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All Da King's Men

Stupid Taxes And The Top 1%

By David King Published: March 11, 2014

Prologue - I believe the government shouldn't discriminate against any American citizens (equal protection and all that), but I'm going to throw that out the window for purposes of this post, and I'm going to accept the premise that discriminatory tax policies (progressive tax policies) are just. Most people seem to believe they are. This post is for progressives.

I've been reading some online articles about the top 1%, those allegedly demonic, greedy folks who, according to progressives, are driving income inequality in America and destroying the middle class.

Who are these top 1% ? The image conjured up by the left is a top 1% filled with slick Wall Street investor types who produce nothing but capital gains, guys like Warren Buffett and George Soros. The number of top 1%-ers making a living in the financial sector has definitely grown over the years, but according to The Economist, the super-rich financial guys and gals went from 8% of the top 1% in 1979 to 13.9% in 2005. This means the overwhelming majority of the top 1% are NOT what my liberal blogger pal the Reverend would refer to as "banksters". So, who are they ? Still using 2005 data, the largest segment, 31%, are executives, managers, and supervisors in the non-finance sector. 16% are medical professionals. Doctors. Some other professions significantly represented among the top 1% are lawyers, technical people (computers, engineers, etc), sales persons, business operators, real estate professionals, blue collar workers, entrepreneurs, and sports figures. In the data I looked at, about 4% of the top 1% were categorized as "not working or deceased". I assume this covers the idle rich trust fund babies, but the truth is, nearly all of the top 1% work hard. They work many more hours than the average person. Even the NY Times admits that much. As Edison once said, "Genius is one percent inspiration, and ninety-nine perspiration". The data shows that most successful people aren't handed anything. They work to become successful, which I always thought was the American way.

There is also a wide range of incomes among the top 1%, anywhere from $380,000 to billions per year. They are NOT a monolith of billionaires like Buffet and Soros.

Having briefly described the rich, let's turn to the part about stupid taxes. Progressives such as pseudo-economist Paul Krugman (he doesn't present sound economic policy. He presents liberal ideology masquerading as economics) have advocated a return to the "good old days" of 90% marginal tax rates (even though those days never really existed. Virtually nobody paid 90% tax rates due to all the loopholes). Krugman says this would ameliorate income inequality. While there's little doubt it would do that by stealing away most of the income earned by the wealthy, thus bringing the incomes of the rich down to the our level, what effect would a 90% marginal tax rate have on the rest of us, the 99% ? Would it somehow raise us up ? It would bring more money into the federal government (until the rich adapted about five minutes later), and I suppose that money could be used to temporarily shore up some finances of the federal government and address the mountain of unfunded entitlements we face, but what people like Krugman never want to talk about is the OTHER effects that a REAL confiscatory 90% tax rate would have (as opposed to the pretend 90% tax rate we used to have). Let's start out by considering the doctors, the single highest earning profession on average. Here's what it takes to become a doctor, from a NY Times article about the top 1%:

Dr. Chandok...oncologist, said that her husband, also a doctor, was still paying off his student loans. The couple has a nanny, but Dr. Chandok’s father-in-law does the shopping and cooking.

Dr. Chandok said she had never heard the Occupy Wall Street slogan “We are the 99 percent.” Two children and 11-hour workdays, she said, do not leave much time for politics.

But when the slogan was explained as a complaint against the wealthy’s growing share of income, she shook her head. “I spent four years in undergraduate school, four years in medical school, three years as a resident and three years as a fellow,” she said. “You have to look at the people who are complaining.”

I ask all of my progressive friends to answer this question honestly - If Dr. Chandok knew that her additional 8 years of schooling, her massive incurred student loan debt, plus 6 years of low-paying residency and fellowship jobs would result in having 90% of her $400,000 salary being confiscated by progressive ideologues, leaving her with less than $40K per year after all taxes were paid, would she have made all that extra effort to become an oncologist ? Or would such confiscatory tax rates actually INHIBIT the creation of the Dr. Chandok's of the world ? The answer should be obvious. The 90% tax policy of the progressives would result in a whole lot less Dr. Chandok's. It's cause-and-effect. Then progressives could pat themselves on the back for fixing income inequality, as their loved ones died from untreated cancer and other diseases due to the progressive-manufactured doctor shortage.

The same cause-and-effect relationship extends to other professions as well. As they say, you get the society you incentivize, and a prime motivator for most people is M-O-N-E-Y, whether we like it or not. If the money is removed by the progressive ideologues, so is a lot of the motivation. Society would NOT benefit from the result. It would be disastrous. This is precisely why Marxism is a flawed and failed ideology, in my opinion. It incentivizes mediocrity and punishes achievement. It leads to a weak and corrupt society.

Of course, we don't have to go to a 90% tax rate. We could go somewhere in the middle, like, say, 50%. That would lessen the cause-and-effect harm done by confiscatory tax rates, though I don't understand why we would want to cause harm in the first place. Seems counterproductive to me. I want all the Dr. Chandok's we can get, all the entrepreneurs we can get. I want them to prosper, treat cancer, and provide jobs for other people. That's how the economy grows and we all share in the prosperity. The economic pie is not fixed. It is dynamic. It can grow or shrink based on government policies. I favor growth policies, not based on any political ideology, but based on common sense. I consider politics to be a great destroyer of common sense. The examples are legion.

Now for the REALLY stupid parts of taxation. I haven't gotten there yet.

Say we create a top tax bracket of 50% on all income for people making  $380K and over. Virtually all of my progressive friends would applaud such a move, but that means Dr. Chandok's $400K salary would be cut down to $200K, while Warren Buffet's $12.7 billion in earnings was TAXED AT THE EXACT SAME RATE, leaving Buffet with $6.35 billion. Every progressive should be CONDEMNING this tax measure they are applauding, but for some reason they don't.

Our income tax policies are inherently flawed, and here's why - the basic stupid error we make with income taxes is that they tax income instead of wealth. In the above example, Dr. Chandok's family is still in debt, while Warren Buffett is worth around $60 billion. It is beyond idiotic to tax both of these people at the same rate. Placing confiscatory tax rates on Dr. Chandok inhibits her from growing her practice, hiring people, being a more active consumer, etc., but at the same time, the government is sending Social Security checks and Medicare cards to people like Warren Buffett. This is epic stupidity on the part of the government, and was established by the government's own misguided legislation. I have recently experienced this same misguided government legislation in my own life. After 3 months of trying to make an Obamacare exchange application on healthcare.gov, I was finally able to complete it. I was left with two choices, which I have termed Dumb And Dumber. Obamacare ultimately told me to go on Medicaid based on my low reported income for 2013, even though I have significant assets. I'm no Warren Buffett by any means, but I am nowhere near to being poor. My healthcare insurance premiums should be paid by myself, not by someone else who is likely worse off than I am. This is the Dumber choice offered by Obamacare, and I didn't feel right about taking it. That left me with Obamacare's Dumb choice, resulting in dramatically higher insurance premiums (once Obama stops postponing his poorly conceived signature legislation). If Obama had merely left me alone instead of trying to fit all square pegs into his round hole, things would have been fine. Obamacare stupidly and narrowly focused on income only, while ignoring wealth. Our flawed system of income taxation makes the same mistake.

Here's a question for progressives to ask the Democratic party, and to ask themselves - Why isn't President Obama or any other Democrat proposing a real wealth tax of some sort ? If the Dems wanted to tax the truly rich, as opposed to the Dr. Chandoks, that's what they would do, but they don't. Warren Buffett himself didn't even propose it. It's easy for a guy like him, with a net worth higher than a small country, to say income taxes should be higher when he's 83 years old. That costs him nothing. He already has his fortune, and he knows he can hide his income if he chooses.

I think the answer to why the Democrats don't support and have never truly proposed a wealth tax, to my knowledge, lies in an article from Forbes, titled, 'When Did The Democrats Become The Party Of The Rich ?' (even though more rich folks support Republicans than Democrats):

Of the ten richest zip codes in the U.S. eight gave more money to Democrats than Republicans in the last two presidential cycles. President Obama doesn’t go to union halls to host fundraisers; he goes to posh Wall Street townhomes, the Hollywood hills, or to Tom Steyer’s house in Pacific Heights. Steyer, a billionaire investor and wannabe George Soros, is the perfect model of today’s rich liberal, and shows where the balance of power on the Left rests today. Organized labor wants the Keystone pipeline built; Steyer, who imbibes deeply the green Kool Aid, is adamantly against Keystone. Note who Obama is siding with...

Where is today’s Huey Long, who in 1935 proposed that no one should be allowed to keep any wealth beyond $50 million—or perhaps, he suggested, only $10 million. Whatever the figure, Long said, “it will still be more than any one man, or any one man and his children and their children, will be able to spend in their lifetimes; and it is not necessary or reasonable to have wealth piled up beyond that point where we cannot prevent poverty among the masses.”

Where is the voice of Huey Long in today’s supposedly populist liberalism? Long’s $50 million wealth limit, adjusted for inflation, would be about $850 million today—still more than anyone could spend in a lifetime. But not even Elizabeth Warren or Bernie Sanders will go there. (The only person who has mooted the idea so far, ironically enough, is the quixotic and still befuddled David Stockman.) Why not? Probably because any such proposal would make Republicans out of the Hollywood and Silicon Valley crowd in a big hurry. The scene is another good reminder of the hypocrisy of modern liberalism.

Progressives, if the Republicans are indeed the party of the rich, then, despite their liberal rhetoric, the Democrats are the other party of the rich, and that's why our income tax code remains imbecillic. The Democrats don't want to lose their well-heeled supporters any more than the Republicans do. If the moguls in the entertainment and media industries turned against the Democrats, the media advantage the Dems have enjoyed for my entire life would evaporate. No Democrat wants that to happen, because then, instead of Hollywood making movies sliming people like Sarah Palin and George W. Bush, they'd be making those movies about Obama.

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