Appeared in September 30, 2010 Morgan County Citizen:

 



I feel compelled to respond to the “Spare the Wealthy” editorial of September 16 in order to correct the faulty and illogical assertions made.

1) “Bush tax cuts disproportionately favor the rich.” FALSE. You can’t have it both ways, you can’t demand the “rich” pay a disproportionately larger share of the tax burden (e.g. progressively increasing marginal rates) and then say they’re getting a disproportionately larger share of any tax cut like it’s a bad thing. It’s not disproportionate; it’s proportionate to the already disproportionate tax burden (e.g. the top 10% earners pay 71% of all federal income taxes, see www.taxfoundation.org/news/show/250.html).

For example, if I pay $100 (10%) in taxes on $1,000 of income and you pay $1,000 (20%) in taxes on $5,000 of income, then I have no basis to complain if tax rates are cut either by 10% of the rate or a flat 5% out of each. In the former the tax cut is proportionate and equal (i.e. 9% now pays $90 and 18% now pays $900). But the liberal points and screams “Unfair!” that the rich person is saving $100 in taxes and the poor person only saved $10. But that is simply ludicrous – both got the same tax cut, 10% off their marginal rate. In the latter, say we drop the rate a flat 5% to 5% and 15% respectively. In this case the “poor” person’s tax rate dropped by a much larger extent (50% vs 25% decrease), but the “rich” person still has a larger dollar figure decline of $250 vs $50… but yet again the liberal will still have the audacity to scream “unfair!” How in the world is that unfair? The poor person’s rate dropped by 50% compared to only 25% for the rich person.

So apparently the liberals want it both ways – they want the wealthy to pay disproportionately more as taxes go up, but if there is ever a tax cut the dollar figure for each and every person must be exactly equal for it to be “fair”. If you actually believe that is the only way a tax cut can be “fair” then no amount of logic or arguing will relieve you of this patently illogical stance. Or perhaps you simply need a refresher in 3rd grade mathematics.

2) Assertion that the GOP hid the cost of the Bush tax cuts in 2001 by having them expire beyond the standard 10-year CBO decennial calculation of budget costs. DISINGENUOUS. Really? You’re really going to bring this up – this is exactly what Obama and the Democrats just did this year with the health care reform bill. Why exactly do you think the main provisions do not start until 2014? Right, to hide the last 4 years of costs into the next decade making the bill appear to cost less than it really will. The original assertion may very well be true but it is really hypocritical to use it here as a way to skewer your opponents.

3) Math check and distortion check: First it is claimed that “nearly all” of the supposed $680 billion “cost” to the government (the term “cost” of course is used based on the presumption that ALL of it is the government’s money to begin with, not yours and mine) of maintaining the current tax rates would only go to the top 2 percent of wage earners, but then a fairy tale is presented that the government is going to be sending $3 million checks to the 120,000 wealthiest people in the country! Um, $3 million x 120,000 = $360 billion which is 52% of 680 billion. I don’t know about you but in my book 52% does not constitute “nearly all”.

Furthermore, I can only assume the $3 million check assertion was supposed to be presented as “this is what it would be like” but the way it is stated it clearly sounds like the author believes the government would actually be sending checks out like that. That is of course absurd, the government is not sending out $3 million checks to any taxpayer. But to even liken it to that is absurd. Because to take that comparison to its logical conclusion, then all of the money that you are allowed to keep by the government, well, it is really like the government sent you a check for all of that then isn’t it.

That’s what is being said here, that there is substantively no difference between me sending $20 in taxes to the government for my $100 of income or me sending $100 to the government and the government sending me $80. Mathematically there is no difference, but in terms of freedom and liberty there is a world of difference. If you think the latter is the way it should work then might I suggest Cuba, it’s only a stones throw from the US.

4) Logic check on the math check. My response to the author’s response to Dudney Harris is that the author’s logic is faulty in my opinion. In theory and practice Dudney is correct. As usual you don’t get the whole story here. Internet searches reveal numbers that state the figure is only 1 out of 4 companies “pay” no taxes, but for the sake of argument let’s just assume the author’s numbers are right and it’s 1 out of 3. Digging a bit deeper into these stories (on the internet… the Google search is trivial to pull up this information) we find that it all depends on how you define “pay”. In fact these companies are paying taxes, just not perhaps in a particular time frame. What do I mean by this? If you overpay your taxes for this year you can get a refund or you can let the amount roll over into the next year and offset your taxes for next year. So, next year you would literally “pay” no taxes in the sense that you would not be writing a check next year (assuming the overpayment from this year covers all of your taxes for next year as well).

So that is what is happening, a lot of these companies being characterized as “not paying” have actually already overpaid in one tax year and let the credit flow through to the next year. Or, when they say “pay very little” it’s the same as you or I with withholdings. We might actually pay $1,000 in taxes but if we already had $900 withheld during the year, then come April 15 we only “pay” $100. That’s what these reports in the media seize on, that a company “only” paid $100 completely ignoring the fact that they had already previously paid amounts for that tax year. Also, another reason cited that a company is not paying taxes is the simple fact that they didn’t make any money! Gotta love the liberal thought process on this one “oh, how dare those big bad companies not pay taxes even if they made no money at all or lost money.” Thanks, but we already have a system in place that ensures companies pay tax regardless of whether or not they actually make money: it’s called property taxes.

There are indeed some loopholes that these big corporations are able to use to either lower taxes or defer payment into the future (keeping profit in offshore subsidiaries does not escape taxes, it simply defers until the day they do bring that revenue into the US). But just because a handful of companies, or let’s be generous here and say 1 out of 4 are avoiding paying their full share – is that really a reason to punish the other 3 out of 4 companies that are paying their fair share. Is that how we solve it? Keep the corporate tax rate at one of the highest in the world (35%) in order to try to catch a few scofflaws all the while hurting those honest businesses that continue to pay their full share that would otherwise truly benefit by paying a rate commensurate with that found in other countries around the world.

So yes, double taxation of dividends is real and is patently unfair (taxing the same money twice). I should know, I own a corporation located here in Madison (Seachem Laboratories) and when you factor in payroll taxes (employer’s share of FICA) and local property tax and state and federal income taxes we pay approximately 55% in taxes on total corporate income. If I paid that out as a dividend, it would then be taxed all over again, this year at 15% but next year it could go as high as the top marginal rate of 39.6%. And people wonder why companies might cut back or stop paying dividends all together if this tax cut is allowed to expire. Taken together the additive tax burden comes to approximately 73%. That isn’t taxation – that’s wholesale confiscation.

This notion of “soak the rich” should be morally repugnant to everyone. The fact that it is not is downright frightening. When did legalized theft become acceptable in this country? Just because a majority of the population can “legally” steal from a minority of the population does not make it right or moral. All other businesses charge all customers the same rate, but government (and government is a business – they provide services) forces everyone to use their service and charges people with more income a higher level for the same service even though income has no bearing on the usage of such services. My homeowner’s association dues are the same as my neighbors – why should I pay a different amount based on income? If homeowners associations attempted to do that (charge different rates based on the income of the owner) you’d have riots and lawsuits. But when the government does it, somehow it doesn’t really register with anyone how patently inequitable that is. We’re trapped in this mindset of “that’s just the way it’s always been” so no one questions it (of course I know some actually do think this is “fair” but I have yet to hear a sound logical argument for that). Theft is still theft even if used for some noble cause.

Something has to change with our system of government. The pendulum has swung from the side of liberty and freedom upon which this country was founded to one of servility, where the State has become our new master, not ourselves, all in the name of “security” and “fairness”. Government’s job is not to make the world fair. The world is unfair and no amount of government will make it so. All attempts to make society “fair” for everyone have all failed miserably (e.g. Russia, Cuba, North Korea, etc). Government’s role is to simply protect our life, liberty and property. That is it. Those who use government to force the imposition of their will upon others are cowards. If they really believed their ideas were good and sound then it should be easy to convince others to follow their lead or give to their cause of their own free will (that’s exactly how charitable organizations work today). If no one is willing to give or follow, then they are either not very effective at relaying their ideas or it wasn’t a very good idea to begin with.

Even though I wrote this response to a Democrat in defending a Republican I am neither. I am a Libertarian. If you too have always felt it just doesn’t seem right when the government imposes arbitrary rules and laws (i.e. those not pertaining to the protection of life, liberty and property) or when the government takes more and more of your labor (taxes) to redistribute it to those it deems more worthy of it, then I’d suggest you visit www.mises.org. It is mainly a think tank for the Austrian school of economics (think anti-Keynesian anti-bailout and sound money), but that school of thought is founded upon Libertarian (classic Liberal – which are the ideals this country was founded upon) ideals. It’s a lot to take in, but I’d suggest starting with the “Mises Daily”. If you like what you read I’d suggest starting with two books that I found most eye opening. One is “Mystery of Banking” by Murray Rothbard (http://mises.org/Books/mysteryofbanking.pdf as a free download or purchase at http://mises.org/store/Mystery-of-Banking-P528.aspx), the other is more timely and germane to the recent financial crisis, “Meltdown” by Thomas E. Woods Jr (http://mises.org/store/Meltdown-P557.aspx). Both are also available on Amazon.com as well. Even if you don’t agree the site is still worth perusing and reading as it always good to at least understand ideas you may not agree with so you may intelligently debate them without looking uninformed.

Sincerely,

Gregory Morin