Tax me tax you
Spending money to gain deductions is a losing proposition. You’ll always spend more than you gain. Getting deductions on money you would have spent anyway is nice, but it shouldn’t be a motive. These are things I learned recently as I spoke with a CPA about options for reducing my tax liability. I pretty much already knew it from doing my own taxes for the past 16 years, but it was disheartening to have it confirmed as my tax rate climbs to painful levels.
I’m a fan of taxes. Really. I am not a fan of our tax system. It places an excess burden on employees that is not shared by investors. As a result, employees lack the wealth development opportunities that are afforded to investors. The poor and lower-middle-class don’t really have the option to become business owners/investors (being self-employed doesn’t count from a tax advantage standpoint.) Many in the upper-middle-class could, but the risk of becoming poor is high, and once you’re poor, that’s incredibly hard to overcome.
The welfare-as-the-norm population on the lower end of our socio-economic scale may be taking advantage of the system as conservatives love to crow about, but the untaxed-as-the-norm top end is most definitely taking advantage of the same system. As a highly public example, Mitt Romney paid a 14.1% effective tax rate on an income of over $13.7 million in 2011, and that was without declaring all of his charitable giving to ensure his tax rate stayed above 13%. He actually worked to keep his taxes higher.
I believe we as a general population would all benefit from shifting our collective focus away from complaining about how much we pay in taxes and instead focus on equity around how much everyone pays in taxes. Once that’s addressed and the low-end have regained legitimate wealth generation potential, then we can resume the discussion around the reasonableness of a welfare system. As things are, once someone qualifies as “poor” .. it’s incredibly hard to change that status. The system has been orchestrated (with mostly good intentions) over decades to ensure that the richest of the rich have the highest advantage and the poorest of the poor have the lowest.
When we’ve created a system that ensures people of little means will always have little means, it doesn’t seem reasonable to complain that they require handouts. They, like everyone else, are using the only avenue available to them to improve their situation. We (the voters) can change their dependence on welfare, but first we have to level the playing field.
People with the means to invest are keen to point out that providing tax advantages for investments encourages investments, which encourages business growth, which encourages employment. All of that is true. The problem is that in our current system, employment is not a positive condition; employment doesn’t provide wealth potential so all the system accomplishes is to continue to increase the gap. This can’t be seen more evidently than by looking at the last 40 years of U.S. economics. The more we focus on “job creation” by way of incentivizing investments, the larger the gap becomes.