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Death and Taxes

January 7th, 2010 · No Comments · Economics, Politics

The Heritage Foundation and the Cato Institute plus Grover Norquist’s group, whatever he calls it….basically “We Don’t Want to Pay ANY Taxes, Inc.” have all made loud squeals about President Obama’s intention of raising the highest taxation rate, from whatever it is now to a top rate of 39.6% and 36% respectively for the top two rates. It should be mentioned here that all Republicans, not merely the international-corporation-plus-billionaire-funded Heritage Foundation and the oil-industry funded Cato Institute, howl mightily about paying taxes but have no qualms about spending trillions on a war based on a personal grudge.

While howling, they should check the newspapers…which of course they do….to find out that our two most prominent multi-millionaire-top-executives, the former President and Vice President pay only about 21 to 22% effective taxes…what they actually pay, on their incomes, which are based on their wealth—in the $20 to $50 million range. So they take incomes of $400,000 per year, (could you live on $35,000 a month?) and pay taxes of about $80,000.

They complain that the top 1% pay 90% of all taxes. This of course isn’t true or even close. In fact, the top 10%, which is those with annual incomes down to about $113,000 pay slightly over 70% of the taxes. If you take it down to incomes of $66,000, it still does not hit 90%. So the idea that the very rich are paying the freight simply is not true if the freight is water because the assertion just does not hold water. Period.

Why would we mention Cheney and Bush and how much they paid in taxes, other than that we wanted to show that very rich people pay fewer taxes than they would like you to believe? We mention those two simply because Cheney amassed a fortune by using his government contacts to get rich by obtaining business for the Halliburton Corporation. He wasn’t some genius oil man nor any kind of an oil man. In fact, he had never had a job outside of government. The story is that he made at least $44 million and continued to be paid while Vice President, the only example of that we can find in the history of the country. Not only that, but he continued to see to it that Halliburton got military contracts in the war that he started. How’s that for a sweet deal? Think he should pay any taxes? He’s done pretty well by the “big government” that he says he wants to reduce.

Bush was an oil man but not successful. It has been widely reported that when his company failed, a friend of his father’s bought out the stock in the company. It has also been said that he neglected to report something, in violation of SEC rules, that enabled him to escape with stock in Harken oil. When a group of Daddy Bush’s friends put together the money to buy the Texas Rangers baseball franchise, they let Bush, Jr. in on the deal. He had to borrow a little money, but, thanks to Daddy Bush’s friend who bailed out his company, he apparently had enough assets (and friendly bankers) to borrow the money to buy in to the deal and ultimately was appointed President of the team. According to those in the know, his only job was to show up and shake hands. He made something like $21 million when the team was sold. For shaking hands. It appears that he’s better at going to ball games and shaking hands than he is at finding oil. But this isn’t about Cheney and Bush and there money-making schemes.

There is a theory that many Americans have this dream that we must not tax the rich too much because, after all, this is America and we may all or each of us have a shot at getting rich one day. Here’s the counter argument to that, in two parts. First, statistically speaking, it will never happen! Second, let’s use an example. Suppose that you have a chance to play basketball for North Carolina and if you do, you will may get tot the NBA and be rich. Or, let’s say, you have another option. You could have a scholarship to Illinois and become an engineer or a computer wizard or go to Harvard or MIT and become a physicist or go to Penn and become an international financial expert. Unless you are six-foot-nine, agile and can make a shot from 30 feet ten times in a row, you will probably take the latter. Because the odds of making it for a 5-foot 9-inch klutz in the NBA are nil. Not almost nil, but totally, unquestionably nil. In other words, “nil” nil.

Millionaires are guys who do the opposite. With a few exceptions, they are created by a combination of luck and cunning, which is a certain subset of intelligence. Bill Gates was smart, but he and Paul Allen recognized something before others did. They gambled that they could do something that would be valuable. Five years earlier it would not have happened. Five years later it would already have been done by someone else. And they had the cunning, the insight, to see that they could carve out a business.

Someone once said that Microsoft at one point had 30,000 employees and 10,000 of them were millionaires. If it is even remotely close, it must be one of the big corporate success stories of all time. Even better than the old retirement program at Sears, Roebuck, which at one point enabled retail appliance sales people to retire with what would be the equivalent today of a million bucks.

There are people who work for an average industry salary who join a small firm that grows big and they “get rich.” It does happen all the time, but it is rare enough so that it is news. If it weren’t rare, it wouldn’t be news.

So should we tax Bill Gates and Paul Allen into the Stone Age for creating a wonderful lifetime employment opportunity for 30,000 people and making 10,000 comfortable in retirement? Of course not. Paul Allen, after paying all his taxes, owns, among other things, a couple of very significant toys. A professional baseball team and a professional football team. Nice toys. Bill Gates is apparently not taxed enough to suit his taste, which is to be simply a nice guy, caught up in this tragedy of being a multi-billionaire. So he has decided, in typical Bill Gates fashion to let his multi-millionaire employees improve our computer lives and he and his wife are out giving away billions. This is not to say that Bill Gates is a saint, or is that other decent guy, Howard Buffett, who is giving his money to Gates because Gates is smart enough to give money away intelligently to help change the world for the better.

It may sound strange, but it sometimes takes billions to make billions. So sometimes you can’t give away money that you need to keep building up a company. A company is products that may be very urgently needed. It is certainly employees who need the jobs those companies provide. So, very often, they have to make money, take that money and make more money, and maybe even again, before they can start giving away any profits over and above taxes and reasonable compensation to stockholders.

Bill Gates, like many other wealthy entrepreneurs, didn’t do it all for the money. In fact, he is giving most of his money away. Because money isn’t the measure. Money is security. Once you and your family and any others you can personally help have security, the only value to money is consumer luxuries.

Now, at that point, do we want to say to an individual…here is 80% of the money that your employees are making for you to buy gold faucets for your yacht or do we want to say, here is 50% of your money to buy gold faucets? Bill Gates would say that he has enough faucets and more than enough homes and toys, and more than enough to buy more, so let’s help others around the world who need shoes and health and education to raise them out of poverty that we can’t even understand.

It is relevant how people make their money, and relevant how they are taxed. The top income category, that group that Grover Norquist says are the ones paying all the taxes, make about $450,000 a year, that is taxable income. They pay 35% now, but first subtract interest on that $5,000,000 home mortgage, and a lot of un-reimbursed personal expenses, and you get it down to, let’s say, 25%. So that means that the average person of this class of taxpayers must live on something like $25,000 to $30,000 per month. Many, many corporate benefits are paid for…like most of the expenses for family vacations to meetings in places like Palm Springs or Hawaii. Or Paris.

Let’s stop a minute and ask if we want to stop these things? No. We don’t. Not necessarily. But they cannot be ignored as part of income. In other words, many people in that $450,000 average income category lead better lives than their incomes would indicate. But does society want to go down the road of saying that people should not have too much fun being wealthy? I don’t think so. The fact is that most people who earn an average of $450,000 work very hard for it and many have made great sacrifices to get the equity or the education to put themselves in that position. George W. Bush is not the image we should have in our minds for most of the wealthy.

There is much discussion of “fair taxation” or even a “Fair Tax.” Those positions on taxation generally refer to the large absolute amounts paid by wealthy individuals because of the very large sums that they earn. Our tax system, in effect, demands that they pay a very large part of our welfare costs and education and other services (although not Social Security or Medicare) for others who cannot, for one reason or another, earn enough to contribute proportionately. Here is the problem. It is one thing to pay even 40% of $500,000. That is a lot of money. But you can still live reasonably well and have some luxuries on the remaining $300,000. But even 20% of $30,000 makes it difficult to live, not with luxuries of any kind…just live, in America today. Especially with health care costs running a minimum of another 20%.

When the Heritage Foundation or the Cato Institute talk about fair taxes, they talk about the issue entirely from the point of view of the very wealthy…and in this case, it should be noted, that many of those…the wealthiest….have never done a thing to earn those riches. But the fair tax people want a sales tax. They say that, if one is wealthy, one will spend more and therefore should be taxed on those purchases, but at the same rate as the middle class or poorer income levels. And that might work if we were starting all over. But the wealthy have banded together over time, as is natural, and they unfortunately decided generations ago to use their wealth to try to control government. In doing so, inefficiencies crept in. Their lobbyists also became lobbyists for the big corporations and military contractors and innumerable special interests.

All of these special interests began to persuade Congress, using the money of big corporations and some of the very wealthy, that more money through government spending should be directed toward their groups. And it was…Republicans and Democrats alike.

Now, it is simply too late to change our tax system. A sales tax would have to be at least 30% on every product. A new car that sells now for $20,000 would sell for $26,000. Food would go up 30%. And can you imagine what the drug companies and health care companies would do with sales taxes of 30% automatically added. We can’t afford drugs as it is now.

The Fair Tax people, as usual, go too far. They want to abolish the IRS. The only thing that keeps the government together at all…at all…is the enforcement power of the IRS, as threatening as it is. No IRS would mean the government would go bankrupt in less than a year. Not just in huge debt, but bankrupt. No money.

If we raised our highest income tax level to 50% and cut out about half of the deductions and exclusions, and raised taxes appropriately all the way down to the bottom level, then put a freeze on government spending over the current levels, nothing new that isn’t paid for as President Obama said, then we can get our government back. To do so, we need to do three things.

First, break up the radio and television monopolies by the ultra Right Wing conspirators and get the truth out to the people. Right now, the national media, including affiliates all over the country, are in the hands of no more than a dozen key individuals, all of whom, regardless of Party affiliation, are extremely rich, powerful and are accountable to no one.

Second, make national electoral campaigns a public expense, with no private donations allowed. Make public elections a public expense. We spend enormous sums on elections right now, but only allow two Parties to participate. If we made each election start at the grass roots level, we would have much better leaders, people with no axe to grind, and only the public good at heart. Even if they didn’t, they would be forced to express their ideas in public debate because no advertising would be allowed. Parties would eventually become extinct and new ones would arise from the will of the people.

Third, eliminate virtually all campaign contributions and lobbying efforts. Make it illegal to lobby Senators and Congress people in Washington. Because campaign contributions would be eliminated, there would be virtually no business for lobbyists anyway. The only expenses allowed would be for materials showing the name of the individual and the name of the Party that he or she represents, if any, and any promotion he or she would do to make people aware of the date and time of the public debates.

The problem with changes in tax rates and basic policies at this point is also one of several key points. First, people most likely to influence tax policy right now are the lobbyists for the rich that have been working relentlessly on this issue for many years. So the tax policy could only be slanted, like the so called “Fair Tax” solutions against the poor and elderly who have virtually no way to increase their incomes to meet increases in prices for products they need to live.

There has been little recognition, deliberately one would think, that Social Security is money paid in to a retirement insurance program. It was not paid in taxes. It was paid as a monthly insurance premium for retirement. These funds, virtual trust funds, have been stolen by politicians for their own use. The excesses of lobbyist-demanded government programs over the last 30 years were paid for from these looted funds.

These funds were never meant to be part of the national treasury. Now, ironically, the same people who looted our funds want to hide their crimes by canceling the insurance and throwing the young onto the tender mercies of Wall Street. It is like a young man killing his parents and then asking for clemency on the grounds that he is an orphan. Government has to keep its hands off the Social Security system all together; it is our money. What is owed us should be restored to the fund. And Medicare, which we also pay for, should be expanded and made more efficient. It should become a program like the VA, which is efficient and self-sustaining at a certain cost level.

You can trace every single argument for the flat tax or the fair tax or any tax policy change directly back to the lobbyists for the rich. Either the Heritage Foundation or the Cato Institute or Grover Norquist or their collaborators in the Right Wing of the Republican Party, the Neoconservatives, Neocons, have one key objective and that is to cut taxes for the super-rich. If the average person would sit down and write a check for $2,000,000 going to the IRS and then see the waste and fraud in government, it would be much easier to be sympathetic to their position.

Someone has said that there are only about 1,800 families who are actively working to get the inheritance tax repealed. Bill Gates and Warren Buffett among many others of the very rich, who would write checks much larger than $2,000,000, say that they don’t need more tax breaks. But the children and grandchildren of the men and women who actually worked for those millions and billions seem to be the ones who want a little more gravy on the gravy train. The fact of the matter is that the inheritance tax is only brought up any longer by heirs to great wealth. And the Neoconservatives who need their campaign contributions.

Let’s talk about real fairness. If you want someone to pay $2,000,000 a year in taxes, then you shouldn’t ask him or her to pay more simply because you can’t control your borders. We need to control illegal immigration. There are limits to everything. Even though you may be envious the very wealthy, you should also be grateful that we live in a land where someone with that kind of money writes out a check every year—grudgingly or not—to make this country work. We all owe the big tax complainers a debt of gratitude. Really. And we owe them an efficient government so that we can keep taxes down.

No one likes to pay taxes. But we need to talk about the reality of taxes and what they mean, and how they should not be wasted, either on welfare programs that, even though unintended, sometimes promote indolence or on excessive military programs that too often uncritically accept policies that lead to war and death.

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