Wednesday, September 21, 2011

It's The Taxes, Stupid!

Recently, there has been a great deal of attention focused on raising taxes and everyone, especially the rich, paying, and I quote: "their fair share." As if one group of people should be able to decide what another group of people's "fair share" is! Seems inherently selfish to me. But that's beside the point I want to focus on.

Warrent Buffet said it just wasn't fair that his staff pay more in taxes than he does and that he, with all other rich people, should pay more. By other rich people, Warrent Buffet, and several left-leaning politicians are inclined lump sum someone who makes $250,000.00 annually with someone who is net worth is $39,000,000,000.00. Obviously they should be in the same category! Now, I realize I'm comparing annual income to net worth and that's actually comparing apples and oranges, but SO IS WARREN BUFFET. He pays capital gains tax because that's where he makes his money; whereas his "staff" pays income tax because that's how HE PAYS THEM.

His capital gains are taxed at 15% where the staff income is taxed at somewhere between 28% and 35%, a much higher percentage. For starters, in actual dollars, I doubt the staff pays more, but it is true that much more of their income goes to the taxing agencies (federal, state, municipal, etc.).

Mr. Buffet has suggested raising the capital gains tax, perhaps to even matching federal income tax levels. This thought has raised a lot of angst among the semi-wealthy people, those whose taxable income is a substantial percentage of both annual income and capital gains. The argument is made that, were that to happen, some people could easily be taxed to nearly 50% of their total earnings. And that would be a problem, because then the only people paying their "fair share" are the nearly wealthy. The wealthy don't have any annual income, just capital gains. The poor, middle income, and "getting there" people don't have any capital gains, just income...Ah, but those in the middle, let's squeeze them!

However, on the surface, doesn't Mr. Buffet's proposal have some merit? What he's saying is essentially, "People's who live off capital gains, like me, should be taxed the same as people who live off annual income." And, in my mind, this is true. But we need to do it without squeezing the middle. Why not put a stipulation out there that says, "If it's obvious that you live off capital gains, and we can see that's the case because 85% of your taxable earnings are capital gains, then your capital gains get taxed at the federal income tax rate for the amount on which you're paying taxes. However, if it's not obvious you're living off capital gains, and we can tell because it's not 85% of your taxable income, then you're federal income tax and capital gains taxes remain unchanged."

Finally, I wonder what all the senior citizens think of having their taxes go up because they live off mutual funds, 401k's, and other capital investments. Something would have to be done about that.

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