it will not make a difference unless we curb government spending. Today I’m going to show you that no matter how much you raise taxes on the wealthy, they will never pay the percentage that you personally are morally and intellectually qualified to deem as fair. How do I know this? Because they can do it today and choose not to.

Before we go into the choices of wealthy leftists, it’s important to first note the difference between tax rates and tax revenue. The tax rate is the percentage that the government takes of income or goods, such as in a sales tax or import tariff. Think of the 25% tax rate or a 6% sales tax as illustrations. Tax revenue is the dollars that are actually collected. You can raise rates as high as you want to. As those higher rates make their affected activity more expensive, we see less of it, aka. tax avoidance. This is not the same as tax evasion, which is avoiding taxes that you are legally bound to pay under law. Tax avoidance is using legal means to avoid a tax rate. On an investment level think of investing in tax free government bonds. At the local level think of living close to the border of a state with a low sales tax rate (such as Delaware’s 0% sales tax) and traveling to that state to do the bulk of your shopping. Both of these activities are legal ways to avoid taxes. Or you could simply not purchase a good, as the luxury tax example referenced above shows. At the level of taxing the wealthy or taxing businesses, they will use every resource at their disposal to avoid paying any more taxes than they have to. If our government makes paying the tax less expensive than avoiding the tax, people will choose to pay the tax.

Look at the table below. It shows the income of someone who has an annual income of $1 million per year. In the name of fairness we impose a 50% tax on that millionaire’s income. Having worked hard for his money said millionaire will look for ways to avoid having to hand over half of his income, and hires accountants and lawyers to help him avoid this tax. By paying them $100 thousand per year they get him down to a 20% rate, he gets a total tax + accounting cost of $300,000. Guess which one he chooses? Now look below the black stripe – when the rate is lowered to 25% it costs the person less to pay the tax than to avoid it. As an added bonus, the government actually collects more money at the lower rate, hence we see actual "revenue enhancement."

Now back to the choices made by the wealthy. We have our share of leftist billionaires who say the correct things about tax fairness to the powers that be. Buffett, Gates, Ted Turner, etc. If they feel so strongly about people at their income levels, why don’t they simply pay it? Why do they set up charitable foundations to selfishly help causes that they personally support when by their own words that money can be better spent by a mid-level bureaucrat? Why is every wealthy billionaire not cheerfully walking down to the treasury department and handing over an annual endowment to support the government’s good deeds? Because they choose not to. I think that we can all agree that Warren Buffet is an intelligent guy. When he negotiated his compensation package he was well aware of the tax implications of taking home his pay via capital gains versus salary. He could just as easily have negotiated salary with performance bonuses tied to stock price that would have been taxed at a higher rate. Why didn’t Buffett do this? The answer is simple – he chose not to.

I apologize if this seems pretty elementary, but what is it that makes you believe that raising the rates on these individuals will cause them to pay the amount that you want to collect? Yes we can close tax loopholes, but Warren Buffett and Bill Gates can afford to hire the tax accountants and lawyers to ensure that that rate never gets applied to their income. You know who can’t afford those lawyers and accountants? It’s the small to mid-sized business owners who spend their time and money on such evil pursuits such as providing goods and services that customers willingly purchase and creating jobs. You can scream for fairness all you want, but raising tax rates is not going to accomplish that.

Of course, I have evidence to back this up. Look no farther than that bluest of the blue states, Massachusetts. The good people of that state spent decades choosing to inflict leftist stalwarts John Kerry and Ted Kennedy onto the American people. Kerry and Kennedy were always reliable leaders of all things leftist, so you would expect them to be at the front of the line when it comes to paying their fair share of taxes, right? Wrong. A few years ago John Forbes Kerry, a man who earned his wealth the old fashioned way by marrying it, cause a bit of a stir over his yacht. Apparently the state of Massachusetts levies and extra $50,000 tax for anchoring your boat along its shoreline, so he chose to anchor his yacht over in Rhode Island to avoid paying his state’s tax. I guess that now we can question his patriotism.

Then there was Ted – the late Lion of the Senate who is so near and dear to so many on the left. He would be the first in line to ensure that he’s paying his fair share, right? Wrong. When his mother Rose was close to death, Ted realized that the state was going to try to take its fair share of her vast estate, so rather than allow this money go toward helping the poor or keeping teachers and firefighters employed the Lion of the Senate did what any compassionate leftist would do – he had his mother declare residency in the state of Florida, which does not have the same tax laws. So instead of this money going to the poor or our brave civil servants, the money stayed a cause that Mr. Kennedy deemed far more worthy – Mr. Kennedy.

I won’t follow the classic leftist tactic of pretending that two isolated incidents equate research. The two gentlemen I just cited make for a good starting point, let’s spread this example across a macro level, as in the entire state of Massachusetts. It’s citizens found a perfect way to get the rich to pay their fair share – they’ve passed an optional higher rate on their state taxes. That’s right, if you are one of the wealthier taxpayers you are allowed to choose to pay that higher state tax. Guess how many do – if you said "somewhere around nobody" you would be correct.

You know who else did not pay this optional higher tax rate? That’s right, the Occupy Wall Street favorite Native American candidate in Elizabeth Warren – wealthy one percenter, advocate of the downtrodden, and pure hypocrite.

It also doesn’t take much research to find other examples of where "Revenue enhancements" actually… didn’t.

This is my point. I’ve taken the bluest of the blue states, and two of the truest blues that any good leftist could ask for as representatives in Congress. By your criteria of ideology, these represent the best of the best from your end of the spectrum, and if they can’t be counted on to pay their fair share, what hope is there that the government will be able to collect from those evil, selfish, knuckle dragging red staters?

I’m not suggesting that we abolish taxes or government – I’ve written about this before, and save for your occasional flake nobody else is either. If we want more revenue coming in, we need to simplify our tax code and stop promoting policies that are designed to restrict taxable activities. And conservatives have their own issues with getting in touch with reality on taxes, but from your end you need to take a hard look at your policies. One point you can rightly ding me for is asking what that ideal rate should be. To be honest, I don’t have a magic number, and where we should be on the Laffer Curve is a separate debate. But we’ve established that we have reached the point where your stock answer of "more" as to what the ideal tax rate should be won’t work, either. We need a less complicated tax code, and your endless mantra of raising taxes as the answer… isn’t.

This entry was posted in Economy, Obamanomics, Politics, Taxes. Bookmark the permalink. Tuesday, May 22nd, 2012 at 12:01 pm
| 470 views

10 Responses to It’s Time for Leftists to Get Real About Taxes [Reader Post]

  1. Ivan says: 1

    Until the USG gets a hold of it’s spending problem, nothing will be fixed.

    Nothing.

    ReplyReply
  2. Hard Right says: 2

    Brother Bob, extremely well written, but I fear leftists won’t read it or won’t understand it.

    ReplyReply
  3. FAITH7 says: 3

    Great read Brother Bob! Now, is if this could only be absorbed by more people…. [but, to those on the 'left' this is considered extreme]

    I have said in the past…if you took every dime of the nations wealthy, it would not put a dent in the interest the USG owes alone!!!… never mind the 16 trillion!!!

    If the free markets were able to thrive, more people could work and more tax [the minimum] could be paid….

    There lies yet ANOTHER PROBLEM to this fiasco…called Government…and it should get every American’s blood boiling:
    Our Politicians ‘perpetuate problems’ to perpetuate their their job security and longevity in their political careers…. AND they create straw men to create yet more Problems that need fixin’ and then THOSE get dragged on forever?! Is this the most ridiculous thing?!?

    For the love of peace take something that is wrong [in our Government/Country] and FIX IT already!! ..there are ton’s [of screwed up things] to choose from…let’s get a move on…let’s start saving the Tax payer some money for a Hope and Change… !!

    ReplyReply
  4. Nan G says: 4

    Leftists are ”real.”
    But they propagandize for their side whenever possible.
    So, they slant every story to make it seem that conflate tax rates and tax revenues…..if that makes their opposition look bad.
    Their compliant media slants everything to go their way.
    It doesn’t matter that it is super-easy to fact-check their ”facts” away.
    What matters is their chosen news cycle.
    So, a very slanted poll from the Washington Post/ABC News shows Barack Obama only three points ahead of Mitt Romney, 49/46, within the margin of error.

    What does it matter that the ”poll” uses imaginary proportions of Dems/Reps/Indys?

    This poll admits in its fine print that it used D/R/I is 32/22/38.
    This model would only be predictive and honest if only 22% of voters are Republican.
    But the 2008 turnout split from exit polls showed a 39/32/29 split.
    In the 2010 midterms, the split was 35/35/30.

    This lying poll is meant to cause IDIOTS to ”climb on the bandwagon.”
    Climbing on the bandwagon is a fallacy of logic.
    It took an imaginary proportion to create this phony bandwagon for IDIOTS to climb on.

    ReplyReply
  5. Brother Bob says: 5

    Thanks, all.
    Faith7, if you haven’t seen it yet check my previous post about what it would take to actually balance the budget. It’s real, and it’s ugly.

    ReplyReply
  6. mossomo says: 6

    The house of cards is going to crash. Call it peak government. The game is up.

    If we will not impose discipline on ourselves, the market will do it for us. -Monty

    It amazes me that this far in the recession the only solution they have is to increase taxes. It doesn’t seem like any State of the Union or any of the European nations outside of Iceland and Finland have smaller operating budgets today than in 2007. Just tax, tax, tax and spend your way out.

    Gov’t are choosing to do all they can to perpetuate the status quo – focusing on keeping things together just through the next quarter, through the next election cycle. And its clear that their best efforts are meeting with less and less as the situation worsens.

    Example #1 – the last paragraph says it all: …Malloy’s strategy is flawed because he enacted the largest tax increase in Connecticut history and the state is still facing a deficit.
    http://bit.ly/LEzlo8

    Example #2 – In January 2011, Illinois lawmakers raised income tax rates by 46 percent on businesses and a record 67 percent on individuals. And with this flood of new tax dollars, urgent pressure to pass lasting structural spending reforms deflated. The state is still broke. Not only still broke, but they borrowed more money last year further ballooning state debt.
    http://bit.ly/xOCwVc

    One of the problems for politicians is GDP. GDP in of itself isn’t bad. But insert a bureaucrat statistician and GDP becomes a numbers game.

    Take for instance effeciency. Efficient producers such as the manufacturers and suppliers of electronic goods and services, who reduce their prices over time, see their output diminished as a proportion of the statistical whole, while those that maintain their prices by monopolistic or subsidised means keep and even increase their weightings.

    Alasdair Macleod, an prominent economists sets it straight: if you try and measure an economy by GDP, all you are measuring at the end of the day is the amount of money in the economy. It is not a measure of economic progress or true growth.

    You have money in the private sector where value is produced and competitive advantages are gained – keneysians are taking money away from the productive economy and injecting it into something less productive or not productive at all.

    The money from the productive area of the economy is the area that needs to progress for the world to move forward from this global malaise.

    Not only have politicians completely deceived the public over economic growth, but they deceive themselves. For this reason they are unequipped to deal with the developing crises, which are the result of earlier interventions. They now claim that economic growth, the ultimate source of tax revenue and government solvency is jeopardised by spending cuts. Statistically, this is obviously true, because if you take away government costs and support for unwanted economic activities, GDP will fall. But the important point that is commonly missed is that a government which stops draining an economy of its private sector resources actually releases them to be deployed more effectively for the common benefit by those randomly-acting entrepreneurs. – Alasdair Macleod

    The next economic cycle? The FaceBook ipo flop – this was as good as any confirmation that we are entering it. And this one is going to be nasty.

    IMF Managing Director Christine Lagarde told Hardvard graduates they faced one of the most challenging economic times since the 1930s… Lagarde pointed to “the inability of 75 million young people to find a decent job.”

    Barron’s has an article up about the Baltic Dry Index no longer being a relavant metric because too many ships and not enough trade: http://on.barrons.com/xQmlta

    I read China defaulted on coal contracts this month. http://reut.rs/JyIWvf

    Spain, France, and Germany just passed new border controls laws. When the EU collapses, people are going to attempt to flee with their money…

    I have family in Europe. Email: Shortly after I arrived, the merchants did not want dollars or to be paid by credit cards issued from American banks (no Visa, no Mastercard etc) and they covered up the slots to swipe American credit cards on their machines and asked for cash or a bank card with a “chipknip” from a euro bank…The banks are under capitalized, they are being asked to increase their capital requirements. … when we drove across the German border from Zwitzerland, there were armed border patrols.

    Hattip – Brother Bob, TAB, ZeroHedge, Monty

    ReplyReply
  7. Liberal1 (objectivity) says: 7

    It costs a lot of money to perform the service of a society. We could have never built the inter-state highway system in the 50′s without a 70-90% tax on the wealthiest citizens. Since Reagan—even though he raised taxes 13 times—we have not had enough money to maintain our tremendous infrastructure.

    ReplyReply
  8. johngalt says: 8

    Infrastructure. An interesting term, Lib1, however, I don’t think it means what you think it means.

    After perusing several definitions of the word, I failed to find social programs as a descriptor.

    ReplyReply
  9. Brother Bob says: 9

    Libtroll: Welcome back -I’ve missed your comments! I know you don’t read responses, but in the event that you ever do let’s start off with some math – how many Americans actually paid the 90% rate?

    ReplyReply
  10. Pingback: What Defines a Leftist?

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>