Wednesday, June 19, 2019

The Hypocrisy of the Millionaire ‘Tax Me” Movement

"I want more of your money to spend on what I want
to spend it on! Not you. Me!"
Massachusetts Senator Elizabeth Warren wants to pass a “wealth tax” of 2% on assets held by rich people over $50 million and 3% on assets over $1 billion as the next President of the United States of America.

Some say wealthy people support such a tax. “Over the years, we have seen that this population is willing to pay more,” said George Walper, president of Spectrem Group which did the poll survey with CNBC.

Some uber-rich people such as Warren Buffett have said for years that he wants to pay more in taxes.

Take it from someone who dealt directly with very smart tax lobbyists on Capitol Hill for years: 

‘Rich people do not want to pay more in taxes, period!”

If they did, they would not hire such expensive tax lobbyists. Nor would they hire very expensive tax lawyers and accountants by the boatload each year to find ways to minimize their taxes, not increase them.

Rich people can pay more taxes today if they so choose. All they have to do is fire every expensive tax lawyer, accountant and lobbyist they have retained to find ways to shelter income and not expose all of it to the full taxable rates set by Congress.

If they get a refund, they can deposit it in the Gifts to Reduce the Public Debt account at the Bureau of the Fiscal Service of the US Treasury.

$4,686,987.27 has been paid into this account in 2019. Our federal deficit is expected to be $896 billion this year. Adding more than 191,000 times more debt over debt reduction payments is not a long-term solution to our debt bomb crisis.

Even smart well-meaning multi-millionaires should understand the futility of doing so.

The Spectrem survey was done with 750 high net worth individuals split across political lines. There are 14 million people in America with investible assets of over $1 million. If all of the 750 respondents held assets below $50 million, of course they would support a higher tax on the uber-wealthy above them.

One thing the survey did find was that 72% of the respondents did not support eliminating tax deductions. Of course not; rich people can afford to find complicated tax schemes with multiple deductions to prevent their income from being taxed in the first place.

One very wealthy person told me: “No one I know who is rich is stupid enough to pay themselves more than $10 million in salary to begin with. I haven’t taken any salary in the last 20 years. Then I would have to pay income taxes and Medicare Part A payroll tax on all of that $10 million. Any income I make comes out of capital gains which is taxed at a lower rate with no payroll tax.”

Capital gains of asset values are taxed at 15% up to $488,850 and at 20% above that. That is far below the top marginal income tax rate of 37% today.

Very wealthy people don’t pay the high marginal tax rates based on the published tax tables from the IRS. They target an effective tax rate they choose to pay to the government, usually far below 20% of their income and tell their accountants and lawyers to find ways to do it.

Warren’s proposal is scored to increase revenues by $275 billion/year. It might reduce annual deficits to around $500 billion if spending was held constant at current baseline levels.

However, Warren and all of her very left-leaning socialist Democratic presidential candidates want to add on trillions of dollars of more spending for free Medicare for all, education for all and a guaranteed income for all.

$275 billion raised in new taxes, from any source, under their policies would be like spitting in the wind.

Wealthy people saying they want Elizabeth Warren to raise their taxes are being politically hypocritical. .

Just pay more taxes right now if you want to. There is nothing stopping you.


(first published in North State Journal 6/19/19)


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Wednesday, June 12, 2019

Politics Is A Strong and Slow Boring of Hard Boards

Max Weber
Max Weber, a German sociologist and philosopher in the early 20th century, observed the truth about how difficult politics really is:
“Politics is a strong and slow boring of hard boards. It requires passion as well as perspective. Certainly all historical experience confirms — that man would not have achieved the possible unless time and again he had reached out for the impossible.
“But to do that, a man must be a leader, and more than a leader, he must be a hero as well, in a very sober sense of the word. And even those who are neither leaders nor heroes must arm themselves with that resolve of heart which can brave even the failing of all hopes.
“This is necessary right now, otherwise we shall fail to attain that which it is possible to achieve today.
“Only he who is certain not to destroy himself in the process should hear the call of politics; he must endure even though he finds the world too stupid or too petty for that which he would offer. In the face of that he must have the resolve to say ‘and yet,’ — for only then does he hear the ‘call’ of politics.”
If only there was some way to make sure that every elected public official now in office has read Weber’s quote, memorized it and taken it to heart with them into work every single day. We might have a shot at solving real problems then instead of engaging in the kindergarten antics we see daily in Congress.
However, not every elected official has the capacity to be a great leader. True leadership is as rare as the most precious gemstone.
Weber says the true leader-hero “must endure even though he finds the world too stupid or too petty” which is very difficult for many successful people.
“Have you watched these clowns on the city council on local cable access? They are idiots!” I have heard many successful people say. “I have no intention of being in the same room with such people!”
“Yes, but those clown people are making laws that you successful people have to abide by and follow,” I tell them.
Blank stares ensue.
“And if you are as smart and successful as you think you are, don’t you think you can run circles around the idiots and cretins on any legislative body and outsmart them and craft legislation more to your liking than theirs?” I will usually follow up.
Blank stares again.
Successful people have no one to blame but themselves when it comes to electoral politics. They don’t run in the numbers they used to, even as recently as the 1980s. Once they ceded the battlefield of politics to less talented people, we as a nation got what we deserved: stalemate on every big issue we face, name-calling, finger-pointing and $21 trillion in national debt and counting.
“Man would not have achieved the possible unless time and again he had reached for the impossible.”
Weber correctly points out that leader-heroes have to have the vision to see where our nation can go together before the rest of us can get there.
Civil rights were not achieved by everyone accepting the status quo forever. Balancing the budget from 1998-2001 was not done by congressmen who promised not to cut spending or reform entitlements because they knew it was morally reprehensible to not succeed.
We need leader-heroes with vision and guts. The best leaders don’t care whether they get reelected or not.
“Only he who is certain not to destroy himself in the process should hear the call of politics.” Leader-heroes have the intelligence, the internal fortitude and the reasoned experience to avoid the pitfalls of politics and public service.

We just need more of them.

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Wednesday, June 5, 2019

The Upside of Inequality

Many people hear the term “income inequality” and think: “We gotta do something to fix that!”

Which almost always means pass more legislation and give more power to government officials.

Ed Conard, former managing partner of Bain Capital, thinks differently. He sees rising income inequality as a good sign for an economy, not as a negative.

As he writes in his eminently readable book, “The Upside of Inequality: How Good Intentions Undermine the Middle Class”:

“Rising income inequality is the by-product of an economy that has deployed its talent and wealth more effectively than that of other economies — and not from the rich stealing from the middle and working classes.”

How can an increasing amount of wealth in the hands of relatively few people at the top of the wealth ladder be “good” for America when the press and the left keep telling us that the middle-class is disappearing and the poor and near-poor are starving to death?

Since time immemorial, poor and working-class people have viewed rich people with a mixture of envy, distrust and distance. For good reason. Prior to World War I, working people the world over were essentially serfs to the king of the country or the powerful oligarchs who ruled commerce and government with an iron fist to protect their wealth, interests and superior way of life.

Robber-barons of the late 19th century used unscrupulous methods and bribery to gain their wealth at the expense of competitors, and they kept many workers as close to poverty as possible to maximize their personal profits.

As a result of that experience 100 years ago, the left sees capitalism as a zero-sum game; the rich get richer while the poor get poorer. Vote for them and they will fix it, they say. With more government, more laws and more distortions to market forces.

Conard takes a penetrating look at the root causes of income inequality at its core in economic terms, not emotional or political terms. He cites study after study that confirmed what most people know intuitively: “high-wage economies that diminish incentives to produce innovation by taxing success more heavily, increasing government spending and distributing incomes more equally have grown more slowly with lower median incomes.”

The reason for stagnant low wages for unskilled and uneducated people in America can be attributed, he says, primarily to three factors: a near unlimited supply of low-skilled, low-wage workers domestically and abroad; lack of proper education to meet the needs of 21st century businesses; and anything that diminishes the appetite to take on higher levels of risk by investors and entrepreneurs.

Conard’s book is a compendium of useful facts and figures anyone interested in this issue should have handy. To prove his point about American free enterprise being the best vehicle for job growth, he cites many facts including:

  • Since 1980, five times as many companies have been created in the U.S. that became worth more than $1 billion than in all of Europe combined.
  • Since the mid-1970s, not one single company has been created in France that has grown to be worth more than $1 billion. 
  • Since 1980, the U.S. economy has produced enough jobs to increase employment by 50%, twice the growth rate of Germany and France and three times the rate of Japan.
  • Employment has surged from 99 million people working in 1980 to 156 million today in America.
  • Median after-tax incomes for Americans are 15-30% higher than for Europeans and Japan

We should be overjoyed and thankful to have had the good fortune to have lived during such a time.

Instead, we have a political left and a compliant press painting a dystopian present and future for all Americans almost exclusively for political purposes.

The 2020 elections will offer us a country a clear choice between capitalism and socialism. Why choose socialism when capitalism offers much higher prosperity and standards of living for everyone?

(first published in North State Journal 6/5/19)

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