Monday, December 28, 2009

Tax Policy and the role of "the RICH"

A good friend of mine recently sent me an article from the Investors Business Daily called "Filing While Rich: The IRS vs. Success." It was the usual "the rich are getting screwed" drivel that you can read dozens of times a month in various business publications. This one was particularly stupid in that it accused the IRS of essentially discriminating against wealthy taxpayers in the audit process (absurd in the my extensive experience). The closing paragraph is typical; "a CBS News-New York Times poll earlier this year found that 74% of Americans favored raising taxes on those making more than $250,000. And in the midst of all this envy and jealousy, the richest 1% of Americans pay more than 40% of all income taxes, according to the most recent IRS statistics; the richest 5% pay nearly 61% of income taxes; the richest 10% pay 71% of income taxes; and the top 50% pay no less than 97% of all income taxes."
I counter this with an alternative data; In 2004 the Survey of Consumer Finances done by the Federal Reserve Board indicates that the top 1% of households held 34.3% of wealth in the country and the next 4% held 24.6% (FYI - according to the FRB survey the top 20% of households in the US controlled a whopping 84.6% of wealth in the country). So if the business media can CONSTANTLY vomit out the richest pay all the taxes mantra then one can easily counter that in 2004 the top 5% of households in this country held 58.9% of all the wealth in this country.
Does this mean that they SHOULD be paying 60% of the taxes, absolutely not, because taxation is based on INCOME not on wealth. Many wealthy individuals may in fact have low "taxable" income as many folks with high taxable income may have low "wealth." So let us be clear on this, what I am saying is that the 5% who pay 61% of the taxes is not necessarily the same group that controls the 58.9% of wealth in this country. I just feel that in the war of raw data, these wealth %'s are important to keep in mind, especially when being assaulted by "the rich are getting soaked" opinions.
The importance of all this data is NOT the rate the rich pay so much as to the apparent fact that a large % of the American public (40% or so) does NOT pay any federal income taxes. This creates a structural problem in American society when such a large % of population does not pay anything. In essence we have a situation where a large % of the population has no "skin in the game" (as a good friend of mine always says) and therefore has little reason to be seriously involved in social and fiscal policy as it has (apparently) little financial effect on them. To me this is always the real story when I read these opinion pieces.

Tuesday, December 22, 2009

I think the combination of the federal tax credit for new home buyers and the new credit for folks who have owned a home for at least 5 years AND our historic low interest rates is going to make the 1st quarter of 2010 the glory days for home buyers!
Greetings this holiday season, on this blog I will be writing on a variety of subjects of interest as well as keeping up with tax changes.