Taxing the Rich

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Thou Shalt Not Kill Thy Neighbor’s Cow

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Does President Obama Know How to Count?

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Brainstorming for a title for my article on the merits of  “taxing the rich,” I stumbled across an article entitled “Killing Your Neighbor’s Cow: The Defining Sin or Our Times.” The relevancy of this concept to my article was so striking that I borrowed it.  I am grateful to Charles Colson of Catholic Exchange for his perceptive article, which is well worth reading.  (We’ll get to the cow later. Or scroll down.)

US and China Deficits

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Outlining the Problem

  • The US has a two-pronged financial problem; an annual deficit, and an accumulated debt.
  • Obviously we must find solutions to the problem.
  • Continued borrowing is destabilizing our international status and our economy.
  • Our national debt is 34 times higher than China’s.
  • We must stop spending or find a new source of income.
  • Political leaders like Wisconsin’s Governor Walker try to reduce spending and are vilified and threatened with recall.
  • Political leaders like President Obama try to find new sources of tax income with popular slogans like “tax the rich,” a concept which, not surprisingly, seems to have much public appeal.  The concept of dipping into Scrooge McDuck’s seemingly limitless wealth is, on the surface, quite attractive.

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Is “Tax the Rich” a Realistic Solution to the Problem?

Scrooge McDuck

Kevin D. Williamson analyzed the possibilities regarding taxing the rich in the United States in his National Review Online Article

Define the goal:
National Debt: 15 trillion  ($15,000,000,000,000)
Yearly Deficit: 1.3 trillion ($1,300,000,000,000)

Define the rich:
Definition A:  households earning $250,000 ($250K)
Definition B: households earning $1,000,000 ($1 million)

The “Rich” as Those Who Earn $250K Annually

There are 2.2 million households in the US earning more than $250K.  To raise enough money to wipe out the annual deficit of 1.3 trillion, each of these households would have to pay $600K per year ( more than twice their entire income).

To pay the national debt of $15 trillion, each of these households would have to pay about $6.9 million.
Not possible on a $250K income, even if we repossessed all they own and sent them to Siberia.

O.K., so let’s try a higher cutoff.

The “Rich” as Those Who Earn $1 Million Annually

There are 200,000 households in the US earning more than $1 million.  To raise enough money to wipe out the annual deficit of 1.3 trillion, each of these households would have to pay $6.5 million per year (six times their entire income).

To pay the national debt, each of these households would have to pay about $75 million.
Not possible on a $1 million income, even if we repossessed all they own and sent them to Siberia.

“There Aren’t Enough Millionaires; The rich can’t fund our out-of-control spending.

Number of Households by Income

Kevin D. Williamson concludes in his National Review Online Article:  There aren’t enough millionaires; The Rich Can’t Fund Our Deficits

Much as the concept of dipping into infinite stacks of gold is attractive to those of us strapped for cash, there are not enough rich guys to fleece, to make much of an impact on our spending habits.  These people already pay close to half of their income in taxes.
If we took the other half of what the rich guys earn annually and left them penniless, the $250K group would generate $0.3 trillion, and the $1 million group would generate $0.1 trillion, less that 1/4 of the annual deficit, and less than 2% of the national debt.

Enter the Cow…….

Here’s where the Cow comes in.
If taxing the rich will achieve little towards solving our financial crisis, why is half the nation (Democrats) so taken with the notion?

  • Doesn’t President Obama know this math?
  • Don’t his advisors know the math?
  • If they know the math, why are they still pushing the non-solution and failing to find a real solution?
  • Why is half the populace falling for this attractive yet useless strategy?
  • Why is the strategy attractive if it is useless?

Quoting Charles Colson’s article:

An old Russian joke tells about a poor peasant whose better-off neighbor has just gotten a cow. In his anguish, the peasant cries out to God for relief from his distress. When God replies and asks him what he wants him to do, the peasant replies, “Kill the cow.”

Envy

The joke illustrates an important point about human nature: the line between envy and clamoring for justice can be very thin.

Charles Colson goes on to say “many people insist on soaking the well-off because, like the Russian peasant, what they want is to see their better-off neighbors knocked down a peg. That’s how envy works.”

His point is very valid.  In a society that is spending less time appreciating what they have been given, and more time wanting more, do we forget to ask ourselves the moral questions (Catholics call this examination of conscience) like am I following the 10th commandment, you shall not covet your neighbor’s goods?

Occupy Wall Street

Occupy Wall Street mobs

Occupy Wall Street (OWS) is a prime example of misdirected mass envy turned violent.  All the millionaires of Wall Street cannot save us from this economic mess, as we have just calculated above.  Occupying and destroying financial districts in envious anger is equivalent to killing the cow. The outraged mobs simply want revenge, and do not think clearly enough to realize that their anger would be better directed at the President’s administration and the Department of Justice, who failed to deal justice to crooked Wall Street entrepreneurs.  Instead, they bailed them out and allowed them to continue.  OWS is not only killing the cow, killing the cow they themselves depend upon for milk, but they are also killing the wrong cow.

Back to : There Aren’t Enough Millionaires; The rich can’t fund our out-of-control spending.

There aren’t enough millionaires.
O.K., let’s try the corporations.

The Corporations

Scrooge McDuck

Who are the Corporations?
(Visions of Scrooge McDuck again float by…)

The corporations are not magical entities, evil villains counting limitless stacks of gold coins in vaults guarded better than Fort Knox.

The corporations are actually collections of US citizens like you and me, who have saved and invested in our economy.  Many of these citizens have worked their whole lives and are approaching retirement.  Their stocks represent grandma and grandpa’s life savings and retirement nest egg.  If you take that away from them, guess who will have to support more baby boomer senior citizens?
Either their children (you!), or the government (you!).
You
will support the stockholders if their holdings are taken away from them.

If you shave off the profits, the corporations will shave off jobs.
That’s how private enterprise works: you must make money, or the proposition is not attractive.
If you want sacrificial community service from corporations, with little or no profit, you better staff them with selfless saintly volunteers who devote themselves to living the beatitudes (oh, but we’re banning and trashing religions these days, so that won’t work).

Last Ditch Effort: Let’s try Communism; Some Progressives Seem to Find This Option Attractive

If we did take all that the rich own, including Bill Gates, Warren Buffet, et al.., and send them to Siberia, how much would you collect?

Collecting the total worth of the top 20 richest people in America and sending them all to Siberia would net only 459 billion, which is 35% of the annual deficit, and 3% of the national debt.
And you could only do this once – there would be no rich for fleecing next year.
Money does not grow back like wool.  The cow would be dead.

BTW, a great many people would become unemployed when we closed down Microsoft, WalMart, Casinos, Amazon.com, Facebook, Google, Dell, candy manufacturers and dog food manufacturers who are the top 20 billionaires.  Incidentally, interesting social commentary to see where we are spending all of our money!  If we gave up computers, gambling, candy and pets, there would be very few billionaires!

Aside: It didn’t work for the Soviets, either, no matter how low they set their definition of “rich.”  I have Lithuanian grandparents who owned a one-acre farm, a cow and a push-pedal sewing machine.  They were declared “capitalists” by the Soviets, the government liquidated their possessions, and they were sent to Siberia for 30 years. The Soviet Union failed to prosper economically despite using these tactics.

Should we tax the middle class?

So maybe we should look at taxing the middle class.
If you subtract off the super rich and those who are at or below poverty level, you are left with 84% of America.
That’s 118 million households.
The median salary is $50,000.
The annual deficit ($1.3 trillion) divided by 118 million households = $11,000 per household.

These households already pay a real tax rate of 40% ( including federal and state income taxes, sales taxes, taxes for benefit programs, etc.), so an additional 22% would be difficult; it’s not advisable. Adding a 22% tax onto middle class families who already only get 60% of their money after taxes, is not any more realistic than taxing the rich.

However, this exercise illustrates that the middle class is actually more capable of paying the annual deficit, through their sheer numbers, if not through their wealth.
If the national debt were divided up equally among the middle class households, each household would have to pay $127,000, about half the price of the average house in America.
Not comfortable, but the price we may need to pay for the profligate spending of our leaders.


What is the alternative?

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Taxation does not appear to offer a solution.
Even if you confiscated all the billionaires property and sent them to Siberia, there would not be enough to balance our budget or to pay our debts.
What options are left?
Cut spending.

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Cut Spending?
What is Our Budget?

The United States budget:

  • $1 trillion on defense
  • $1 trillion on pensions (remember the WI capitol protests and the teacher’s unions demands?)
  • $1 trillion on health care
  • $1/2 trillion on welfare
  • $1/10 trillion on education
  • Total $3.6 trillion

What is our income?  $2.3 trillion
The difference = the deficit= what we have to cut = $1.3 trillion per year.

Is the Debt Too Overwhelming or is it Do-able?

The yearly deficit per person in the U.S. is $4,159.  That’s $12 per day.  If we saved $12 per person per day, we would be free of deficit.  That does not sound too outrageous.  If the supercommitttee cannot find places to cut spending (like Solyndra, $600 toilet seats for the military, repealing ObamaCare, identifying welfare fraud), then the citizens could give up a few Starbucks, get a cheaper cell phone, or take a brown bag lunch, and pay the debt ourselves.  The cost would be less now, than if we wait until we have the situation in Greece.

The national debt per person in the U.S. is $48,000 .  This is 20% the price of the average American home.  It’s 1.5 times the price of the average American car ($30,000) .  If we started buying humbler homes and drove our cars a couple of years longer, rather than trading in every 3 years , each person would easily save that much in a lifetime. But we wouldn’t even have to do that.  The average American credit card debt is more than $10,000.  With 20% per year interest, our credit card interest payments alone would wipe out the national debt in half a lifetime, 24 years.  Responsible living would pay the national debt in a couple of decades.

Finally, some Americans pay no federal income tax at all.  In fact, 47% of America pays no federal income tax at all.  Subtracting the 14% of America’s families at poverty level, we get 33% of Americans who are NOT at poverty level pay no taxes at all, but demand and collect services like the rest of us.  Many earning as much as $50,000 per year pay no taxes at all.

Clearly, the tax codes must be corrected to eliminate these loopholes and credits.
Half of America, earning up to $50,000 per year, cannot expect the rest of America to pay all of their expenses.
This non-poverty group, taxed at a low rate such as 10%, could generate 20% of our yearly deficit.

Eliminating deficit and debt is definitely do-able.  But we have to stop making excuses and start making efforts.

Wisconsin as a Model

Wisconsin's Governor Walker

The Sate of Wisconsin provides a good model for responsible debt reduction, which the Federal Government could copy.  Wisconsin’s Governor Walker inherited a $3.6 billion deficit in January 2011.  He, together with the legislature, has instituted reforms which allowed local governments and school districts the tools they so badly needed to balance their own budgets without raising taxes.

Governor Walker’s reforms are already working in 10 short months.  Almost a half billion dollars have already been saved.

Before Governor Walker, only 10% of all Wisconsin employers said that Wisconsin was headed in the right direction.  Now, 10 months later, 88% say that Wisconsin is headed in the right direction.

Schools and local governments are now saving millions of dollars.  For example, Kaukauna, Wisconsin, has turned a $400,000 deficit into a $1.5 million surplus, with which it has hired more teachers and decreased classroom sizes.

State, local and school governments can now hire based on merit, and can pay based on performance.  The quality and efficiency of government and of schools will be increased.

Support Governor Walker against Recall Efforts

True, that some public unions are livid to the point of violence, as seen in March of 2011 at the Wisconsin Capitol protests staged by unions.  But most states, as well as the federal government, function perfectly well without the  numerous perks and privileges enjoyed by Wisconsin public unions to date.  As the rest of Wisconsin continues to pull in their belts, to take pay reductions to save the jobs of co-workers, and to pull their weight in this time of economic challenge and sacrifice, union members should not be immune from the cuts being made across the board. It would be shameful if envious and greedy opponents succeeded in recalling Governor Walker instead of thanking him for what he is doing for Wisconsin.

Back to Killing the Cow

One last point about killing the cow.

Those who have a small paycheck and who enviously wish to kill their neighbor’s cow would do well to consider that  the highly paid neurosurgeon’s very attractive paycheck is not nearly as attractive as you think.
When you allow for the lost income starting from high school graduation, add the medical school loans that must be repaid, and count the extra taxes that are paid at high income, the neurosurgeons with fat paychecks do not catch up to their high school graduate counterparts in total amount of cash that has crossed their bank account until they are well into their 30’s.

They have also worked, and will continue to work, a great deal more than 40 hours per week; closer to 70.
These highly trained experts build our societal institutions, create jobs, and provide much needed professional services.
Do we really want to kill the cow?

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Save Money!

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Conclusion

There’s no free lunch, there’s no magical miser with stacks of gold we can tap, there’s no recourse but to eliminate and to pay our debts.
It’s not too late. We must find ways to cut out-of-control entitlement spending and realize that there really is no free lunch.
It’s still do-able. It would only take moderate sacrifices, which we can manage.

We owe it to our children and to the future, to do whatever it takes to reverse the fiscal bleed we inherited, and to turn it around before we have the fiscal catastrophe that Greece is now facing.

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