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Tax The Rich

Courtesy of ZeroHedge. View original post here.

Even though I have said this before apparently no one was listening so I have to say it again* because every time a new tax reform bill is proposed, the same clichés are trotted out and most of them are wrong. The purveyors of these clichés know they are wrong but they don’t care because they are trying to manipulate you to their ends. And, people fall for them.

Here is what the polls say about what Americans think about taxes (Gallup, Pew Research): 

  • 51% think they are paying too much in taxes, especially the middle and lower classes.
  • Even more (63%) think the rich are not paying enough.
  • 56% think the tax system is unfair, rigged for the wealthy.
  • 67% think corporations are not paying enough.
  • Most Americans (59%) think the government ought to redistribute wealth more fairly.

These views, based on Progressive propaganda, are wrong. Here are the facts (latest data, 2014, 2015):

  • The top 10% of taxpayers account for 47% of adjusted gross income (AGI) yet they paid 71% of all income taxes and they pay at the highest rate.
  • The top 1% (only 1.4 million returns, 2014) account for 21% of AGI, yet they paid almost 40% of all income taxes.
  • The top 400 taxpayers alone are responsible for 2.3% of all income taxes.
  • The bottom 50% (income) of taxpayers pay only 2.75% of income taxes.
  • The bottom 75% pay only 14% of income taxes.
  • The average tax rate for the bottom 50% was only 3.5% and the average rate for the top 1% was 27.2%.
  • If you taxed away all AGI of those making $1 million and more ($1.455 trillion), it would run the government for 4.6 months (2015 data) and then it would be gone.

Think about the meaning of this. Wealthier taxpayers, because they are paying more than their fair share of taxes, are carrying the tax burden for the bottom 75%. If anything, the bottom 75% of taxpayers are either not paying taxes or aren’t paying enough as a percentage of their income. Since income taxes supply about 50% of tax revenues, we are over-relying on the rich to pay for government which means we have a fragile tax system. The bottom 75% ought to grateful for rich people.

Then there is the corporate income tax which most Americans think is too low and that corporations should pay more. I have no idea why people think this. When it comes down to it, it is we who ultimately pay corporate taxes. If Apple’s taxes go up along with everyone else’s, we are going to pay more for the new iPhone.

We have the highest corporate income tax rate of the 35 advanced economies that make up the OECD. Ours is 35% whereas Canada’s, for example, is 15%. You probably have heard that many of our corporations do business around the world and that they have a nice stockpile of cash abroad (about $2.7 trillion). That money is staying abroad partly because it would be taxed here at a higher rate if they brought it home.

Higher corporate taxes are a bad idea. Instead we need to reduce these taxes to keep our companies competitive with the rest of the world. Wouldn’t it be better if we incentivized corporations to invest in America? Wouldn’t more cash in the hands of productive profitable companies result in more investment, more productivity, more jobs, more profits, and more prosperity? You know the answer.

And to you proponents of higher taxes, there is one more thing you need to know. And that is, history has shown that even if you raise taxes, the government’s tax revenue as a percentage of GDP will be about the same. 80+ years of data bears out the fact that regardless of tax rates government revenue will always be about 19% of GDP. How could that be? The reason is that most of us, rich or not, individuals or corporations alike, will adjust our activities to minimize our taxes.

There is a serious problem with that though. Much of the jiggering it takes to minimize taxes disincentivizes productive activities and incentivizes activities that make sense only because they reduce taxes. These activities can be tax shelters dreamed up by clever accountants and lawyers or just reducing one’s productive output to avoid working for the government rather than for one’s own benefit. This distorts the economy and the result is that investment capital is steered into less productive activities and the economy (us) is worse off.

So now we have a new president and another attempt to “reform” the tax system. President Donald Trump has put forth a rough outline of his Administration’s tax reform proposal, which, he claims, will give the middle-class tax and corporations relief. Pretty much every president promises to reduce taxes on the middle class and raise taxes on the rich.

We can express no opinions of the tax bill yet because it is likely to be hacked apart by Congress who have lobbyists pleading for special tax benefits. It will take some time to see what emerges from Congress. But on the face of Trump’s brief outline of tax proposals, should they be adopted, they would be good for the economy and thus good for taxpayers. More money in our hands and in corporations go to more productive uses than for nonproductive government uses.

Here are some of the good points proposed by Trump:

  • A reduction and simplification of tax rates.
  • Benefits for the middle class such as doubling the standard deduction and increased child tax credits.
  • Repeal of the Alternative Minimum Tax.
  • A 20% corporate tax rate.
  • Possible tax reduction on repatriated corporate earnings held abroad.
  • A repeal of the death tax.

At this point I view these as pie-in-the-sky because the Trump Administration seems ill-prepared to battle Congress to achieve its legislative goals and they appear to be willing to increase the top tax rate if it is expedient to do so.

Our fiscal problems are not so much with our tax system but rather with government spending. Taxes will always be insufficient to fund government operations because our politicians spend and spend on ineffective and wasteful programs and policies without regard to the consequences. Higher taxes will only distort the economy, weaken productivity, cause job losses, and bring us less growth and more malaise. Spending cuts are the only cure. The unfortunate reality is that this fiscal morass is not likely to change any time soon.

*Paraphrasing André Gide, “Everything has been said before, but since nobody listens we have to keep going back and begin all over again.”

Source: AnIndependentMind


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