‘Taxmaggedon’ Cometh

As most of us will hear over the coming months, the “rich” simply don’t pay their fair share. So, lets get real for a moment. 97% of federal income tax revenues come from the top half of wage-earners. Or, put another way, the bottom half of wage-earners carry only 3% of the load. The 1% as folks in the occupy movement like to call them, carry around 37% of the tax burden. So it does not make sense to me why the 1% is demonized when they already carry the load so that the 50% can get a virtual free-ride. At the end of the year, more of the tax burden will shift to those who actually provide a living to the majority of us. The biggest threat is of course the taxation of capital gains.

Capital warrants special tax treatment because of the central role it plays in generating economic growth and jobs. Capital is the very lifeblood of the market economy, the mainstay of innovation, and the foundation for future prosperity. As more of it is put to work today, labor output and wages will rise tomorrow. An appreciation of that critical relationship should guide how the tax system treats earnings from capital.

The double taxation of dividends—with corporate earnings first taxed 35% at the corporate level and then, when paid out to shareholders, taxed again—has been a long-standing and well-recognized distortion in the tax code. It favors debt financing over equity capital formation, because interest is deducted as a cost of doing business and lowers taxable income, while dividends are taxed twice.

via John Snow: ‘Taxmaggedon’ Is a Real Threat – WSJ.com

 

So, what is the problem one might ask? Let those rich folks pay even more you say? Well, first of all, anyone who has an individual retirement account (IRA) or pension fund earns capital gains. People like you and me invest for our futures (many times via a mutual fund) and provide the fuel (money) that drives the American economy. Increasing capital gains taxes does several bad things. First, it takes money (capital) out of the private economy and moves it into the government coffers. Which means, less fuel for the engine. Second, taxes for corporations and business are simply costs. Those costs (increased taxes) are simply shifted to the price of the goods and services that they provide. If that price affects the competitiveness of their goods and services globally, then they simply shift production to a more hospitable venue (like say, iPhones made in China).

Last weeks news that  Facebook co-founder Eduardo Saverin has renounced his US citizenship to avoid capital gains taxes should make the point clear to even the most die-hard occupier.

International tax experts, however, say that Saverin will save a bundle by expatriating ahead of Facebook’s IPO next week. As a foreigner, Saverin will pay taxes to the United States next year only on the presumed value of his shares the day his American citizenship ended, not the presumed higher amount his Facebook holdings will be worth after the IPO.

This country cannot long survive if we continue to penalize success and reward failure. I continue to believe that America is still that “shining city upon a hill”. The greatness of this nation is that any one of us can attain the status of the 1%. Just ask Saverin.

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