Saturday, July 25, 2009

There Are Not Enough Rich People to Pay For Everything!

Proponents of higher taxation to “pay” for universal health care, for just one example, want rich people to do it all and then pompously pronounce: "But we are only raising taxes on the wealthy and very rich people. They need to pay their fair share!”

They are already paying way more than their ‘fair share’! The top 1%, or roughly 1.4 million Americans, are paying over 42% of the income taxes that come into the US Treasury each year as it is today! If we put all of them in one concentrated area, like West Palm Beach, they might fill up 2 U.S. congressional districts out the 435 we already have. 2 of them!

Do we really want them to pay 100% of the roughly $1.4 trillion income tax bill each year? (please don’t say ‘Yes!'... see Tax)

On top of that ‘inconvenient truth’ (with apologies to Al Gore), these wealthy people are the ones who typically have the talent, education and skill that it takes to start or run a business that keeps the rest of us employed! Did you ever think about that? Not everyone has the ability or guts to start or run a business; some are better at that than the rest of us.

So the next time you see the president or owner of your place of employment, go up to him or her, give them a hug or a handshake and tell them this: “I really appreciate the fact that you have the courage and foresight to start/run this business. And if you took a second mortgage against your home, borrowed from your friends/family/credit cards or put all of your personal wealth at risk to start or keep this business going during the dark days, then I wish you all the best. You deserve some sort of Congressional Medal of Honor….For Keeping Me Employed!”

Don’t ever believe that a tax ‘only’ on the wealthy ever stays ‘only’ on the wealthy. Have you had any experience with the lovely AMT, or the Alternative Minimum Tax? That lovely bit of handiwork started out as an effort in 1969 to make (now pay very close attention to this), 155 households pay income taxes since all of their legal deductions previously drove their tax liability down to zero. 155 families filing either jointly or separately.

By 2008, 4.2 million Americans paid the AMT. And unless Congress indexes the AMT thresholds every year for inflation, another 20+ million American families will automatically fall victim to the Venus-Fly Trap tax of the AMT.

Notwithstanding the ‘bracket creep’ of the AMT, wealthy people can afford to hire the best tax and accounting firms in the universe to help limit their tax exposure through legitimate means. They can invest in tax-free municipal bonds, for one thing, except who in their right minds would invest in California bonds nowadays?

The projection for getting revenue from wealthy people in the Obama health plan is over $500 billion. If Warren Buffett and Bill Gates and all the other super-wealthy people willingly pay that amount without question, it will be the first time in history that anyone has given that much money to a governing authority that was not a King or a Caesar without a fight.

President Herbert Hoover thought he was getting $1.1 billion for his tax hike on the wealthy in 1932. He got only $43 million…96% less than official government projections.

If you are worried that too much “extreme wealth” stays in the family from generation to generation, rest assured that most of it gets squandered by the indolent scions of wealthy people through the second generation and most assuredly, by the end of the third generation. Less than 2% of all the families who build up huge reserves of wealth keep it past the third generation, or the grandchildren, of a wildly successful entrepreneur or businessperson.

These wealthy families seem to be doing a pretty good job of ‘redistributing’ their own wealth all by themselves through poor decisions, investments and partying around the globe. They don’t need the heavy hand of government to tax solely the 'profits' of their wealth away; they are giving away the whole kit-and-kaboodle without any nudge at all.

So the truth of the matter is that any effort to raise taxes on the wealthy is specious and won’t do the trick.

We need to concentrate on reducing spending and reallocating federal assets for true health care reform.

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