“Mr. Obama may have to give ground and agree to at least a temporary extension of expiring tax cuts for the wealthiest Americans, not just the middle class as he favors” – Somebody at the New York Times
It seems that the post-election mantra has become a discussion of whether or not to extend Bush-era “tax cuts” for “the wealthy” – with Republicans in favor and Democrats opposing.
Without rehashing, let me remind the reader that I believe what we ought to do is start with a discussion of “the right tax policy” and then move in that direction, instead of having Republicans always favoring lower taxes and Democrats always favoring higher taxes. There has to be a right answer – let’s figure out what it is and work toward it. Even if we all disagree on what the right answer is, we ought to at least figure out the goal before trying to get there.
This however is an aside to the true point of today’s post. What I want to point out is that the rhetoric is wrong. In fact, (in my humble opinion), the rhetoric is an outright lie. An intentional, brazen, pride-and-envy-laced lie.
We do not, in this country, tax wealth. We do not. We tax income (at the federal level anyway). This is an important distinction. The tax cuts at the heart of this grand debate are not, expressly not, tax cuts for the wealthiest Americans. They are tax cuts for the highest wage earners. These are different groups of people. Oh, there is some overlap – but probably not as much as you think.
The wealthy, the truly opulent wealthy people in America do not make their money via a paycheck. They make money on investments, tax-deferred bonds, “carried interest” (a great term). They don’t draw a paycheck from some employer to whom they are beholden. These means of earning money are not taxed in the same way that wages are.
If we let the Bush-era tax cuts expire for the highest wage earners (which is exactly who the tax applies to), Warren Buffett and Bill Gates will not miss a beat. They don’t earn their money that way. In fact, Buffett (a liberal) often laments that he pays a lower effective tax rate than his secretary. It is the secretary (I assume he pays his secretary well) that will get hammered by this tax increase, not Buffett.
So why the hype? Why the deception? Aren’t the progenitors of this rhetoric aware of the inconsistency? Of course they are. They have a political end and need public support. So, they rely on the innate pride and envy of humanity to explain that “those Republicans are out to help the wealthy at your expense.” It’s nonsense, of course. But it doesn’t sell as well to say “those Republicans are out to let the most productive members of society, who earn the highest wages, keep more of their own productive labors.”
According to Forbes, the top 400 wealthiest Americans paid an effective tax rate of 17.2%. How can this be if the top federal tax bracket is 35% – and that doesn’t include payroll taxes, property taxes, state income taxes, and all the rest. How can the uber-wealthy pay only 1/2 of the top rate? Because their income isn’t defined as income – it’s taxed by a different system.
Outside of the politics, what can we infer about our tax system? What could we say about a tax system that gives a very low (in fact negative) tax rate to the poor, increasing steadily through the middle class to a very high tax rate for the upper-middle class, then dropping dramatically again for the wealthy? Is this a tax system designed to redistribute the wealth, to spread it around? No. Clearly the effect of the system is to keep the poor and middle class from climbing into the wealthy class. A mound is put in front of them, lest through the sweat of their brow and the efforts of their hands they should acquire wealth and become a part of the upper class.
It seems like an all-too-common theme, but we see once again that the progressives are liars and hypocrites. The very thing they claim to hate – a widening gap between rich and poor with people forever consigned to remain in the class of their birth – is precisely the thing their tax program will accomplish.
And what of the current argument for Bush-era tax cuts? The position taken by the Democrats is that the taxation mound preventing class transition from low to high needs to be built even higher. Apparently it was not high enough in the past decade. Apparently too many of the lesser classes worked hard and acquired wealth to become self-sufficient. Apparently too many nouveau riche have appeared in their stately progressive clubs and sullied the place. (“Such miscreants ought to learn their place!”)
So don’t fall for the hype or the rhetoric. It is rhetoric and no more. The tax system is designed to keep everybody in their place, and to extort as much work and effort out of the aspiring middle class as possible. There is nothing new under the sun.