Saturday, December 8, 2012

Fairness in Income Tax Rates

Grover Norquist, who wants to shrink your government down to the size he can drown  in  his bathtub

For many years, Mad Dog ran a small business with two employees and paid personal income tax, which Mad Dog loathed for many reasons. Because Mad Dog was self employed, he paid a "self employment tax" and he also paid an "Alternative Minimal Tax" and he paid state income tax and property taxes on his home and sales tax and all that, but the income tax was really loathsome because it forced Mad Dog to keep records, checks, files, so he could deduct the expenses of running his business, the phones, the rent, the various insurances. To take advantage of something called a Simplified Employee Pension ( SEP, a sort of 401 K pension plan) which allowed you to salt away money which got subtracted from your gross income, lowering your taxable income, Mad Dog wrote checks of $30,000 every April 15th.  He also paid "estimated income tax" quarterly and could never seem to find a tickler system to remind him to send in a check on the odd dates they were due, so Mad Dog awoke in a cold sweat many a night,  trying to remember if he had paid his estimated tax. 

Mad Dog felt invaded, having to show how he spent money, and always felt he was doing something wrong--either taking a deduction which might not be kosher or failing to identify a cost which he'd be foolish not to claim.

And every March, Mad Dog looked at a special bank account he had been accumulating all year, growing to healthy levels and he felt successful, until April when that account was nuked and he was back to zero, feeling a failure and impoverished.

On years when, after all the deductions for his business, for his mortgage interest payments, for his SEP retirement plans brought his income, his "Gross Adjusted Income," down to a level of $250,000, he paid $97,500, leaving him $152,500 to live on, and he felt impoverished.

Now, this was before Mad Dog moved to New Hampshire (and became an employee) and you might think, how spoiled was Mad Dog having to living on $150K?  But where mad dog was living, in an affluent suburb of Washington, DC, that put Mad Dog in the lower half of incomes of his neighbors.  Mad Dog's house was small, and his automobiles just as modest.

So Mad Dog can understand and sympathize with the letter from Mr. John Tucker of Greenland, New Hampshire, which appears in the Portsmouth Daily Herald complaining it is not fair to make people making more than $250,000 pay higher rates of income tax.  "Right now, the producers who earn the most pay the most in actual dollars and in percentage of income," Mr. Tucker points out.  "I breathe the same air as the man down the street, drive on the same roads, and enjoy the same protection from our military and police force. So it would seem to me that what would be "fair" would be I pay $100 and my neighbor pay $100."

We get the same benefits from our government; why should I pay more? What is "fair" about that?

Mr. Tucker has never understood or accepted the argument for a "progressive" vs a "regressive tax."

And he would be correct, if we really all did begin at the same starting line, played by the same rules and if life were really a baseball game.

Kings and royalty were asked the same questions in the 18th century: why should you be rich, have so much when the rest of us are so poor? 

It is God's Will, they replied, which shut everyone up. Nobody wanted to have lightning strike their homes and families, questioning God's Will.

But now, here in the USA, we've got this thing called "democracy" and a "republic." And we can say, look, nobody in this country, or in mammalian life makes it on his own. If you have worked very hard, and sacrificed heartily in this nation,  you will have realized benefits you can get in a country with an economy like this. You could have worked just as hard in Haiti, in Somalia, in Liberia,Laos, in Thailand,  in Bolivia and all that effort and sacrifice would have got you a leaky roof and a motorbike.  You have a great house, a nice car, good schools for your kids, enough money to travel, go on vacation,  because you live in the USA and there is a huge superstructure of economy, government and education working hand in hand to support your efforts and magnify and multiple your productivity.

Republicans like to portray themselves as the independent man, the cowboy, living off the grid, riding the range in Montana. But consider that cowboy on his horse, in his leather saddle, Winchester rifle at his side to ward off predators, human and bestial: Did he make that leather saddle? No, he bought it with greenbacks provided by his federal government, in an economy supported by that government. Did he make that rifle? No, it was made by the Winchester company, along with the bullets with their brass casings and gunpowder, in a factory in Connecticut, which had running water, access to roads and railroads and stores and greenbacks. 

You might make the argument the Comanche, on that cowboy's trail was the independent man, living off the grid. But even the Comanche was born helpless, suckled, nurtured, taught. Although he made his own arrows and captured his own horse, he was taught how to do that by a community and a family. The Comanche did not whine about having to support his tribe. He was proud to support his tribe. 

The fact is, living off the grid in this nation, on this continent, as a mammal, is something only a few whackos in Idaho or somewhere in the Dakotas even try to do. And when they do it, they take a lot of manufactured goods with them (including rifles) into the wilderness.

Mr. Tucker has not done this. He has chosen to live in Greenland, New Hampshire and if he is asked to pay income tax, he ought to stop whining about it.

It would be completely fair and appropriate for Mr. Tucker to spend time and effort looking at how the government spends the money he worked so hard to send their way. Why should some people get to shelter their income in the Cayman Islands or pay only 15%  because their income comes from non-ordinary income?  Why should a doctor who buys an $80,000 Excalibur Cadillac truck get to write off his payments because somebody got a law passed to give a sweet deal to people who buy such gas hogs?  

But one man's boondogle is another man's necessity:  Why should my sons, who are renting apartments in New York City, not be able to deduct 39% of the cost of that rent the way I can for my mortgage payment? Is there anything "fair" about 90% of the deductions and "loopholes" in the tax code?

Typically, these sweet deals have been passed into law because rich people had Congressmen in their pockets and paid for this special treatment which allowed them to subtract a great deal of their gross income and bring down what they actually paid taxes on--their Gross Adjusted Income-- to a mere $250,000. Then they are left with only $150K to spend, after they have spent at least that much on their big cars and their multiple homes, which the government has subsidized and in effect, paid for them. 

The reason the rich pay higher income tax rates is we all realize, on some level, the rich have bought themselves sweet deals throughout the the tax code and the tax rates are meant to balance out that advantage. Presumably the self employment tax was passed with the same idea--we know you are snookering us somewhere, and this will make up for that.

Is that fair, Mr. Tucker?

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