Let's Be Fair about Taxation (It's always about punishing those who do very well)

When I hear others say "fair share," I know what is coming -- a diatribe against the wealthy followed by recommendations to more heavily tax "millionaires and billionaires."

The specifics usually follow. I learn that it isn't just millionaires and billionaires who are targeted. The actual income threshold is $200,000 for individuals and $250,000 for married couples, and it is business and investment income that constitute the real target. You know: the evil capitalists.

Today, the current top tax rate of 15% for capital gains and dividends is getting a lot of attention because of the recent release of Mitt and Ann Romney's tax returns. They reported millions of capital gains and dividend income and paid a tax of around 15%.

Let's take a look at fairness in the context of investment income. We will see a very different picture of their tax situation and the taxes paid by others with investment income.

If an individual purchased stock 20 years ago for $600,000 and sells it today for $1,000,000, we say the investor has a $400,000 gain. If the top tax rate for capital gains of 15% applies, the tax is $60,000. The question is, just how much tax should this investor pay? Is 15% too little if wages and many other types of income are taxed at rates as high as 35%?

Advocates of lower tax rates for capital gains often rely on the need for investment incentives as the primary reason for lower capital gains taxes. That is a very valid reason, but there are two other even more persuasive reasons that are rarely mentioned in public discussions.

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Your class envy might be supportive of increasing Mitt’s capital gains tax, but it will be to the detriment of my retirement investments. Envy is destructive and you are oozing it.

Hey xzins, get a load of this post. Didn't I tell you that if I made the case that common laborers should pay taxes at the same rate as guys like Romney, that I would be accused of playing the "politics of envy"?

Just for the record, CSM, I never once said that Romney should pay more in taxes. Never. He is paying just about the right amount of taxes, with about 15% of his income from all sources being paid in Federal Income tax. Right now, with all my deductions and expenses I pay at about 15% too (not counting the 15% on the first $108,000, but I'm not going to get worked up about it).

I bet I make twice as much money as CSM and I bet my tax rate is lower than his. But because I argue that ditch diggers shouldn't have to pay a higher effective tax rate than Romney or me, then I am somehow playing the envy card.

CSM, what is your effective income tax rate. Mine is probably about 20% if you include FICA. My daughter who works as a waitress has an effective tax rate of about 25% including FICA and if you throw in the State tax, then she probably pays closer to 30%. Every year I get back about $10,000 in tax refunds and every year I have to help my daughter out because they didn't take enough out of her paycheck to cover the taxes she owes.

But since she doesn't make enough money to pay her bills and then invest in Venture Capitalist schemes, she pays roughly twice in as much in taxes on every dollar earned as Romney.

She's not envious of Romney. She's working too hard trying to stay alive and pay her bills to think about it. If 15% of her gross income was used to pay all her Federal Taxes, I'm sure she would be a happy camper.

The numbers are the numbers. I forget the exact FICA/Med amount but it’s a little under 7% for the individual. Supposedly the employer is taxed 7% also, for a combined 14%. We know that business pass the expense on, so that expense is passed on to the employee in the form of lower wages than they could be. The employee is paying 14%. Businesses build all their expenses, including taxes, into the price of their goods/services or out of the salary/benefits of their employees. It only make sense to do so. An expense is an expense.

Therefore, I pay 14% (which I actually do taxed as self-employed for SS purposes) AND I pay income tax on the income as well. I definitely pay more than 1%, so I pay more than Romney.

That is not class envy. That is math.

I want a better deal. Actually, being honest, the FairTax would establish a single tax rate for all of us, and I consider that equality under the law. I think a flat tax of 15% would also be equality under the law provided the Fica/med were counted in for the first 108,000 for everyone.

Again. It’s not class envy. It’s mathematics.

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