Class Warfare

Posted by PITHOCRATES - January 3rd, 2013

Politics 101

Over 99.5% of all Rich People ARE paying Federal Income Taxes

President Obama won reelection by denigrating Mitt Romney.  He didn’t win by running on a successful record.  He did not win by running on a plan to pull the economy out of one of the worst recoveries in history.  No.  He won it by getting people to hate Mitt Romney.  And by getting people to hate Republicans.  Who they painted as evil rich people who want nothing more than tax cuts for the rich.  And to take away birth control and abortion so only rich people can have access to them.  As well as taking welfare benefits from the poor.  It’s called class warfare.  And it can be very effective.  For it won President Obama a second term despite a horrible first term by almost any metric you measure it.  At least based on the majority of the electorate that just believed the rich aren’t paying their fair share.  So let’s just see who is paying what (see Table 3.  Number of Individual Income Tax Returns, Income, Exemptions and Deductions, Tax, and Average Tax, by Size of Adjusted Gross Income, Tax Years 2001-2010).

The above chart shows who are NOT paying any federal income tax.  Approximately 40% of all taxpayers.  Are these the evil rich people like Mitt Romney?  And those rich Republicans?  No.  Contrary to the Left, it’s not the rich.  They’re paying their taxes.  It’s the poor and the middle class not paying their fair share.  Those earning $5,000 and less pay virtually no federal income taxes.  Over 80% of those earning from $5,000 to $13,000 pay no federal income taxes.  You have to get up to those earning $25,000 or more before more than half of that income group pays any federal income taxes.

We don’t see who actually pays the majority of federal income taxes until we get into the middle class.  Where those who DON’T pay any federal income taxes rapidly drop away.  Those at the low end of the middle class taking advantage of the tax code to maximize their tax credits and deductions (mortgage interest, energy tax credit, medical and dental Expenses, child and dependent care credit, etc.) to reduce their tax bill.  While those at the higher end of the middle class are likely small business owners suffering a business loss.  Or a personal or business bankruptcy.  Approximately 0.8% of those earning $100,000 – $200,000 pay no federal income taxes.  While less than half of one percent of those earning $200,000 or more pay no federal income taxes.  Perhaps this tiny sliver of income earners are not paying their fair share.  But one thing for certain is that over 99.5% of all rich people ARE paying federal income taxes.

Those earning $1,000,000 and more account for less than 1% of Tax Exemptions and Deductions

So are the rich taking advantage of the tax code to reduce their taxable income and federal tax bill?  We hear a lot about tax loopholes.  Those perfectly legal tax credits and deductions written into law by the United States Congress.  That both those on the Left and those on the Right take advantage of.  Yet those on the Left have convinced enough of the electorate that these legal credits and deductions are tax evasion.  And that only the rich on the Right are using these to evade paying their fair share.  So who is taking the biggest advantage of the tax code to reduce their tax bill?  In 2010 this totaled about $3 trillion.  Is this why those earning $100,000 or more paid no income tax?  For those few not paying any federal income tax?  Not exactly.  (The dollar amounts in the following charts are in thousands of dollars.)

In 2010 taxpayers claimed in total about $3 trillion in exemptions and deductions.  The deficit in 2010 was about $1.3 trillion dollars.  So perhaps this is the reason why we had a deficit in 2010.  This is what the Left would have us believe.  It’s those tax loopholes that the evil rich take advantage of to avoid paying their fair share of taxes.  The only problem with this is that it’s not the rich taking advantage of these tax loopholes.  It’s the poor and middle class.

Those earning $1,000 and less account for less than 1% of these exemptions and deductions.  Those earning $1,000,000 and more also account for less than 1% of these exemptions and deductions.  It’s those earning from $1,000 to $1,000,000 that are taking advantage of these tax loopholes.  Especially those earning from $50,000 to $200,000.  The only income groups claiming 10% or more of the nearly $3 trillion in exemptions and deductions claimed.  So not only are the evil rich paying federal income taxes whatever they claim as exemptions and deductions doesn’t even come close to what the poor and middle class are claiming.

Prosperous Economic Times brought about by Tax Cuts INCREASED Tax Revenues

These numbers don’t exactly support the claim that the rich aren’t paying their fair share.  They’re paying federal income taxes.  And what tax loopholes they exploit hardly makes a dent in the amount of tax revenue the IRS collects.  Which can only mean one of two things.  Either the poor and middle class need to pay more federal income taxes.  Or the federal government is just spending too much.  Well, as we just witnessed in the fiscal cliff debate, President Obama and the Left want to raise taxes.  Blaming the record Obama deficits on the Reagan and Bush tax cuts.  Their deal includes higher income tax rates on households earning $450,000 or more.  But NO spending cuts.  Which will be a problem.

In 2010 the total adjusted gross income totaled just over $8 trillion.  Most of which came from 4 income groups.  About a trillion each from those earning from $50,000 to $75,000, from $75,000 to $100,000 and from $200,000 to $500,000.  Those earning from $100,000 to $200,000 earned in total almost $2 trillion.  Which means the new higher tax rates aren’t going to bring in much new tax revenue.  Because they aren’t taxing the people with the money.  The middle class.  And with some additional spending instead of spending cuts the deficit will only grow larger.  So this whole fiscal cliff debate was nothing but theatre.  For it wasn’t about deficit reduction.  It was about politics.

The Left wants to destroy the Republican Party.  And to do that they need to turn prosperous economic times brought about by the tax cuts of the JFK, Reagan and Bush administrations into the source of all our problems.  Yes the economy boomed, goes the argument, but at what cost?  Massive deficits.  Deficits not brought about by tax cuts.  But by spending.  For those prosperous economic times brought about by tax cuts INCREASED tax revenues.  The deficits resulted from spending increases greater than the revenue increases.  But with a successful campaign of class warfare they have revised history.  Those deficits are now the result of the rich not paying their fair share.   Which helped them increase tax rates on the rich today.  Because the Left got everyone to hate the rich.  And the Republican Party.  Even though the rich are the only ones paying their fair share.  In fact, they’re paying more than their fair share.  But the majority of the electorate doesn’t know this.  Because of that successful campaign of class warfare.

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Our Favorite Athletes are Part of the 1% and try to Minimize the Taxes they pay just like those on Wall Street

Posted by PITHOCRATES - March 25th, 2012

Week in Review

Don’t think high taxes influences behavior?  Of course, no one cares about the evil 1%.  Those greedy Wall Street types that don’t pay their fair share of taxes.  But you know who else is in that greedy 1%?  Your favorite athletes.  And guess what?  They want to hold on to their earnings just like those greedy Wall Street types (see Professional Athletes’ Big-League Tax Bills by Jay MacDonald posted 3/15/2012 on Yahoo! Finance).

Behind every sports star who’s hauling down the big bucks is a keen-eyed certified public accountant quick-stepping through a maze of state and local income taxes imposed on nonresident athletes, commonly known as the “jock tax.”

Professional sports players get taxed by pretty much every city and state in which they play, says Ryan Losi, CPA and executive vice president of Piascik & Associates, a Glen Allen, Va., accounting firm that represents more than 70 professional athletes.

“NFL players typically file in 10 to 12 jurisdictions. NBA is somewhere between 16 and 20. MLB is somewhere between 20 and 26, and the NHL is between 14 and 16,” says Losi.

Professional sports players are great big cash piñatas to these city and states that chronically over spend.  They all want a piece of these guys.  To make sure they pay their ‘fair share’ of taxes.  While they can before some career-ending injury puts an end to this gravy train.  But because these players could lose millions in future career earnings because of a career-ending injury, they want to keep their money.  For they may never be able to get another job.  Sure, some may move into the front office.  Some may move on to coaching.  But few will earn the kind of money they did during their short careers.  So they want to keep as much as they earn.  To take care of their wife and kids.  And have enough for their retirements.  Which can be rather long for these worn out and injured bodies.  So they just don’t sit by passively while every taxing authority is shaking them down for everything they’re worth.

The lion’s share of most players’ income, their salary, is taxed in the city and state where the team is based. But income from other sources, including endorsements, personal appearances, dividends and interest income, is taxed in their state of residence.

This is the reason New York Giants quarterback and Super Bowl MVP Eli Manning lives in Hoboken, N.J., instead of in the Big Apple. It’s simple arithmetic, says Raiola.

“If he were a resident of New York, he’d pay 8.97 percent New York state tax and another 3.78 percent New York City tax on top of that, not only on his wage income but also his endorsements and investment interest,” he says. “In New Jersey, he only pays 8.97 percent…”

Taxes — or the lack of them — may also have had something to do with NBA all-star and 2010 free agent LeBron James’ choice to play for the Miami Heat instead of the New York Knicks. Losi points to Florida’s lack of a state income tax.

“That may have been one of the factors that led LeBron to choose Florida versus New York,” says Losi. “Ten percent of his first contract was going to be the difference. For him, it was an extra 5 (percent to) 9 percent difference in tax. That’s real money.”

New York City may be the greatest city in the world but the rich pay an enormous amount of taxes to live there.  So many chose not to.  In fact, a lot of athletes chose where they live and raise their families based on their total tax burden.

Professional golfers, tennis players and other athletes who compete on the world stage often leave a third or more of their earnings in the local coffers.

“Whenever they play in foreign countries, they have to pay taxes in that jurisdiction, and the tax liability is much bigger than the 5 (percent) to 10 percent state tax. It’s usually in the 30 (percent) to 40 percent bracket,” says Losi. “Usually it’s withheld in their prize money, and they can file a nonresident return if they think they might have a refund coming.”

Because the United States is one of the few countries that taxes all personal income regardless of source, some pro sports stars who compete internationally actually have a financial disincentive to make their home in America.

“If they’re (not U.S. citizens or green card holders) and they’re not planning to stay here more than 183 days out of the year, from a tax perspective it absolutely makes sense to not live in the U.S.,” says Losi. “All the foreign golfers who come here to play, if they want all of their foreign prize money and endorsement money to be taxed, all they have to do is hang out here for 183 days.”

Being an athlete competing at the level that makes them millionaires is not an easy life.  While others look forward to weekends, holidays and vacations to kick back and relax and recharge their batteries with copious amounts of alcohol and enormous quantities of fattening foods these athletes don’t.  They often work on weekends and holidays.  And when they’re not working they’re practicing.  Where their practice is often more intense than their competition.  This is their life.  This is how they become elite athletes.  And their reward?  To be whacked open like a cash piñatas by the taxing authorities so the politicians they serve can take their money and spend it to buy votes for the next election.  And forcing them to choose where to live based on who will penalized them the least for being really good at something.

This is not a meritocracy.  Where we reward people for achievement.  This is out of control government spending to maintain a privileged class.  Politicians.  And government workers.  Who live and feed off of taxes.  To fund their class warfare that makes these privileged few secure in their class.

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FT97: “The poor may hate the rich yet that doesn’t stop them from trying to be rich.” -Old Pithy

Posted by PITHOCRATES - December 23rd, 2011

Fundamental Truth

Politicians use Class Warfare to Blame Others for their Economic Destruction

Class warfare is on the rise.  Which is typical during a presidential election season.  Especially when a president’s policies haven’t exactly improved the economy.  When your policies give Jimmy Carter’s misery index a run for its money you have to find something else to run on beside your record.  So you blame the rich.  Which tends to go over well for those who aren’t rich.  Because while they’re cutting back to stretch what little they have to last in the face of record unemployment, the rich aren’t.  It doesn’t help the un-rich.  But somehow having someone to hate brings them some comfort.

So they listen to the class warfare.  And like what they hear.  The rich aren’t paying their fair share of taxes.  Rich people paying millions in tax dollars isn’t enough.  They should pay more.  But they try not to.  Because they’re selfish.  Evil.  They hate poor people.  Hungry people.  Children.  And they really hate poor, hungry children.  For it is the rich who always oppose paying more taxes to help these people.  The poor never do.  They are always in favor of taxing the rich more to help other people.  To help themselves.  Because the poor aren’t selfish.  Or greedy.  Like the rich.  The rich have more than enough.  Everyone knows this.  So they should pay more in taxes.  After all, fair is fair.

At least, this is the thinking of class warfare.  It’s sort of like magic.  Magicians use misdirection to take your eyes away from what they’re really doing.  A little sleight of hand.  Doing something with one hand while they have you looking at the other.  You’re amazed.  And feel entertained for being fooled.  You like it.  And asked to be fooled again.  Politicians have picked up on this human desire.  And use it to their advantage.  To get us looking at something completely different.  And not the economic destruction they’re causing.  And then, like magic, we blame the rich for all the ills in our lives.

Poor People know one thing for Sure, it is Better to be Rich

So the rich are greedy, evil and selfish.  The scum of the earth.  We have nothing good to say about them.  Because money is the root of all evil.  And anyone who has money must be evil.  A classic American novel set during the Great Depression, The Grapes of Wrath, epitomized this when the mother wanted to treat her men to some sugar in their coffee but couldn’t afford it.  She asked for just a little free sugar.  The clerk said she couldn’t.  Because she wasn’t the owner.  And would get in trouble if she did.  But she gave her a little sugar anyway.  And slipped some of her own money into the till to pay for it.  A rich person wouldn’t do this.  Only a poor person would help another poor person.  Because the poor are good.  And the rich aren’t.

This is why class warfare works.  But there is a fatal flaw in it.  The poor people may say they hate the rich and want them punished, but it’s the poor people who are predominantly buying lotto tickets.  Why?  To become rich.

Rich people don’t buy lotto tickets.  Poor people do.  In hopes of a Cinderella rags to riches story.  Because poor people know one thing for sure.  It is better to be rich.  And they will spend their meager wages on lotto tickets for that gazillion in one chance of becoming rich.

More Government Benefits paid for by the Rich is the Ultimate Goal of Tax and Spend Class Warfare

Of course, a person’s definition of ‘rich’ differs from another.  And for the most part it’s relative.  To their own wealth.  Anyone who has more than them is rich.  And because someone always has more than they have they are not rich.  Simple.  So class warfare works.  Despite its fatal flaw.

But class warfare isn’t about fairness.  It’s just misdirection.  A little political sleight of hand.  To help a politician escape blame for the economic damage they’ve caused.  By tapping into a base human trait.  Greed.  That insatiable desire to get-rich-quick.  By spending their meager wages for that gazillion in one chance.

Or for more government benefits paid for by the rich.  The ultimate goal of tax and spend class warfare.  Something the poor are all for.  Because fair is fair.  Until, that is, they do win the lotto.  And these people see what it’s like to have more than others have.  As people crawl out of the woodwork to ask for some of their new found wealth.  Because they have more than enough.  And should share.  Because fair is fair.

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Obama wants a Millionaire Tax to Pay for his Political Stimulus Bill and Shrink his Deficit

Posted by PITHOCRATES - September 17th, 2011

Going Green is Just Another Excuse to Raise Taxes, Grow Government and Transfer more Wealth from the Private to the Public Sector

Big government has big ideas.  And big taxes to pay for them (see Crippling energy bills are YOUR fault, says Huhne as he claims families could treat themselves to a mini-break if they shopped around by Glen Owen and Jonathan Petre posted 9/17/2011 on the Daily Mail).

Utility price rises have pushed the average household energy bill to almost £1,300 a year, partly driven – as critics pointed out yesterday – by ‘green’ taxes imposed by Mr Huhne’s [Energy Secretary] department.

The stealth levies, introduced to fund Britain’s investment in wind and solar power, are costing families an average of £200 a year…

This represents an increase of between 15 and 20 per cent on the average domestic power bill. The money is being used to help fund the building of 10,000 wind turbines and the proposed installation of £7 billion worth of smart meters in homes.

To make your tomorrow better we will make your today worse.  You’re welcome.

Green energy may be good for the planet.  To combat ‘global warming’.  But it’s not good for your wallet.  Or purse.  And the kicker is this.  What kind of science is global warming based on?  Fraudulent science.  And if this doesn’t tell you why governments are pushing for green energy nothing will.

It’s about the money.  It always is.  And always was.  It’s another excuse to raise taxes.  To grow government.  And transfer more wealth from the private to the public sector.  So politicians can play god.  Which is something narcissists are wont to do.

Higher Tax Rates Discourage Growth, Deter Investment, Kill Jobs and Prolong Recessions

That was in the UK.  Over in the USA their government is going green, too.  Because there’s big money in going green.  They recently invested a half billion dollars in Solyndra.  President Obama visited the plant.  Vice President Joe Biden made a video clip praising those 1,000 new jobs.  That were permanent jobs.  And they were.  Right up to that mass layoff.  As the company went belly up this month.

But it was good while it lasted.  Throwing around such massive amounts of money.  Having the power to pick winners and losers.  It really strokes a narcissist’s ego.  Even if their winners turn out to be losers.  I mean, it’s not like they have to repay that half billion dollars.  They’ll just turn to the taxpayers for more taxes.  And blame the rich for not paying their fair share (see Obama Tax Plan Would Ask More of Millionaires by Jackie Calmes posted 9/17/2011 on The New York Times).

President Obama on Monday will call for a new minimum tax rate for individuals making more than $1 million a year to ensure that they pay at least the same percentage of their earnings as middle-income taxpayers, according to administration officials…

Mr. Obama, in a bit of political salesmanship, will call his proposal the “Buffett Rule,” in a reference to Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate than wages.

We should note, though, that it’s not the size of the rate that matters.  But the pile of money that it taxes.  Someone earning $60,000 a year with a top marginal tax rate of 25% may pay a puny $11,000 in taxes.  But someone with a 15% tax rate on an investment return of $40 million will pay an obscene $6 million in taxes.

Now, in case you’re not good with math.  Or you are a liberal Democrat.  Let me help.  $6 million is more than $11 thousand.  A lot more.  About 54,000% more.  The rich person may pay a lower tax rate.  But he or she pays more tax dollars.  Way more.

The rich pay more.  The less-rich pay less.  The rich pay for benefits.  The less-rich consume benefits.  We take money from the rich.  And give to the less-rich.  Sounds like redistribution of wealth, doesn’t it?  So you can see this is less about paying your fair share of taxes then it is about redistributing wealth.  To garner more votes come election time.

The Obama proposal has little chance of becoming law unless Republican lawmakers bend. But by focusing on the wealthiest Americans, the president is sharpening the contrast between Republicans and Democrats with a theme he can carry into his bid for re-election in 2012…

Mr. Obama’s proposed Buffett Rule puts a new spin on that pitch, as he tries to put Republicans in Congress and in the presidential race on the defensive for their rigid stand against higher taxes.

Using class warfare for the 2012 election.  Why?  Because he sure can’t run on his record.  For his record sucks.  His economic policies have been a disaster.  And are on track to put us back into recession.

So he will employ this ploy.  To make the Republicans look like heartless bastards.  Protecting their rich patrons.  While the rest of the nation suffers the ravishes of the Obama recession.  A recession Obama blames, of course, on George W. Bush.  That rich Texan oilman.  Despite that Recovery Summer in 2010.  When he, Barack Obama, ended the Bush recession.

Mr. Obama has been citing Mr. Buffett as he promotes his $447 billion job-creation plan. He proposes to offset the cost of that plan and reduce future budget deficits through higher taxes on the wealthy and on corporations after 2013, when the economy will presumably be healthier.

Ah, yes, his political stimulus bill.  That thing he calls the American Jobs Act.  Which no Congress person has yet to introduce into the House of Representatives.  Including no Democrat.  Which is telling.  Next year is an election year.  And the way this bill reeks of politics they want nothing to do with it.

Rich people invest their wealth.  They may buy corporate bonds.  Which will allow a business to grow.  Create jobs.  And you know nothing helps that process more than higher taxes.  You know, if you’re living in insanity land.

Higher tax rates don’t make economies healthier.  They make them sicker.  They discourage growth.  They deter investment.  They kill jobs.  And prolong recessions.  The economy will not be healthier in 2013.  Not with higher tax rates on the very people that can make it healthier.

Even Mr. Buffett probably paid a higher effective rate than he claimed, Mr. Mankiw [an economics professor at Harvard] added, because much of his income came from corporate income that had been taxed before it was paid out to individuals.

That’s right.  The money Mr. Buffet earns on his investment?  Uncle Sam already taxed it.  At the corporate income tax rate.  His tax is the second tax paid on those earnings.  Which begs the question how much is enough?  How much of our money is enough for the government?  And the answer is no matter what we pay it will never be enough.

The Danger of Raising Taxes on the Rich is that it doesn’t Address the Problem of Excessive Spending

We pay enough in taxes.  In fact, we pay too much.  The government is just spending too much.

The problem is baseline budgeting.  And tax and spend liberalism.  Not only are they spending a lot today but they will be spending even more tomorrow.  More programs.  More benefits.  Guaranteed.  At least they’re guaranteed as long as we continue to use baseline budgeting.  Where this year’s budget is last year’s budget plus more.  Automatically.

And this is the danger of raising taxes on the rich.  It doesn’t address the problem.  This excessive spending.  In fact it facilitates it.  Like an addiction.  Which means they will make this argument forever.  As they have forever.  The problem is this.  There will never be enough taxes.  Not to sustain continuous increases in spending.  Which we will always have.  As long as we continue to use baseline budgeting.  And continue to elect liberal Democrats.

If the current system favors the rich then here’s a novel idea.  Tax the less-rich at the rich tax rates.  Then everyone pays their ‘fair’ share.  But what about government you may ask.  How will they get by on less?  Well, that’s easy.  They can ask any one of us.  Because we’ve been doing it for years.

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FUNDAMENTAL TRUTH #62: “The government’s great dilemma is that the middle class has both the money and the votes.” -Old Pithy

Posted by PITHOCRATES - April 19th, 2011

Figures don’t Lie but Liars Figure

Mark Twain said figures don’t lie but liars figure.  And there’s been a lot of that going around.  Lying.  Especially about taxes.  Where the rich just can’t catch a break.  They pay far more tax dollars than the poor/middle class.  Yet you wouldn’t know that based on the political rhetoric coming from the Left.  And the incessant drive to raise the top marginal tax rates.  To make the rich pay their ‘fair’ share.  Or punish them.  For being rich.  So we can lower the tax burden on the little guy.  The working class people struggling to put food on the table for their families.

Of course, anyone taking the time to crunch the numbers, or read a history book, will see something completely different.  And that the Left can only advance their agenda by lying.  Because people with a job want to keep their job.  And they see the Left’s agenda as anti-business.  And job killing.  Anytime you hear government talk about being ‘fair’ look out.  Chances are you are about to be screwed.  For their idea of fairness and equality is truly Orwellian.  The Left’s idea of equality is when they are more equal than everyone else.

So they champion the poor/middle class.  Say they are looking out for their interests.  But they’re not.  They just want their money.  And their votes.  So they’ll say whatever they think they want to hear.  Anything to maintain their positions in government.  The ruling elite.  And one of their most effective tools is class warfare.  At the heart of which is tax policy.

Taxing the Rich Transfers Tax Burden to the Middle Class

There is a fundamental misunderstanding about tax policy in America.  Everywhere, really.  You see, they’ve beaten it into our heads that the way to get the rich to pay their fair share is to increase their tax rates.  You do that and you transfer the tax burden from the poor/middle class to the rich.  The funny thing is, though, when you raise the tax rates on the rich the exact opposite happens.  You transfer the tax burden from the rich to the poor/middle class.  How can this be, you ask?  Well, let me explain.

Consider two income examples.  Someone who makes $50,000 per year.  And someone who makes $1,000,000 per year.  Based on the 2008 tax tables (with a top marginal rate of 35%), the federal income tax each pays is approximately $16,980 and $454,000, respectfully.  Now, what do you notice about these numbers?  That’s right.  The $454,000 is a lot bigger than the $16,980.  It’s over 26 times the amount of taxes the person earning $50,000 pays.  Now think about that.  If only one more person becomes a millionaire (let’s say an entrepreneur quits his day job and creates the next great invention), the government will collect the same amount in taxes it would take from 26 new $50,000/year jobs added to the economy.  Let’s say 2 venture capitalists strike it rich and both become millionaires.  They would add the same tax revenue it would take 52 new $50,000/jobs to generate.  Three new millionaires = 78 new $50,000 jobs worth of taxes.  See a pattern?  The more millionaires there are paying taxes the less the poor/middle class have to pay in taxes.  Or, conversely, the fewer millionaires are paying taxes the more the poor/middle class have to pay.  So the more millionaires there are paying taxes, the more the tax burden transfers from the poor/middle class to the rich.

Well, based on that, the best thing we can do for the poor and middle class is to make as many millionaires as possible.  And how do you do that?  It’s pretty easy.  Sort of like a dog having puppies.  They already know how to do it.  They don’t need any special help.  All they need is for us to get out of their way.  And give them a business-friendly environment.  Where a small business owner will risk his or her life savings on that business to get rich.  Or a venture capitalist will risk his or her money on an untried entrepreneur with a really good idea to get rich.  And how do you get people to take risks and invest large sums of money?  By giving them a chance to get rich in the process.  And you don’t do that with high tax rates.  Because high tax rates increase the ‘cost’ of these investments.  And when the cost gets too high, they look for other things to do with their money.  If the return on investment is taxed to the point that they can make the same return without any risk, they won’t take any risk.  And just leave their money in the bank.

The more Millionaires we have the Less Taxes the Middle Class Pays

Of course this all makes good sense.  But bad politics.  Especially on the Left.  For they are all about fairness and redistribution of wealth on the Left.  And you can’t be fair and redistribute wealth unless you demonize the rich.  Because you have to take wealth from someone before you can redistribute it.  And who has wealth?  Why, the wealthy, of course.  Who are greedy.  Who don’t pay their fair share of taxes.  And profit by exploiting the poor/middle class.  Or so goes the liberal mantra.  So to show how much they care for the poor/middle class, they try to raise taxes on the rich.  By constantly trying to raise the top marginal rates.  Of course, as noted above, doing this actually hurts the poor/middle class.  By making them pay a much larger share of the total tax burden than the rich pays.  Let’s look at some numbers.

We keep hearing about this evil 1% who has the majority of the wealth in this country.  So let’s look at this by the numbers.  One percent is one in one hundred.  So let’s assume we have 100 taxpayers.  One millionaire who earns $1,000,000 per year.  Twenty ‘poor’ people earning $15,000 per year.  And 79 ‘middle class’ people earning $50,000 per year.  Based on the 2008 tax tables, the annual income tax each owes (going from poor to rich) is approximately $4,500, $17,000 and $454,000.  Their total tax contributions (in the same order) are approximately $91,000, $1,342,000 and $454,000.  Or, as a percent of the total, 4.8%, 71% and 24%.  Please note that it’s the middle class that pays the bulk of the tax burden (71%).  Even though they each pay only a fraction of what the millionaire pays.  Because one millionaire can pay only so much.  But the ‘fraction’ 79 middle class people pay adds up.  The sum total of their taxes equals approximately three times what that millionaire pays.  Which proves the point that the fewer millionaires there are the more the poor/middle class has to pay in taxes.

Now let’s say nine people prospered very well and moved from the middle class to the rich.  There are still 20 ‘poor’ people.  But with the 10 people that now earn $1,000,000 per year, there are now only 70 middle class people earning $50,000 per year.  This changes the total tax contributions (going from poor to rich) to approximately $91,000, $1,187,000 and $4,538,000.  Or, as a percent of the total, 1.6%, 20.4% and 78%.  Now the rich are paying the vast majority of all taxes (78%).  Which proves the point that the more millionaires there are the less the poor/middle class have to pay in taxes.

Figures don’t Lie but Liberals will Figure

Well, sure, you can use all your facts and figures to show things that make sense.  But making sense doesn’t necessarily apply in politics.  Because tax policy is a lot more than just funding the government.  It’s about winning elections.  And the one great dilemma in all of politics is this.  The people with the most money to tax are in the middle class.  Because of their numbers.  They may pay less per person than the rich but their numbers add up.  And they are the largest voting bloc.  Because of their numbers.  Which presents quite the problem.  Politicians want their money.  But if they take too much of it they may lose their votes.  So what to do?  You take their money.  While making it look like you’re punishing the rich.

The more government spends the greater this problem gets.  Deficits grow larger.  Which adds to the national debt.  Interest payments on that debt take up an ever larger part of the federal budget.  Add that to out of control growth of entitlement spending and what do you get?  A big problem.  And greater deficits.  Which are getting harder and harder to finance.  Soon you’re borrowing money to pay your borrowing costs.  You need cash.  Or you need to cut spending.  And you know you’re not going to do that.  Because cutting spending doesn’t help win elections.  So you look for more cash.  And you can’t go the easy route and just create more millionaires.  Not after demonizing them so much.  Doing that would be tantamount to saying you were wrong and/or lying all these years.  Besides, the anti-business environment currently in place doesn’t encourage any risk taking by the rich.  So they’re sitting on their money.  Which leaves the middle class.  So we start hearing code words.  Fair share sacrifice.  Tax the rich.  It’s not fair to give millionaires and billionaires tax breaks paid by the poor and middle class.  This means the poor/middle class is about to get screwed.  Either by higher taxes (or reduced tax breaks and credits).  Or they’re going to raise the top marginal tax rates which will transfer more of the tax burden from the rich to the poor/middle class.

Of course, screwing the poor/middle class is what it’s all about.  The Left uses them.  All of the time.  Through lies and deceit.  For our lives would be better if we had a lot more millionaires.  And less progressive tax rates.  That encouraged more economic activity.  And created more jobs.  But the liberal left could care less about that.  Based on the evidence.  And history.  When they run for office they run as moderates.  Because they know they can’t win elections running as liberals.  Barack Obama was the most liberal senator in the Senate.  Yet when he ran some were comparing him to Ronald Reagan.  And you only lie like that for one reason.  To hide who you really are.  Tax and spend liberals.  Who have made the middle class the bank for their tax and spend policies.

So while figures don’t lie, liberals will figure.

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The Obama Budget: High Taxes, Reckless Spending and Lies

Posted by PITHOCRATES - April 18th, 2011

Is it how Much we Give or how Much we Could Give that Counts?

Imagine, if you would, two people standing in front of an orphanage.  There’s a donation box there.  And we can see these caring people actually count out their money before placing it in the donation box.  One counts out $20.  The other counts out $100.  Who is more generous?

Is this a trick question, you ask?  Well, yes, I guess it is.  You see, normal people, like you and me, are inclined to say the person donating the $100 is more generous.  I mean, $100 is more than $20.  $100 buys more than $20.  $100 will do more for orphans than $20.  So it sure looks like to us, the normal people, that the $100 donation is the more generous donation.  But that’s not the way government would see it.  For I left out one important piece of information.  I didn’t say how wealthy these people are.  So let’s do that now.  The $20 donation is from a UAW line worker.  The $100 donation is from a rich business owner.  Now who is more generous?

$100 will still buy more than the $20 for the orphans, but $100 is a smaller percentage of the business owner’s salary.  The $20 donation is a larger percentage of the UAW line worker’s salary.  So, people in government, and those on the Left, will say the $20 donation is the more generous donation.  Even though it will buy less for the orphans.

We Pay Tax Dollars, not Tax Rates

This is a big problem clouding the debate over ‘fair’ taxation.  Devious politicians point to tax rates and cry that the rich aren’t paying their fair share.  When, in fact, they are paying far more tax dollars than those less rich.  Even in an attack on these rich bastards shows this (see Only Little People Pay Taxes by Dave Gilson posted 4/18/2011 on Mother Jones).

Leona Helmsley’s distaste for paying taxes eventually landed her in federal prison. But the rich have little need to break the law to avoid the tax collector. As Martin A. Sullivan of Tax.com recently calculated, a New York janitor making slightly more than $33,000 a year pays an effective tax rate of nearly 25%. And the effective tax rate for a resident of the Park Avenue building named after Helmsley, earning an average of $1.2 million annually? A cool 14.7%.

And the chart following this shows the income and taxes of the Janitor and the millionaire.  And even though the millionaire pays only 14.7% in taxes, the actual tax dollars paid in income taxes is $159,515.  And how much did that janitor pay?  Just $3,168.  The cheap bastard, the millionaire, paid $156,347 more in income taxes.  That’s 4,935% more than the janitor paid in income taxes.  Yes, 14.7% is a smaller percentage than 25%, but there’s no math in the world that says the janitor paid more in income taxes than the millionaire.

There’s a difference between tax dollars and tax rates.  And tax rates don’t pay the bills.  Tax dollars do.  And the rich pay more of them by far.  Anyway saying otherwise is fostering class warfare for political purposes.  Because if it was about tax dollars to pay for federal spending, $159,515 pays for a lot more spending than $3,168. 

Low- and Middle-Income Families don’t Pay their Fair Share of Taxes

So if the rich aren’t paying their fair share of taxes, who is?  And are there others, too, not paying their fair share?  Of course, that can’t be.  Because only the rich can get away with cheating the…  Hello, what’s this?  Low- and middle-income families aren’t paying any federal income taxes?  Really?  How can that be?  Wasn’t it the rich blankity blanks that were screwing the poor?  Not the other way around (see Nearly half of US households escape fed income tax by Stephen Ohlemacher, Associated Press Writer, posted 4/7/2011 on Yahoo! Finance)?

About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That’s according to projections by the Tax Policy Center, a Washington research organization…

In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

Really?  They’ve told us that people flipping burgers for minimum wage were poor, but even people earning $50,000 are poor?  No wonder we have so many people in poverty.

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.

The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment…

In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center.

No wonder the Democrats win elections.  You know there are a lot of Democrats in that 49% not paying federal income taxes.  That makes the Democrats a modern day Robin Hood.  Stealing from the rich.  And giving to the low- and middle-income.  And when you’re on the receiving end of this bounty, you’re all for class warfare.  Screw the rich, you’ll shout.  Until, God forbid, you become rich.  Just ask Nicholas CageSinbadWesley Snipes.  Or Willie Nelson.  And anyone who won the lotto.  Or a car.  Who did not realize that their bounty came with a hefty tax obligation (there’s no tax withholding for these people.  They have to write a check for all the taxes they owe).  People are stunned to learn the amount of their money the government wants.  And that isn’t fair.  But before they were rich, that was a different story.  Then nothing was fairer than sticking it to the rich.

The Rich aren’t Rich Enough to Pay all our Taxes

If the poorest half of all Americans aren’t paying any taxes, then who, exactly, is?  I mean, if the rich aren’t paying their fair share and the poor aren’t paying anything, who does that leave (see Where the Tax Money Is posted 4/17/2011 on The Wall Street Journal)?

Consider the Internal Revenue Service’s income tax statistics for 2008, the latest year for which data are available. The top 1% of taxpayers—those with salaries, dividends and capital gains roughly above about $380,000—paid 38% of taxes. But assume that tax policy confiscated all the taxable income of all the “millionaires and billionaires” Mr. Obama singled out. That yields merely about $938 billion, which is sand on the beach amid the $4 trillion White House budget, a $1.65 trillion deficit, and spending at 25% as a share of the economy, a post-World War II record.

That’s funny.  I thought the rich weren’t paying their fair share.  And in 2008 the top 1% paid 38% of all taxes.  I don’t know, but 38% sounds like a lot more than the 0% paid by the poorest 50%.  So the rich are paying a lot.  Can they pay more?  Can they pay all of our taxes?  Well, even if you confiscate all of the top 1%’s income, no.  They can’t.  They simply aren’t rich enough.

Say we take it up to the top 10%, or everyone with income over $114,000, including joint filers. That’s five times Mr. Obama’s 2% promise. The IRS data are broken down at $100,000, yet taxing all income above that level throws up only $3.4 trillion. And remember, the top 10% already pay 69% of all total income taxes, while the top 5% pay more than all of the other 95%.

The richest 10% of all Americans, including everyone making $100,000 or more, won’t do it either.  At least, they can’t fund a $4 trillion budget.  Which means there’s no way no how you can pay for government by taxing the rich.  Even if you tax them at 100%.  You see, these rich simply aren’t rich enough.  You know who is, though?  The middle class.

So who else is there to tax? Well, in 2008, there was about $5.65 trillion in total taxable income from all individual taxpayers, and most of that came from middle income earners. The nearby chart shows the distribution, and the big hump in the center is where Democrats are inevitably headed for the same reason that Willie Sutton robbed banks.

This is politically risky, however, so Mr. Obama’s game has always been to pretend not to increase taxes for middle class voters while looking for sneaky ways to do it…

Keep in mind that the most expensive tax deductions, in terms of lost tax revenue, go mainly to the middle class. These include the deductions for state and local tax payments (especially property taxes), mortgage interest, employer-sponsored health insurance, 401(k) contributions and charitable donations. The irony is that even as Mr. Obama says he merely wants the rich to pay a little bit more, his proposals would make the tax code less progressive than it is today.

The $100-200 thousand earners are the largest group of earners in the country.  They may each make less than each of the top 1%, but their numbers are far greater.  And it adds up.  If you drop that low end to $50 thousand and the total pot of income is close to $3 trillion dollars.  That’s a lot of money to tax.  And a lot of tax deductions to disallow.  That’s the sweet spot.  The $50-200 thousand earners.  They’re just one plump, stuffed, cash piñata.  And oh how they want to whack it open.  But how to do it?  And blame the Republicans?  That is the question that faces them.

Only the Middle Class can Fund a $4 Trillion Budget

And you do this, of course, by lying.  In his speech to offer his ‘budget’ in a response to the Ryan budget, Obama said he would cut the deficit by $4 trillion over the next 12 years.  How?  In part with $2 trillion in spending cuts.  Which aren’t exactly all spending cuts.  They’re actually tax increases.  You see, he sees tax breaks and credits as federal spending.  Because it costs government by not having that money collected as a tax.  So he will cut that ‘spending’.  By eliminating those tax breaks and credits.  Resulting in you paying higher taxes.  And that additional money the government is ‘taking back from you’ will lower the deficit.  Confused?  You should be.  This is about as devious as it gets.

And he also said he would save $1 trillion by not renewing the Bush tax cuts.  So that’s another $1 trillion in new taxes (see Obama’s $2 trillion stealth tax hike by James Pethokoukis posted 4/17/2011 on Reuters).

If you’re keeping score, what Obama is actually proposing is $1 trillion in new taxes on wealthier Americans (and small businesses) and $1 trillion in higher tax revenues by reducing tax breaks and subsidies for a total of $2 trillion in new taxes over 12 years. That means total debt reduction, not counting interest, would be $4 trillion, 50 percent of which would come from higher taxes. The econ team at Goldman Sachs ran a similar analysis and found that 56 percent of Obama savings over ten years could come from higher tax revenue.

So that’s $2 trillion in new taxes.  And where do you think that will come from?  Not the 1%, that’s for sure.  If you took all of their money it would only get you half way there.  To raise that kind of money, you have to go to the sweet spot.  The middle class.  Including those making far less than $200,000.  You have to tax everyone making $50,000 or more.  And take away their tax breaks and credits.  Where it will really hurt.  And be political suicide.  So why promise to do just that?  Simple.  He’s not. 

The Obama plan is a non-plan.  It’s just a political tool for the 2012 election.  To show that it is the Republicans that want to cut Social Security, Medicare and Medicaid.  Not him.  He’ll say he fought like a dog to save these entitlements.  Because he cares for you.  Unlike those nasty mean Republicans.  And entitlement spending will continue to grow unchecked.  Making it that much harder to save these programs down the road.  But this is what politicians do.  Kick the can down the road.  For someone else to worry about.  For by that time, many of the Democrats will be dead.  And won’t care anymore.

It’s not the Taxes, Stupid.  It’s the Spending.

There’s a difference between tax rates and tax dollars.  And it’s the tax dollars that are important, not the tax rates.  The rich may have a lower effective tax rate but they pay an awful lot in tax dollars.  And as tax dollars go, they’re paying more than anyone else.  Far more than half of all Americans.  Who pay $0.00 in federal income taxes.  If anyone is screwing anyone, it’s the lower 50% screwing the top 10%.  And the top 10% probably wouldn’t mind so much if we weren’t constantly demonizing them despite their generosity.

When you can’t pay for your spending by taxing everyone making $100,000 or more at 100%, you’re spending too much.  This is a spending problem pure and simple.  It’s not that the rich aren’t paying their fair share in taxes.  They are.  And then some.  It’s that government is just trying to buy too many votes.  If there is any greed here it is in Washington.  Their spending is out of control.  Even Standard & Poor’s Ratings Service thinks so.  They just lowered our rating from “stable” to “negative” because of the “ballooning deficit.”   Because our out of control spending threatens our future ability to service our debt.

But the Democrats have other pressing concerns on their minds.  Like winning elections.  And you win elections by spending.  Not living within your means.  And if they play it just right, the day of reckoning will come conveniently in the future.  When they’re dead.  Problem solved.  For them, at least.  Their children and grand children?  Guess they just don’t care about them.

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Big Government is Bankrupting and Oppressing Us

Posted by PITHOCRATES - November 21st, 2010

Rich Democrats Profit from Big Government

Do you know what the problem with the idle rich is?  They sometimes use their idle time to think (see Millionaires to Obama: Tax us by Rachel Rose Hartman posted 11/19/2010 on Yahoo! News blog The Ticket).

More than 40 of the nation’s millionaires have joined Patriotic Millionaires for Fiscal Strength to ask President Obama to discontinue the tax breaks established for them during the Bush administration, as Salon reports.

And who are these millionaires?

The group includes many big-time Democratic donors such as Gail Furman, trial lawyer Guy Saperstein and Ben Cohen of Ben & Jerry’s ice cream (pictured). The list remains open to millionaires who want to sign on.

One thing we’ve learned from government.  The rich never pay their fair share of taxes.  Neither will these Democrat supporters.  I mean, if you’re so patriotic and loyal then just give your money to the government without the tax law forcing you.  Like J.P. Morgan did during the Panic of 1907.  (He used his own wealth to help shore up the banking system during a liquidity crisis).  But they don’t.  Why?  (That’s not a rhetorical ‘why’.  I would really love to hear them answer that question.)

But the key here is that they’re Democrat supporters.  Supporters of Big Government.  Who either profit from government (by preventing any tort reform so lawyers can continue to enrich themselves with frivolous lawsuits brought against corporate America (News Flash:  McDonald’s hot coffee is hot)).  Or are a bunch of rich coots that get off on telling other people how to live.

A Bankrupt City Pleads for Churches, Schools and a Hospital to Help Pay their Union Costs

And speaking of charitable contributions to the government, here’s a city government asking for just that (see Debt Rising, a City Seeks Donations in Michigan by Nick Bunkley posted 11/19/2010 on The New York Times). 

A Michigan city is pleading with churches, schools and a hospital for donations to help cover its staggering budget deficit.

Gail Furman, Guy Saperstein and Ben Cohen ought to throw some of their wealth over to Mount Clemens.  They could feel patriotic and loyal.  And the city could really use their help.  For they’ve done everything they can already.

[The Mount Clemens mayor] said the city has already drastically cut its expenses, having disbanded the police department six years ago, but still faces a $960,000 deficit that is projected to reach $1.5 million next year.

It’s always the police and fire departments that get chopped first.  Not the real things bankrupting the city.  Which, interestingly, they note (probably unintentionally) in the last paragraph.

The city asked its retirees to increase their health insurance deductibles, [the mayor] said, and 8 or 10 did so or switched to their spouse’s plan, saving $192,000.

It’s the same thing that’s bankrupting cities in all of ‘blue’ America.  Fat union payrolls and fat union benefits for city employees.  But they get rid of cops and fire fighters first because it’s a good scare tactic that usually works at the polls when trying to renew or increase a millage.

High Union Pay and Benefits do not Make NYC’s Trains any Safer

But we have to provide those fat pay and fat benefits to attract quality people to these jobs.  Don’t we?  You decide.  Here’s yet another example of what we get for these high pay and benefits (see Subway Signal Inspections Found to Be Falsified by Michael M. Grynbaum posted 11/19/2010 on The New York Times).

Safety workers at New York City Transit falsified thousands of inspections of the track signals that direct trains in the subway system, deeming the signals safe even though those inspections had never taken place, according to an investigation by the inspector general of the Metropolitan Transportation Authority.

Train tracks are broken down into ‘blocks’.  These signals are green when a block is empty.  They’re red when a train is in that block.  These block signals are what keep trains from crashing into each other.  So they’re kind of important.  For safety.

Real railroad personnel would never do this.  They take their work too seriously and have far too much pride to endanger people on their tracks.  But unionized city workers are another story.  It’s not about the love of railroading.  But living better than other people. 

Is this only an isolated incident?

It is not the first time that safety workers in the subway have been found to have falsified such inspections. A nearly identical situation was revealed by the inspector general in 2000.

Apparently not.

The TSA:  Submit to Our Awesome Powers or We Will Destroy You

So government employees are bankrupting our nation with their fat pay and fat benefits.  And they’re endangering our lives with their poor work ethic.  Can it get worse?  Yes.  If we give them unfettered power over us (see $11,000 fine, arrest possible for some who refuse airport scans and pat downs by John Lantigua, Palm Beach Post, posted 11/20/2010 on the Sun Sentinel). 

The Transportation Security Administration (TSA) is warning that any would-be commercial airline passenger who enters an airport checkpoint and then refuses to undergo the method of inspection designated by TSA will not be allowed to fly and also will not be permitted to simply leave the airport.

Welcome to airport security.  By entering our line you forfeit all Fourth Amendment rights.  Please remove your shoes, your belts and lift up your dresses and drop your panties.  It’s all in the name of national security.  Yeah, it’s good to be an ineffective bloated government bureaucracy.  Power to the state, baby.  The state rules!

No wonder the Nazis went from state socialism to maniacal oppressive dictatorship.  It’s a rush for the corrupt in power.  No doubt that if some TSA gropers are brought up on criminal charges for ‘crossing the line’ they will follow suit.  I can hear them now.  “I was just following orders.”

Absolute Power Corrupts Absolutely.  And Brings Down Superpowers

Those rich Democrat millionaires got it wrong.  We shouldn’t be giving government more money.  Or more power.  That wasn’t the formula we used to become a superpower.  But it is the formula that has brought down every superpower to date.

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LESSONS LEARNED #34: “Sure, until you win the lotto you’re all for sticking it to the rich.” -Old Pithy

Posted by PITHOCRATES - October 7th, 2010

Buddy Can You Spare a Dime

In the old days, we used to jail people who didn’t pay their debts.  Even in the United States.  A couple of signers of the Declaration of Independence even served time in a debtors’ prison.  We took it seriously.  Honoring your debts.  For those who didn’t, they found themselves inside a jail until they did.  Or until they died.

We jailed some people over small sums.  The severity of the punishment (broken families, disease, starvation, privation, physical abuse, etc.) was often extreme in comparison to the size of the debt owed.  In time we would move away from such barbaric justice.  No, in the modern, caring world, we don’t torment those who are down on their luck and find themselves penniless.  You see, the modern world is a caring world.  We abhor the sufferings of our fellow man.  So we show them kindness.  Charity.  We forgive them their debts and help them rebuild their lives.  Well, most of us do.

If you find yourself owing the IRS, you better pay up.  For they will send you to prison.  And take whatever you have.  They will destroy your life.  And your family.  Because they want to make something perfectly clear.  You don’t f*ck with the IRS.  They play to keep.  All the time.

The War on Alcohol

The 18th Amendment prohibited “the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all territory subject to the jurisdiction thereof for beverage purposes.”  The government may have shut down supply, but the market remained.  Enter criminal gangs.  Who furnished the supply to meet the demand.

None did it better than Al Capone.  His gang ruled Chicago.  People admired him.  After all, he wasn’t hurting anyone.  He was just giving the people what they wanted.  A way to relax and blow off steam.  Like we do today when we enjoy an alcoholic beverage with our friends.  But the gang violence grew.  The pictures following the Saint Valentine’s Day Massacre were just too gruesome.  Soon thereafter the FBI branded Scarface as public enemy #1.

Bootlegging, prostitution, murder, extortion…Capone broke a lot of laws.  But he crossed the line.  He committed a crime that was so heinous that it would land him ultimately in Alcatraz, America’s most secured federal prison.  That crime?  Income tax evasion.

On the Road Again

Willie Nelson is a big time Democrat.  He’s into saving the environment.  Animal rights.  Legalizing marijuana.  Helping the farmers.  And he’s a regular peacenik.  So you’d think he’d be a big fan of Big Government.  Well, yes and no. 

He became very wealthy by the 1980s.  And like a good Democrat, he tried to shield some of that wealth from the IRS.  He parked some of it in some talk shelters.  Then came along Ronald Reagan.  He understood what Andrew Mellon understood (Secretary of the Treasury for Warren G. Harding).  High tax rates made rich people hide their money.  Lower tax rates encouraged rich people to invest their money.  When Mellon cut the tax rates wealthy people paid more taxes and less wealthy people paid fewer taxes.  The progressive tax system worked even better at lower tax rates.  Tax revenue increased as the wealthy invested their money instead of finding creative ways to hide it.  It worked for Reagan, too.  He even closed tax shelters as a further incentive for the wealthy to invest their money to grow the economy and create jobs.  That worked, too.  Savvy wealthy people everywhere were putting Americans back to work.  Only one small problem.  The not so savvy wealthy were caught unawares.

Willie Nelson didn’t move his money from his tax shelters.  When Reagan disallowed those shelters, his money sat there accruing federal taxes.  And interest and penalties.  He blamed and sued his accountants.  The accountants countered that they only did the accounting and taxes.  They were not investment advisors.  Anyway, the IRS seized his assets.  He went on the road again and often to pay off his tax bill.  His total bill came to about 16 million in back taxes, interest and penalties.  Which he paid.  As he no doubt would have from the get-go if he had sought appropriate counsel to help him negotiate the 1,000+ page U.S. tax code.

Easy Money – For the IRS

There are many stories like Willie Nelson’s.  Even Treasury Secretary Timothy Geithner, the smartest man in America, couldn’t figure out his own taxes.  (But we were to excuse him for this because no one else was as qualified as he was to write and administer the U.S. tax code).  But it’s not only the not-so-savvy celebrity rich and the intellectually challenged intellectuals who have trouble with the U.S. tax code.  The poorest of the poor who never had money can sometimes run afoul of the IRS.

Playing the lotto.  Millions do.  Most lose.  And they’re lucky that they do.  Many lotto winners have their lives take a turn for the worse.  Friends and relatives you don’t know are reacquainting themselves with you.  Well, not you so much as your new found wealth.  Con men target you.  Charities.  Neighbors.  Some spend the money fast.  Or recklessly.  Develop drug addictions.  Get robbed.  Even murdered.  There are a lot of stories out there.  Just search the Internet.

When you win the lotto, you can take a lump-sum payment.  Or you can take a series of payments.  Either way the IRS taxes this as income.  And the amount of these payouts will most probably push you in the highest income tax bracket during the period of these payouts.  So the IRS likes lotto winners.  Your odds of winning are slim to none but someone always wins.  And that’s a tax bonanza for the IRS.  Not-so-savvy people who become rich overnight.  The full force and power of the U.S. government falling on some poor schmuck who probably never had a tax liability in his or her life.  Money just doesn’t get any easier. 

Capital Gain or Income?

Some may sell the rights to their future payments.  It’s sort of like selling a rental property.  For example, take a house that rents for $1,000 per month and sells for $150,000.   The buyer gets those future rent payments.  The seller gets the money back that they paid for the house and, hopefully, a capital gain (i.e., they sell the house for more than they paid for it).  The seller pays a capital gains tax on their capital gain.  They do not pay any further income tax on the rental income that the buyer now collects.

Some lotto winners see selling their rights to future payments in the same light.  And that they should only pay a one-time capitals gain tax (at a lower capital gains tax rate) in lieu of the higher income tax rate.  The IRS begs to differ.  And they usually get their way.

Sadly, some buyers advised those selling their rights that they could pay the lower capital gains tax rate.  Which they did.  And faced heavy tax bills for back taxes, interest and penalties as a consequence.  Once again, easy money for the IRS.  You can search the Internet for stories like these, too.

Pay or Else

Whether a gangster, a celebrity, a Democrat brainiac or a low-income lotto winner, we all share something in common.  Whatever our politics, when it comes to our money, we all try to avoid paying our ‘fair share’ of taxes.  We may demand that other rich people pay their taxes, but we will do everything we can to avoid paying our taxes.  But we play a dangerous game when we do.  For those who do and lose, they learn a painful lesson.

You don’t f*ck with the IRS.

www.PITHOCRATES.com

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