On The Super Rich Asking For Higher Taxes...

Author: Vale

"A government which robs Peter to pay Paul can always depend on the support of Paul"

George Bernard Shaw


There is an interesting demographic dichotomy for those who want to raise taxes on high income earners,

but a common connection - neither group will feel the pain of an increase. One group is obvious - the poorest of society. They have a lot to gain from raising taxes on the highest of earners. The way they see it, the wealthy's wealth will be partially redistributed to them through direct transfer payments, lower taxes, refundable tax credits, food stamps, health care subsidies and indirect benefits like parks and additional common goods. That vote is locked up since (they think that) they will never be affected by the tax increase, have the most the gain from it and have been indoctrinated by other liberals through OWS protests, the liberal media publicizing the income gap between the wealthiest and the poorest on a near weekly basis and anti-business articles attempting to manufacture ideas of how they've been wronged by the wealthy and need to act out against them.

The motivations of the other group are less clear when taken at face value. What is the other group? Super rich liberal deca-millionaires and billionaires. On the surface it appears that they are grand humanitarians. How generous of them to want to raise their own taxes to support the less wealthy, you might think. They aren't the greedy ones, right? Well this is what I used to think, back in my 'enlightened' liberal days. Most people are clearly still fooled. But when you look at little deeper, it becomes clear that their gesture is less than charitable. The fact is, the tax increases they espouse will not affect them either.

So, who will the tax increases affect? Not the billionaires sounding the horn about winning class warfare, but instead, the mere wealthy. We are talking about the successful doctor, lawyer, dentist and businessman. There are several reasons why this is the case.

The first is the characterization of the different types of income. We have a hybrid system of an income tax and a wealth tax in this country. You didn't know we had a wealth tax, did you? The wealth tax is not direct like it is in France, where a set percentage of net worth is assessed and taxed every year, but instead through a capital gains tax that is only paid when assets are disposed of. If the asset is never sold, the cost basis steps up to the heirs, tax free, with careful estate planning. So for example, if your house value rises over 30 years, your net worth has increased because the value of the property has increased, but you are only assessed a tax on the gain when the house is sold (and of course there is the annual percentage that must be paid to the local government). The most familiar other side of the tax coin that everyone must begrudgingly file for each year is the income tax. This is the money that flows to the earner every year (and when any capital gain aforementioned is realized).  The majority of the richest of the rich making millions per year aren't collecting a paycheck with ordinary income, but instead own income providing assets that pay lower rates of taxes (but for good reason). But the point is that when these 'magnanimous misers' advocate increasing the rate for ordinary income, they are essentially saying, "extract more revenue from the mere wealthy, just not the super rich like me, please."

The second and main reason why these super rich would not be affected by future income tax hikes, even if the favorable tax rates were increased to ordinary tax rates, is due to the wealth concept of stock and flow. The stock is the base of assets that a person already owns, and the flow is the income that comes in each year. The flow is what is taxed each year, not the stock. Most people assume that if someone has a large income, then they must have a large base of assets, and vice versa. But this is not necessarily the case due to the earner's particular circumstances. A high flow gives someone the possibility of becoming rich through accumulating a large base of assets if a decent percentage of that income is saved and invested. You can have high flow of income and have a low stock of assets if you live in an expensive city, spend lavishly, have debt or other obligations. Similarly, you can be classified as living in poverty by the IRS if you have a large base of assets, but your assets do not throw off a lot of income (through conservative investments, for instance).

To get straight to the main point, if the government were to tax all income at 100%, the billionaires and deca-millionaires would still be rich and live wealthy for the rest of their lives. In fact, it would make them comparatively richer because the mere wealthy would no longer be able to compete for the luxury goods that they can afford now. The billionaire ranks in the Forbes 400 would be locked in.

So when a billionaire is advocating higher income taxes, remember, it is income that is being taken, not wealth, so that two things are going on:

(1) Their vast fortunes that have already gotten through yesteryear's tax system are safe to do what they please with.

(2) So is their standing. The higher your tax rate goes, the harder it is for you to reach their level of wealth.

The fact that everyone else's ability to become wealthy is reduced is a key characteristic for the sentiment that both the super wealthy and the poor share, but for different reasons. The poor don't want their dim candle to be out-shined by a bright flashlight of success (their wealth happiness is relative to yours) and the super rich don't want light pollution encroaching on their spotlights in the sky.

But why are they being so magnanimous with other people's money? It's a little too easy. Why are they claiming that the wealthy are winning a 'war,' but can only offer up raising other people's taxes or pledging to donate their money to charity only after they die? Let's not forget that the federal government accepts donations. If you really don't feel like you pay enough taxes, you are free to write a check. But few do. You'll also never hear them advocate a French styled wealth tax. If they really wanted to raise their own taxes, this is what they should be advocating, because these would be higher taxes that they would actually have to pay! And if these people were so altruistic, they would be giving most of their money away that they already have while they were still alive. But instead they generally wait until they are dead before a pledge actually becomes a check. If ever.


+1 # Vale 2013-08-23 22:09
Usually, but not all the time, it is easy to predict who will be a liberal based on how they earned their money. If the money came fast and easy such as by becoming an actor, having a natural talent at athletics, or becoming a dotcom billionaire and didn't have to apply a lot of grueling hard work to get it, then it is likely they will be liberal. These people got lucky and will buy into the lucky philosophy for justifying higher taxes.
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+1 # Lori 2013-09-20 15:09
Totally agree with you! Aside from being boocoo rich, Warren Buffet is financially intelligent. He's generous alright -- like a fox!
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