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Tax the Rich!? Pay their Fair Share! Is that Really a Solution?

May 30, 2012 in Economics 101, Politics

AN INCONVENIENT FACT; Statistics show that the RICH are disappearing.:
There are not enough rich and there is not enough confiscatable wealth in the entire country to solve the budget problems.  Regardless of anyone’s political opinions, math is always math.  There just isn’t enough for taxes to be the solution!   
If the government took everything from the rich, it still would not be enough to fix the budgetary problems our bureaucrats (in their infinite wisdoom), have created..   In the minds of many, the solution to the US deficit issues, the ability to support or provide new “needed”, programs and entitlements is to “tax the rich more”.  That proposition is a fallacy.  We now see that the problem is even worse than we thought!  There are not enough rich, the middle class is disapparning, the poor have nothing to take.   Who are we supposed to tax, now?…   More Taxation clearly is not the answer.

Remember, no one is asserting that programs to help those in need shouldn’t exist or be funded.  Rather, the issue is the proper mechanism for doing so.  A never ending upward spiraling of taxes is provably not the answer as will be shown below.   It is a simple mathematical fact that following this course would not even address the current budget issues, let alone provide sufficient funds for more programs.  We will address in future articls policies that actually could work.  In this article we wil concentrate on demonstrating why the current path can not lead to the intended destination.

The Fallacy of Tax the Rich:
For 2009, (the most recent year that complete stats are available) ONLY 3% of the tax returns filed in the US were for more than $200,000 of taxable income. And remember, the top 5% of earners already pay well over 50% of the federal tax burden as it stands. 

Could they really pay more? Should they? And if they did, would it help?
I think the answer is apparent.  There simply are not enough rich and not enough wealth to solve the problem.  If the government took it all, it still would not be enough. At some point, enough is enough.

Class Warfare
Politically, the idea of “class warfare” and “tax the rich” works.
Politicians get elected using it every year  but as a solution to the country’s ills, class warfare makes about as much sense as a vaccination of cancer.

The US and the world has a problem. We need solutions and solutions do exist (many will be discussed in other articles), but the “Tax the Rich” proposals that are so arduously being promoted as the solution, is simply a lie.
The US does not have a Tax or Revenue issue… it has a spending issue. We have to get it under control!

But what about the “Buffet” rule?
Shouldn’t the wealthy pay, at least, the same percentage as their secretary?
The short answer is yes. The real answer is “it depends on how the income is derived”.

The Buffet rule would increase the tax rate for capital gains and dividends. On its face that doesn’t sound like a bad idea, but there is a reason that those rates are lower (future articles will discuss those reasons in detail). But in general, the tax structure is different because of the risk involved in capital gains and dividend earnings. This form of income requires the investment of your own money rather than your labor to even have the potential of a return. But to get that return requires risk.

Many might respond…
So what? Life’s a risk! If you lose it, you write it off!  If you’re lucky and cash in, you pay taxes. That’s how it should work isn’t it? Where’s the problem?

YES! That is how it should work… And I wish it did. If that were how the tax hit was determined, I would agree and become a fan of the buffet rule and the raising of dividend and capital gain taxes.

But that’s NOT how it works, not by a long shot. With our tax code, absurdity is the norm.
Generally, no matter how large the loss, the investor can only deduct $3,000 of that loss per year.
However, no matter how much you earn i.e. If you earn $100,000 in a year, all of it is taxable.
This leads to absolutely absurd results as shown below. In another article we will discuss this in detail, but in general…

Let’s assume in 2012:
You have an investment that lost $100,000, while having another, investment that earned $50,000.
Any second grader could tell you that you LOST $50,000 dollars that year.

Due to the limitations on capital gains losses, according to the IRS, you EARNED $47,000!  You are actually required to pay taxes on income that you did not receive.

The tax code, as it now stands, has many absurdities that should be fixed. There are many ways to do it… The Buffet rule is not one of them.

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3 responses to Tax the Rich!? Pay their Fair Share! Is that Really a Solution?

  1. yes we should tax the rich

  2. taxing the rich promote more development in the sense that the country move forward.

    • My issue is not that the “rich” are taxed. THEY SHOULD BE. It’s a combination of 2 little known FACTS.

      1. The top 5% already pay over 50% of all federal taxes.
      2. The bottom 50% pay almost ZERO taxes.

      SPENDING vs TAXES is so out of balance that If…

      the government imposed a 100% tax on people making over $250K
      AND confiscated ALL last year’s profits of ALL Fortune 500 companies
      AND TOOK ALL assets of the top 400 billionaires…
      we would still only fund our government for 8 months!
      SEE http://allsolutionsnetwork.org/blog/economics-how

      The fact is that NO amount of tax increases on the “rich” can accomplish anything. IT IS MATHEMATICALLY IMPOSSIBLE.
      The only REALISTIC option we have is to get spending under control. PERIOD. Any politician that denies this simple fact is simply lying and engaging in class warfare as a path to re-election and power.

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