Tuesday, May 9, 2017

'Government Benefits Only The Very Few Rich At The Top!'

'The only reason I am rich is because
the federal government made me rich!' (not!)
There is a narrative put forth by progressives out there that can be boiled down to this:

'Government exists only to help the rich people get richer and make poor people poorer!'

And it couldn't be more wrong or deceiving.

The class warfare theme was the basis for the candidacy of Senator Bernie Sanders for President in 2016. It is the basic underpinning of arguments by left-wing acolytes such as Senator Elizabeth Warren which followers use as reasons why our existing system of capitalism and representative democracy needs to be 'blown up!' and replaced with their utopian views of what socialism should be (but which in practice throughout history has had a very bad habit of morphing into totalitarian disasters).

Is it 'true'? Does government exist solely to help advance the wealth and status of rich people to the detriment of the poor and downtrodden?

Here's some facts to consider before you answer that question:
  1. There is no amount of wealth, assets or ownership of property owned by the federal government before that which is owned by the individual in each state in our country (other than that which we have allowed our government to own collectively for us such as national parks)
  2. The money you make from your own initiative, perseverance and creativity is yours to begin with. NOT the government's.
  3. Anything the government does with our collective tax revenue is (supposedly) done with our consent as participants of this democratic republic. When we are born as US citizens or become naturalized citizens through the immigration process, we accept in principle the basic tenets put forth by our Founding Fathers in our two foundational documents: The Declaration of Independence and the US Constitution.

    That includes accepting the fact that 50%+1 majorities rule in our campaigns to elect officials (with minor exceptions for primaries and 3-way general elections) and in our legislative processes at the federal, state, municipal and judicial levels of government.

    We can change those priorities at any time but they have to be done first through the campaign process (by electing new representatives) and then second, through the legislative process.

    Otherwise, we would live in a state of nature called 'chaos'. Which no one should really want. 
Once those principles are understood, making vacuous statements such as 'the government exists only to enrich the rich and disenfranchise the poor!' start to unravel pretty quickly.

Consider the example of 'tax cuts only going to the rich!'

That sounds pretty good to the lower-income average person until you start to put numbers to it.

Warren Buffett just classified the Republican health care bill, the AHCA, as 'just a huge $1 trillion tax cut for the rich!'.

In actuality, it is a repeal of $1 trillion of TAX HIKES the Obama Administration passed in 2010 to fund ACA and almost ALL of those tax increases were on income and investment assets of the wealthy. Simply because close to 50% of all taxpayers today do not pay ANY federal income tax and there was hardly any effort to make them pay more tax to fund the ACA.

Just because one Administration or Congress passed a tax hike doesn't bind the hands of a future Congress or White House from unraveling them. Once tax hikes are passed, they are not etched in stone like the Ten Commandments were written by the finger of God and given to Moses, you know.

You pay higher taxes from a bill; if they are repealed, you get your money back. You pay no higher taxes from a bill, you don't get anything back.

It is basic arithmetic. Addition and then subtraction. No alchemy going on here changing one dollar going out of one wealthy person's pocket into gold or silver coming in for the less-wealthy folks.

Which brings up another argument that simply is close to being infantile at best; not very well-thought out or completed second and just flat-out dumb when you really think about it:

'The rich aren't paying their fair share!'

Whaaaaaaaat? 

Let's take the instance of a gentleman such as Mr. Buffett himself. First, he is very successful and we do not begrudge his success one bit. He has made millions of shareholders either very wealthy or wealthier than they would have done on their own over the past 40 years of investing their money.

The companies he has invested in have grown exponentially with his financial assistance and acumen which further enhanced and enriched the lives of millions of employees of those companies and their families, all of whom also enjoyed the ancillary benefits of generous fringe benefit plans such as retirement plans and health insurance coverage.

Not a bad legacy for anyone to have.

Critics like to say the rich 'are not paying their fair share!' by looking solely and microscopically at the tax rate they pay as if that is the be-all, end-all of any tax payment comparison.

That is disingenuous at best and seriously misleading and delusional at worst.

For argument's sake, let's pretend Mr. Buffett above has $1 billion of clear net income to declare in any particular tax year. No one of his stature would even allow his 'net income' to be of such stratospheric heights and expose it to the full brunt of the tax rate law at any time because they know how to hire the right tax lawyers and accountants to shelter income and keep it low, like real low each year and sometime maybe even not pay any income tax due to the tax loss shelters they can use to offset other income.

However, let's presume this $1 billion is subject to the full 39.6% highest tax rate in the tax code today. (Once you get over the $450,000 tax bracket, going to $1 billion makes 39.6% almost the effective tax rate anyway)

$1 billion in net income x 39.6% in federal taxes = $396 million in taxes owed to the federal government. Anyone can do that simple calculation.

So far, so good in the eyes of the 'Class Warfare Warriors' on the left. 'It should be 100%!' a very prominent and very well-known liberal activist told me in 2010 as she got in her new Mercedes and sped off to her private jet without any sense of hypocrisy in her tone or voice.

Remember this as you read along: 1 person would be on the hook for $396 million in income taxes.

50% of the US working taxpaying-eligible population pay zero income tax. 50%. About 80 million taxpayers, or about 25% more than the number of people who voted for either Hillary Clinton or Donald Trump in the last election.

That is a big number.

Say the Republican tax reform bill calls for a 'slashing' (sic) (hyperbole) (exaggeration) (see NY Times headline: 'White House Proposes Slashing Tax Rates; Significantly Aiding Wealthy') from that high rate of 39.6 way, way down to 35%.

4.6 percentage points. 4.6%. Not 100% cut to 0%. Just 4.6 points.

Do the math again for $1 billion in net income: $1 billion x 35% = $350 million in taxes owed. By one single person.

The tax cut, again assuming the IRS could have gotten $396 million out of the one individual in the first place before the Trump tax cuts were passed, would amount to $46 million.

$46 million is still a lot of money for any one person, yes?

BUT THE FEDERAL GOVERNMENT WOULD STILL BE GETTING $350 MILLION FROM JUST 1 PERSON AT THE 35% RATE!

The federal government gets NOTHING! in income tax from 80 million other taxpayers. That is not counting the retirees who don't file taxes or the people who do not work and therefore do not file any taxes and pay any income or payroll taxes into the tax revenue of this nation.

See the ridiculous nature of this line of thinking? The uber-left progressives are trying to make the rest of the country 'hate' wealthy people as if they are not 'paying their fair share' when, in actual truth, the wealthy are paying the preponderance of our annual tax share burden for us all!

The NY Times headline and the Class Warfare Warriors would have you believe that the US tax code is set up 'solely to help wealthy people stay rich and stick it to the poor people!'

As this simple example exposes, the wealthy are the only ones paying income tax of any significant amount in the first place. Would you rather get $350 million in tax payments per year from Mr. Buffett or get apoplectic obsessing over whether his tax RATE is lower by 4.6 percentage points next year?

Focusing on the 'tax rates' paid by different taxpayers is really not a productive exercise when you press down on it. Focusing on the 'gross dollars paid on a check sent to the federal treasury' is real money to fund our government, not Monopoly money like in our cartoon above.

When you look at the federal budget, you will see that 77 million people are covered by Medicaid; and between 55-59 million other people are covered by Social Security and Medicare in any given year.  Social Security, Medicare and Medicaid accounts for over 50% of the federal budget today or just under $2 trillion annually.

Close to 135 million Americans 'benefit' from the US federal budget every year in those 3 programs.

Does that sound like the federal budget 'only helps the wealthy' to you?



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