Monday, October 03, 2011

By Kevin A. Lehmann on in Entrepreneurship, Politics Just how long will Barack Obama overestimate the collective stupidity of the American populace by making us believe America’s economic crisis is due to millionaires not paying their fair share of income taxes? I can just hear him in the Oval Office right now. 

 “By God—Warren Buffet is right. We need to hit the millionaires and hit em hard! How dare their secretaries pay a higher percentage of income tax.” 

What is odd however, is that the IRS is at odds (pardon the pun) with the president. According to the IRS . . . 

 • Those making more than $1 million pay 24% of income in taxes
 • Those making $200,000 to $300,000 pay 17.5%
 • Those making $100,000 to $125,000 pay 9.9% • Those making $50,000 to $60,000 pay 6.3% 
 • Those making $20,000 to $30,000 pay 2.5% 

 In fact, the IRS reports that the revenues from the income tax are sharply skewed toward taxes on the rich: 

 • The top 1% of income earners pays 39% 
 • The top 5% pays 60% • The top 10% pays 72%
 • The bottom half pays 3% 

 Have you noticed too that when President Obama is on one of his “tax the rich” rants, he never differentiates between ordinary income taxes and capital gains taxes? Let me see if I can put it in “Lehmann’s” terms for you . . .

The millionaires who are only paying 15% tax on dividend and capital appreciation already paid their ordinary income tax on the money they used to buy the investment. 

 So they’re really being taxed twice!

 Capital gains are literally the appreciation in the value of an existing asset. But keep in mind that appreciation reflects merely an increase in the “after-tax” rate of return on the asset. The taxes implicit in the asset’s after-tax earnings are already fully reflected in the asset’s price or change in price. So any additional tax is really double taxation. 

 I argued this point with my tax accountants back in my millionaire days of the late 90′s and early 00′s. I was heavily invested in the stock market and getting hit hard on capital gains taxes when I sold. 

 Take, for example, the capital gains tax paid on a tech stock. The value of that stock equals the discounted present value of all of the company’s future proceeds. If the company is expected to earn say $100,000 a year for the next twenty years, the sales price of the stock will reflect those returns. The gain the seller realizes from the sale of the stock will reflect those future returns, and thus the seller will pay capital gains tax on the future stream of income. 

 But guess what? The company’s future $100,000 annual returns will also be taxed when they are earned. So the $100,000 in profits is taxed twice . . . when the owners sell their shares of stock and when the company actually earns the income. One could argue that it’s effectively triple taxation when you consider the earnings used to acquire the asset were already taxed at the ordinary income level. 

 If only President Obama and the Democrats could understand the difference. Actually, they do. They’re just hoping you and I are stupid enough to buy their rhetoric—hook, line, and sinker. 

 This 1.5 trillion dollar “Jobs Act” fiasco that Obama is proposing now will have the exact opposite affect of what’s needed to get the country’s economic engine going again. If President Obama was really serious about kick starting our economy, he would drastically cut spending, cut ordinary income taxes to single digit levels, enact sweeping deregulation starting with the EPA, the Department of Energy, and the Department of Education. He’d loosen the noose of Sarbanes-Oxley, enforce the Dodd-Frank Act as well as he does the the Defense of Marriage Act, lower the corporate tax rate, renegotiate NAFTA, tariff the hell out of China and create the kind of entrepreneurial environment we had during the industrial revolution. 

 We don’t have a revenue problem, we have a “regulatory” problem—spending and taxing notwithstanding.  

Barack Obama detests free markets and capitalism; he’s for class warfare and spreading the wealth for what he perceives as social injustice. He is driven by a worldview and ideology that is not commensurate with traditional American values and ideals. What he fails to realize though, is that he cannot create an egalitarian society in an entrepreneurial-driven capitalist environment. 

 Just like you can’t force ecumenical multiculturalism in a nation that’s sharply divided along religious lines, neither can you create an egalitarian society in a free market economy. 

 And what of those millionaires who pay no taxes? 

According to the IRS, There are 1,470 of them—representing six-tenths of one percent of all those with million dollar plus incomes in the U.S. Assuming they make an average annual income of $2 million a year, taxing them at the same rate as other millionaires (24.4%) would yield $367 million—increasing the Treasury’s income tax revenues by a whopping 30 one-hundredths of one percent, or one-third of one-tenth of one percent! 

 Once again Barry Soetoro, your rhetoric doesn’t match reality! 

Until next time . . . Wake Up America! 

 Kevin A. Lehmann

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