TBD on Ning

Right now the main issue between Republicans and Democrats on the fiscal cliff negotiations is raising the maximum tax on regular income from 35% to 39%.  Obama is on record as having agreed that it made no difference to him if it were done by closing loopholes but now insists it has to be an adjustment in the rate. This was a key election promise by him.   OK, on the other side Representatives have signed pledges of "No New Taxes," like this was a marriage vow.  But IMHO, the issue is a farce, as very little revenue will be gained by this change.  The rich will just take a few minutes with their accountants and find a way to circumvent the new higher taxes.  And it isn't that much money anyway.  Former President Clinton called it all Kabuki. 

To explain, let's take Warren Buffet.  He is worth about $500  billion, but pays himself a salary of $100,000. per year to circumvent paying taxes.  He, as well as many such like him, take most of their income at the 15% tax rate on capital gains.  So on his $100K salary, lets just assume that all of it is taxable at 35%.  This means that he pays $35K in taxes now.  If the rate goes to 39% he will pay $39K in taxes.  So we are willing to destroy our economy and go over a fiscal cliff so we can get an extra $4K from Warren Buffet.  You have to be kidding! 

Now you may say, "Let's raise the capital gains tax," but the name of our system of economic activity is capitalism and capital is vital to the creation of jobs.  So that's probably a bad place to raise income in a poor economy.  Also, traditionally, the capital gains rate has been just one rate, not progressive as are other taxes.  Most American have some form of investment, directly or indirectly. 

A far better solution is to tax wealth.  Right now real estate property is taxed quite heavily and is used to provide social services at many levels.  The taxing of real estate has a high level of acceptance and is neutral as to people.  It works.  But there is also intangible property (everything that is not real estate)  with is seldom taxed except in a few states.  So  why not tax it?  It is easy to find and calculate as most intangible property has a paper ownership basis.  

If there were a 2% intangible property tax on the very, very rich and a 1% tax on the not-so-rich-but-well-off the country could gain a lot of income.  Buffet could be paying $10 billion in annual taxes on his $500 billion in holdings if it all were in non real estate holdings.  Now that is tax worth going to battle over and could do some good in paying the bills.  There will be some who try various dodges to evade the tax and the IRS should be meticulous in challenging cheaters. 

To prevent the rich from moving money off-shore, I would also have a 50% one time tax on any money leaving the US, that was made here.  Everyone required to pay this new intelligible income tax would have to account for every penny in their change in net worth from year to year and if net worth goes down without an explanation the 50% tax would be applied automatically. 

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Comment by Mandy Muffin on December 11, 2012 at 2:11pm

The point of the blog is that we are playing a game of chicken over an insignificant amount of money.  The kinds of money the US needs to solve the financial mess will require a new paradigm in the raising of monies to fund the new progressive social order or we will be the next Greece.  Keynesian economics will not work if most of the investments are in the public sector as the last stimulus was expended. I also understand most of the new growth in jobs are in the public sector.  So if the current government hasn't got a clue on how to stimulate the private economy they had better tax the hell out of anybody that has any money if they are going to pay the bills.  Just raising the marginal rates won't do the job.  Or the government could confiscate all wealth as the communist did, but didn't turn out too good. 

Comment by MGDJ on December 11, 2012 at 1:12pm

The fact is that if you raise tax rates, the economy probably slows down due to private business owners needing to watch their marginal tax rates.  Less economic activity equals less revenue to the treasury even if the tax rates go higher.  Two years from now, the tax rates will need to be raised again to generate the same amount of revenue.  This cycle has been going on for years in Europe and has led to a real crisis in countries like Spain, France and Greece.  I love this line at the beginning of this video.  It describes the Democrats attitude toward the fiscal cliff perfectly.  http://www.youtube.com/watch?v=KgTqfHc1nLk



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