|
|
MAKING CENTS OUT OF THE NEWS
Blog #40
(December 1st, 2011)
Don’t Tax You, Don’t Tax Me, Tax That Rich Fellow Behind The Tree!
By Tom McAllister, CFP®
I admit to a degree of bias in favor of entrepreneurs. All during my close to half a century in the investment business, I’ve targeted the self-employed as ideal clients. Now in semi-retirement, I continue to work with many of the entrepreneurs whom I met on lecture cruises. In my mind, they epitomize the “American Dream” of financial independence.
This is not to disparage professionals and corporate executives. They, too, put themselves on the line in their work and lives, and I’ve helped many of those practitioners and executives as well.
Probably due to the fact that I myself have been self employed for the past thirty six years, my heart is lies with my fellow entrepreneurs. Like most businesses, mine had its ups and downs, on balance proving worthwhile, enjoyable, and satisfying. Compensation has gone from ridiculously high, to a couple of years of losses. Overall, I consider I have been well paid for my knowledge, experience, and time
I think, as a group, the self-employed constitute the “salt of the earth,” well-deserving of their earnings. They continue to be the driving force behind job growth in America. Therefore it is with sorrow that I observe our president attacking this very group of people by insisting they must “pay their fair share.” Without explaining what “fair” is, he insists it must be “more.” Yet it is these very people, the top 5-10% of taxpayers, who already pay more than half of all federal income tax collected, while the bottom half account for less than five percent!
Public opinion (as measured through a number of polls) is in favor of “the rich” paying more in tax. Well, “surprise, surprise!” as Gomer Pyle would say. I seriously doubt that any of these polls mention the facts I’ve presented in the preceding paragraph. Of course the public in general, of whom the majority pay no federal income tax, is very willing to have the “rich” pay more!
The saddest aspect of all this is that the “class warfare” is politically motivated rather than practical. Even if taxpayers earning more than $1,000,000 were taxed at a 100% rate, that would still not make a large dent in the federal deficit!
In reality, there is a large - and growing - disparity between the lowest 10% of income earners and the highest 10%, a situation common in times of economic lethargy or decline. On the other hand, during times of solid economic growth, such as the late 1980s and 90s here in the U.S., this disparity tends to decrease.
With the support of then Democrat Congressional leaders, President Reagan approached the income disparity problem from a totally different angle. Reagan’s response to class warfare was to get the economy to grow faster, raising the income of the bottom half, even though the top half might do even better. The 1986 Tax Act, which drastically lowered income tax rates while dramatically increasing overall income tax collections, produced income gains at all levels, as job growth and business investment surged. The income of the top 20% grew 6.4%, while the middle 60% grew 5%, and the bottom 20% grew 6%. I trust you agree this was a very respectable outcome.
“Political hay may be had from attacking the “rich,” but actual “hay” or gains in the economy, will only decline when Americans are not pitted against each other.
|
| |
| |
Click To Print This BLOG
