What is Fair?
There has been a great deal of talk lately about the wealthy not paying their fair share of taxes. There has also been a great deal of talk about the rich paying a lower tax rate than the average person. There are a few details that the weak minded who try to sell this misinformation either don’t know or won’t share with the rest of us.
In terms of dollars the wealthy are paying in far more dollars than the rest of us. More than half the revenue that’s collected from income taxes come from the wealthy. They’re paying out far more than they’re getting back in services from the government. Based on that scenario I think they are paying more than their fair share. On the other hand far too many are getting much more in services than they are contributing. Is that fair? That only makes sense if your goal is redistribution of wealth. Steal from the rich and give to the poor. Let us assume for the sake of this discussion that is not the goal here.
Now let’s look at the percentages. The tax rate for a teacher in New York is the same as the tax rate for a Successful Rap star in New York. The tax rates for income is even regardless of how much income is earned. Income is taxed at the rate of income regardless of who you are and how much money you have in the bank. What they fail to mention about the lower tax rates is that wealthy people not only have income from salaries, or other forms of income, they also have income from investments. Income from investments frequently qualify as Capital Gains and Capital Gains are taxed at a lower rate than income. The dirty little secret about Capital Gains and income from other investments is that the money that is invested was taxed as income when it was earned.
Ask yourself how do rich people get rich? They earn a lot of money, that’s how. After they earn it instead of spending the money on fast cars, easy women, or low rent political candidates, they save it and put in the bank to earn more money in investments. The low rent politicians who point their fingers at the wealthy who are paying a lower tax rate fail to acknowledge that the income was taxed at the proper rate for income when it was earned. They’re now looking for ways to confiscate more of a wealthy person’s wealth by taxing the fruits of their investments a second time.
The dictionary defines Capital Gains as “a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price”. Income that has already been taxed is now invested in a way to earn additional income for the wealthy person. Wealthy people aren’t stupid, they do some research and invest wisely. They put their money at risk in order to make a profit. In spite of what you hear in the news and from many politicians, profits are not evil.
The Free Market loves profits, they make the world go round. One factor they consider when making investment decisions is how much of the profits they get to keep after they pay taxes. The Capital Gains Tax rate was reduced to stimulate investment. Allowing wealthy people to keep more of the money they earned on investments, using money that was already taxed as income was considered a business friendly decision on the part of government.
Investment income stimulates the economy in a number of positive ways. It leads to more jobs, and more jobs leads to more tax payers. Investment income also leads to more investments.
The best part of all this is that the government is not involved. Their only involvement is to stay out of the way. It would also help if government stopped demonizing success, profits, and the wealthy.
So let’s get back to the original question. What is Fair? Fair is paying the appropriate tax rate on income and giving more to the government than you take back from it. We always need more givers than takers.
Fair also means take the income one time at the rate of income, then take it the second and third time around at a reasonable rate to give the investor adequate incentive to put their money at risk. Make investors want to risk their money and stimulate the economy.
The wealthy, a Free Market, and profits are good things in spite of what politicians tell you. Remember this, Politicians share far too many qualities with whores. They provide services to strangers for money, and they’ll tell the strangers anything to create a situation to separate the stranger from their money. When you are tempted to trust a politician, think about handing your wallet to a local street walker.
The two situations have the same likelihood for a successful outcome.