Recently, Warren Buffett joined with the President to say the "rich" should pay their "fair share" of tax. President Obama mentioned Buffett specifically, pointing out that he pays a lower rate than his secretary (never mind that he pays a factor MUCH higher). To hear them tell it, the rich are dancing all over the backs of the "working class" while they alternately sip champagne and prune their money trees. Ignorance helps their argument carry the day, but if we open our minds, we can see the totality of taxes paid by the rich. Also, we might better understand the total economic impact of those so frequently demonized in the media.
The IRS has amassed a trove of information concerning taxes paid and who pays them. Whether you look at total amount paid and by whom, or marginal rates vs. effective rates, or even statistical information compiled by groups that peruse the IRS data, the picture is clear; the "rich," or as I like to refer to them, the "producers" carry the overall tax burden by far. In contrast, the lower 50% of wage earners pay little to no income tax whatsoever. Moreover, the "earned income credit," a clever device used to create a refundable credit for certain low wage earners, effectively transfers back to them any withholding paid in AND gives back any amounts paid in as social security (Think: Withheld tax, $2,000; FICA, $1,800; total, $3,800; refund, $6000???) As a CPA and tax preparer, I've seen this over and over again.
But I digress. This is an article about the rich (producers) and whether or not they pay a "fair share." By the way, what is fair? Without a definition of what is fair, an amount, per se, nobody will ever be sure that all the rich folks pay their part. In fact, even if they paid out 40% or even 50% of all of their income, someone would undoubtedly accuse them of not paying a "fair share."
The figures readily available have something to say about how much the producers pay, in terms of income tax. That information is incontrovertible. But have you ever stopped to think about the other taxes paid by these folks? For instance, most rich people love to play when they are not working. They buy Ferrari, Louis Vuitton, Gucci, Mooney airplanes, Rolex watches, and so on. The amount of sales tax paid for these items is staggering. In comparison, the average person buys items that sell for a fraction of the price of these luxury brands, paying little tax as a result.
Let's say the rich man buys a Rolex. The tax is $700 for a $10,000 watch. The "average citizen" goes to Walmart, buys a Timex for $50, and his tax is $3.50. Rolex and Timex watches are very small, are assembled with metal, and are worn by a person so he can tell the time. (Do some research on the process by which a Rolex is made; you will be impressed). The government, in their infinite wisdom, created the sales tax during down economic times to fill their coffers for the public good. Obviously, infrastructure is maintained by taking money from the citizens to pay for it all. Does is seem equitable that the Rolex wearer should pay 200 times more in tax than the Timex wearer in order to fulfill the government mission? Has he used any more resources than the other person? Who has strained the infrastructure more? Why did state governments continue to collect sales tax when economic times improved?
Now, apply this reasoning to cars. A Ferrari is $300,000, the Prius, $35,000. Ten times the sales tax will be collected on the Ferrari. By what reasoning will someone justify this scheme? Both are cars that traverse our roads and get us from point A to B. One driver makes a statement about exclusivity, one-upmanship, and elitism as she brags about little carbon footprints and filling up once every month. The other driver has people remarking, "I love your Ferrari!!!" I'll have to admit, I'd love to race past a Prius in a F430 at full throttle with a tag that reads, "MPG LOL."
Now, let's extend our thinking to the property tax. The rich guy pays a higher amount for that Ferrari when he buys a car tag. It's called the Ad Valorem tax. That tax is based on value. The mere ownership of that vehicle creates a much greater liability, in terms of tax, than does a Chevy Chevette. And what about homes? Much higher property taxes are paid on those, too. In fact, the income tax, sales tax, and property tax collected from the producers dwarf what is paid in by the so called working class of working men and women. The poor? Forget about it, they have very little to no property tax liability. And in the end, it is the poorest of us that use up much of what is collected by the government. Yes, we all use the roads, we call 911, we petition the courts from time to time, but much of the money is spent on social programs, which are overwhelmingly used by those who, in many cases, have failed to position themselves for success.
So the hard work, perseverance, toil, and innovative spirit of a driven person, all of which may culminate in exorbitant wealth accumulating to him or her, is taken by force of law under the guise of fairness and allocated to pay for the misdeeds, mistakes, or simply the lack of resources of so many others. Does this seem equitable? In America, the failure to carefully plan for one's future is met with the omnipresent hand of the government, who reassures those who lack wisdom that the fruits of the wise will be redistributed for their benefit. Does that sound fair?
Finally, the producers (the "rich") make things happen every day by their habits. They innovate, change processes, rethink old patterns, and create jobs as a consequence. It appears the desire of wise people to become rich is the driving force behind whatever success is generated, and this is what makes jobs after all, not government. The hard work can pay off in millions of dollars, but your results may vary. I think that's fair.
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