Subscribe: RSS Feed | Twitter | Facebook | Email
Home | Contact Us

Questions of Fairness and Rectitude

Posted by Larry Doyle on February 8, 2012 6:45 AM |

Stephen Moore wrote a commentary entitled A Fairness Quiz for the President in the Wall Street Journal yesterday which generated hundreds of comments. The comments seemed to break down largely along party lines. I think most of those commenting might not grasp the full picture.

With our nation in the midst of an increasingly confrontational political debate, I think it useful to promote serious questions of fairness and rectitude. In doing so, I would like to reference a fair bit of Mr. Moore’s commentary while passing over some of his more overtly political statements. Additionally, I include my own ‘sense on cents’ and add some of my own questions at the end.

I am interested to see what people may think and hope readers will respond to the questions posed both by Mr. Moore and yours truly. Let’s navigate . . .

Is it fair that the richest 1% of Americans pay nearly 40% of all federal income taxes, and the richest 10% pay two-thirds of the tax?

Is it fair that the richest 10% of Americans shoulder a higher share of their country’s income-tax burden than do the richest 10% in every other industrialized nation, including socialist Sweden?

Is it fair that American corporations pay the highest statutory corporate tax rate of all other industrialized nations but Japan, which cuts its rate on April 1?

Perhaps we should reintroduce to those in Washington whom manage our tax policy the economic principle of diminishing marginal returns on both capital and labor. Think there might be some real disincentives at work in the American tax code as structured today? I do.

Is it fair that Americans who build a family business, hire workers, reinvest and save their money—paying a lifetime of federal, state and local taxes often climbing into the millions of dollars—must then pay an additional estate tax of 35% (and as much as 55% when the law changes next year) when they die, rather than passing that money onto their loved ones?

I will admit that this estate tax strikes me as the most egregious tax of all taxes imposed by Uncle Sam. The money has been taxed once. Why does Uncle Sam think it right and fair that he can take another slice of the pie?

I do believe the 15% rate paid by those within the financial services industry who have generated earnings via ‘carried interest’  should see that rate increased to the levels of ordinary income taxes. Might the tax rate on carried interest be the massive payoff for all those campaign contributions going to so many on both sides of the political aisle?

Is it fair that Treasury Secretary Tim Geithner, former Democratic Senate Majority Leader Tom Daschle, former Ways and Means Chairman Charlie Rangel and other leading Democrats who preach tax fairness underpaid their own taxes?

NO, MOST DEFINITELY NOT!! I find it hard to believe that there are not Republicans who have also underpaid their taxes.

Is it fair that roughly 88% of political contributions from supposedly impartial network television reporters, producers and other employees in 2008 went to Democrats?

Media bias, anybody??

Is it fair that those who took out responsible mortgages and pay them each month have to see their tax dollars used to subsidize those who acted recklessly, greedily and sometimes deceitfully in taking out mortgages they now can’t afford to repay?

Violations of moral hazard? The bailing out of banks and debtors comes with very real long term costs and a wide array of unintended consequences.

Is it fair that federal employees receive benefits that are nearly 50% higher than those of private-sector workers whose taxes pay their salaries, according to the Congressional Budget Office?

Can you spell racket?

Is it fair that soon almost half the federal budget will take income from young working people and redistribute it to old non-working people, even though those over age 65 are already among the wealthiest Americans?

We are well set up for a major generational battle as those just entering the workforce and the political realm decide that they WILL NOT pay the bills with which we have left them. You can bet on this.

Is it fair that in 27 states workers can be compelled to join a union in order to keep their jobs?

Why do people need to deal with such strong arm tactics?

Is it fair that nearly four out of 10 American households now pay no federal income tax at all—a number that has risen every year under Mr. Obama?

If people have no ‘skin in the game’ so to speak, then human nature begs why they should care if the government is wasteful in providing support.

My response to many of the questions posed by Mr. Moore is not whether the points highlighted are necessarily fair, but rather are they right and optimal in terms of generating maximum revenues, output, and productivity for our economy.

My personal take is that we need a much flatter tax code to generate greater output and revenue. I also STRONGLY believe we need a significantly revamped regulatory and legislative process that truly protects our investors and consumers. We are a long way away from either of these realities. I do not envision a Democratic administration providing the former, nor a Republican administration providing the latter.

On that note and in the spirit of fairness and rectitude, I would ask the following:

1. Is it fair and right for our financial regulators to be captured by the industry which they are charged with overseeing?

2. Is it fair and right for a documentary exposing egregious sales practices within the ARS market on Wall Street to be blocked from being aired?

3. Is it fair and right for an industry engaged in practices which can only be compared to racketeering to pay fines with NO meaningful individual penalties?

4. Is it fair and right for politicians from both sides of the aisle to feed at the trough which has abused so many of our citizens with little meaningful recompense?

These questions are not meant to sway people to one side of the political aisle or the other. Folks, the fact of the matter is we are largely very much alone in confronting large segments of the political and financial industry elites in our nation. Together they have consorted to fleece us like never before . . . and they have been doing it for a LONG time!

Navigate accordingly.

Larry Doyle

Isn’t it time to subscribe to all my work via e-mailRSS feed, on Twitter or Facebook?

Do your friends, family, and colleagues a favor and get them to do the same. Thanks!!

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

 

  • Peter S.

    Our current tax code is said to measure over thirteen feet high. Out of those thirteen feet of codes, a quarter to a half inch encompasses the obligation of the vast majority of the citizens of this nation. For whom and/or for what are the remaining twelve feet and eleven and half inches?

    Of the 1% paying 40% of all federal income tax, I can’t know if it’s fair or not because I don’t know what percent of their income they pay in taxes. I personally would love to pay a lot of taxes – that would mean I made a lot of money.

    A flat tax for all certainly sounds simple and fair.

    Euthanize the death tax – it adds insult to the ultimate injury.

    Just a thought, eliminate income tax to individuals on dividends paid by U.S. Companies that have at least 75% of their work force laboring in the United States. Allowing for a tax free dividend pass- through for shareholders of mutual funds (with some tweaking) providing a real income stream for retirement. It would provide greater incentives for investors and companies to rebuild our workforce; it would increase the demand for companies to pay dividends, and may very well help lessen our increased market volatility.

  • Andrew

    I don’t think it is fair that Mrs. Robinson gets to live in the White House and not pay rent.

  • fred

    LD,

    The sad thing is that I wouldn’t expect any serious reform unless we go thru some more pain. If the ‘Grand Illusion’ succeeds in improving consumer confidence, serious reform measures will probably have to wait until after the election, if not longer.

    Let’s keep an eye on this Congressional Stock Act, it’s hilarious how Congress is throwing so many other ‘special gov’t interests’ under the bus. I guess Congress’ position is that “if we can’t do it, then neither can you”.

  • Barry

    Tax policy should not be fair it should be neutral and efficient.

    Take out the inefficiencies of how capital (revenue) is accumulated and allocated and you will take out the perceived unfairness.

  • Jay

    On the mark !!

  • Randy

    Perhaps before you or Mr. Moore get all piqued over how unfair it seems that 1% of the richest pay 40% of the taxes and 10% of the richest pay 67%.. you should at least compare apples to apples and not apples to oranges.

    It is an income tax, not a wealth tax. I believe from the studies I have seen recently that 1% of the richest bring in well over 40% of all the income and a combined 10% of the richest bring in well over 67% of the income in the U.S.

    Comparing the 1% figure or the 10% figure to the 40% or 67% simply completely misses the point and totally misleads the readers as to the facts.

    What does it matter if the rich here shoulder a higher share of all federal income taxes than do the richest in other industrialized nations? Are we all supposed to adhere to some unspoken Global standards I haven’t heard about?

    If they preferred those nations instead, they would have moved there already. Life is about a great deal more than just the portion of taxes you pay in your individual country versus that paid in another country.

    You would also have to compare all the other living, working and lifestyle conditions as a whole and then determine whether it had any bearing at all upon “fair” or not.

    The comment about the fairness of the American corporate tax rate is almost laughable… .especially if you consider that most of the truly large corporations and nearly any of the large multinationals headquartered here.. often pay no tax at all or the barest minimum you could imagine and they structured their various entities to take advantage of all the many loopholes left to them by the politicians they control. Having the highest statutory corporate tax rate and “paying” it are two entirely different things.

    I agree with the comments on the estate tax. It should simply be abolished.

    As to parties, such as those mentioned politicians, who underpaid their taxes? They should be treated as tax cheats just the same as any one of us and they should not be allowed to hold public office with that in their backgrounds. And of course there are Republicans who have underpaid their taxes, they just haven’t been exposed yet.

    As to political contributions from media.. we all know media is always happily ensconced with whichever party is in control or coming into power. When was it ever any different?

    Of course it is not “fair” for the responsible and disciplined to have to pay the bill for those who lie, cheat or fail to live up to their obligations, whether that is in regard to mortgages, underfunded public or private pensions, defaulted student loans or whatever.. and anybody with at least an ounce of brains knows that this latest plan by the current Administration is not about helping select homeowners, it is really just another way to continue bailing out the banks.

    Federal worker benefits are high because of collective bargaining by the Unions. It is no different than the lobbying that goes on.

    Squeakiest wheel gets the grease so to speak.. and politicians have always curried favor with Unions, special interest groups and large corporations. At first Federal workers were paid poorly but got great benefits envied by all private workers, then they kept hammering away until they were paid not only better than private workers but were promised even better benefits than before. Fair? No.. but it has been reality for a long time.

    Unfortunately, nobody really pays attention or raises hell about any of it until it looks like they might have to dip into private citizen pockets to make good on those decades of ridiculous promises.

    Also, the Unions should have been terminated long ago. They have been dens of corruption, bribery and strong-arm tactics by thugs for the past 50 years or more. Right to work laws should be in effect in all states, even if it is a day late and a dollar short in coming.

    When it comes to taxation, if you truly want fair and equitable treatment and enough money to truly run a “sensibly” sized government, then there should be a flat percentage tax rate for everyone.

    No deductions, no exemptions, no exclusions, no need for alternative minimum tax, no need for the IRS either. I can’t say what the right number is offhand but I am guessing something around 15% with a proviso that it may not be expanded nor may it be added to by any other new tax in the future such as VAT, etc.

    No need for capital gains treatments either.. as income is income. It should not matter how it was generated. Does anyone truly believe that investors would suddenly stop investing if they did not get special tax rates? Baloney.

    Regarding captive regulators and the fines, penalties and assessments they impose in lieu of prison time, etc. : Regulators of any industry are subject to being bought off as has been the case since before the days of the Roman Empire.

    If you come up with a workable solution, no doubt we would all love to hear about it. If it were citizen committees instead of Federal Agency regulators, would it truly be any different? I highly doubt it.

    Greed exists wherever one group of humans is given power over another. I am surprised no comment was made about why those monies are paid to the Government and its agencies instead of being distributed to the citizens who were harmed by those who engaged in the behavior.

    Why should the SEC, the Justice Dept., the FDA or any other agency get wealthy on the backs of those harmed by the parties these agencies are supposed to oversee and regulate? That’s theft in my book and simply adding insult to injury.

    As to the comment about young people having to pay in to cover minimum lifestyle payments for seniors .. well again, during good times nobody seems to care.. yet it was always a ponzi scheme run by the Government and should have at least always been subject to “means” testing.. which means that above a certain level of income (regardless of source and regardless of whether passive or earned, those well-to-do seniors should never “qualify” for payments.

    Then again neither should illegal aliens be allowed to receive such payments but if you aren’t going to help them on the back-end then you should not be able to collect from them on the front-end, right?

    Once the Government moved the fund into the General Fund so it could be accessed for any little thing their corrupt little hearts desired.. well, that was the beginning of the end anyway, despite the obvious change in numbers paying in versus receiving benefits, which eventually destroys all ponzi schemes.

    Life isn’t fair and I can’t remember a time when it ever was, can you? This whole diatribe from Mr. Moore reminds me of that TV commercial with 2 teen-age boys at breakfast vying for what they think is the last hot and flaky crescent roll. They agree to split it but the one with it in his hands points to a third of it and says “Okay, this is HALF! Is that fair? Of course not, but then the other boy, if he were smart, should have said. .”Okay then, YOU take THAT half! Fortunately a well prepared mother showed up with yet another full basket of the hot fresh rolls and Life rolled on as it always does.

    Governments are always corrupt. I think the difference now is that we have the Internet and instant communication so that we find out a lot more than we did before as we are far better connected. Government has wised up to that flaw and intends by hook or by crook to gain control of the Internet to put an end to our inquisitiveness which could potentially disrupt their best laid plans.

    Isn’t Life just grand?

  • hawk

    I am in favor of a regressive tax. Those that make more do so because they work hard and take risks and create jobs.

    Once a stated amount has been paid the rate should ratchet incrementally and automatically to zero.

  • Mike Ret Navy

    I am Retired Navy and now I work in Corporate America and it drives me nuts when they talk about how much taxes the 1% pays but not talk about how much they pay in Medicare and Social Security because those programs that are what is really killing our country but the 1% only pay on Socail Security up to 110,000 and if they are talking about capital gains are they paying anything towards Medicare? I know that 1/3 of my paycheck is gone from all these taxes/SS/Medicare before I see a dime.

  • Gary

    Mike Ret Navy — correct.

    Lots of ‘fairness’ questions from Mr. Moore, glad to see LD put in a balance of fairness questions as well.

    The biggest rub from the Moore question on the amount of taxes the 1% and 10% pay is the fact that he (they) only point to the “Income Taxes” bucket. When considering the other $800B from Employment Taxes (capped at 106K), then these percentages certainly change and show that everyone is paying something and has skin the the corrupt game.

    Another interesting bit of information (if it could ever be uncovered) would be the NET taxes that the 1% – 5% pay, not the 1040 bottom line, but net of any returns from all the special interest subsidies; (and I am sure the smaller the slice, lets say the top .1% the NET approaches 0 or becomes positive in their favor). Best way to resolve this would be to scrap the 14 foot pile, thousands of pages of tax preferences to the special interest tax code and replace it with a consumption tax to cover the 18-20% to fund a reasonable gov’t slice. The best idea last year was Cut, Cap and Balance (but that must have be determined to “fair” to continue to live … not much is heard about CC&B these days).

    One last thought to convey, concerning Social Security. Since the trust fund was raided by the Unified Budget process SS has become nothing but a slice of the income tax and worse it is a tax that keeps on taxing …
    #1 – take the 6.2 (12.4) percent right off the top (from the working class), pass it through to the treasury which in turn prints “Special Issue Bonds” to place into the “Trust Fund”
    #2 – interest on these bonds is paid by who … the treasury … with what … more taxes
    #3 – when a bond is redeemed … who pays for the redemption .. the treasury … with what … more taxes

    SS is a tax that just keeps on taking … I never hear anyone talking about the 3 way tax of SS only that it is a Ponzi scheme .. it is far worse than a Ponzi scheme because you can not opt out of it and worse forced to play the game….

  • ruralcounsel

    If CapGains is to be taxed at the same rate as ordinary income, it needs to be indexed for inflation. The time involved in generating most CapGains income is orders of magnitude higher than for most ordinary income, and that needs to be accounted for.

    The lower tax rate used to be a crude way to accomplish that.

  • Greg

    Just found your site Mr Doyle, thanks to Yves Smith at Naked Capitalisn

    I would like to comment (this will be long for a first comment….. but then this IS a long post too : ) )

    I always find the fairness question interesting. The universe, without human actors, most decidedly is not fair. Mother Nature plays no favorites. That being said, people………………. most assuredly CAN (and I would add MUST) be fair. Our whole system of money is predicated on fairness (promises to pay, anyone?).

    “Is it fair that the richest 1% of Americans pay nearly 40% of all federal income taxes, and the richest 10% pay two-thirds of the tax?”

    Yes it is. It is commensurate with their income shares as well.

    “Is it fair that the richest 10% of Americans shoulder a higher share of their country’s income-tax burden than do the richest 10% in every other industrialized nation, including socialist Sweden?”

    Yes, for the same reason as above. Swedens rich arent as relatively rich to the rest of their citizens as our rich are.

    “Is it fair that American corporations pay the highest statutory corporate tax rate of all other industrialized nations but Japan, which cuts its rate on April 1?”

    Notice he used the word statutory. The actual rate they pay is one of the lowest

    “Perhaps we should reintroduce to those in Washington whom manage our tax policy the economic principle of diminishing marginal returns on both capital and labor. Think there might be some real disincentives at work in the American tax code as structured today? I do.”

    I dont disagree with this at all. Lots of stuff needs to be thought about

    “Is it fair that Americans who build a family business, hire workers, reinvest and save their money—paying a lifetime of federal, state and local taxes often climbing into the millions of dollars—must then pay an additional estate tax of 35% (and as much as 55% when the law changes next year) when they die, rather than passing that money onto their loved ones?”

    The Estate taxes canard that this is double taxation is just wrong. There is no other word for it. Its income flows which are taxed and not stocks of money. When I transfer money to my children after I die its a new income flow for them and they should be taxed on it. 5 million is exempt which should be enough for any child. Problem is financial power leads to political power and I should not be able to transfer political power to my children after my death, they should earn it themselves.

    “I do believe the 15% rate paid by those within the financial services industry who have generated earnings via ‘carried interest’ should see that rate increased to the levels of ordinary income taxes. Might the tax rate on carried interest be the massive payoff for all those campaign contributions going to so many on both sides of the political aisle?”

    Agreed

    Larry, Id love to see you take the time to explore the ideas of Cullen Roche at Pragmatic Capitalism and at a site called Modern Monetary Realism where Cullen teams with Mike Sankowski and a guy they call Beowulf. I believe it might give you some new insights.

    Ill leave you with one quote I found recently which I love;

    From Marriner Echols Fed Reserve chief in the 1930s——-

    ““It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they can not save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying. It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not “soaking the rich”; it is saving the rich.”

    Thanks

    • LD

      Greg,

      Thanks for writing. You clearly provide lots of food for thought. My real focus is centered on “growing the pie” while seemingly all too many in our society and especially in Washington seem focused on how the pie is sliced.

      No doubt there are plenty of perverse incentives which people will find and utilize for their own self-interest at the expense of the common good. There are also many, perhaps most, politicians who will sell their own souls for a larger personal slice of the pie. Public service should most definitely NOT be a path for outsized personal gain but we see many of our pols engaged in those very pursuits.

      While I have some differences with you in certain of the specific points referenced I do believe we are in sync in trying to achieve what is best for our nation as a whole.

      I thank you again for writing.

      • Greg

        One thing that strikes me about some of our tax discussions is people seem to have no concept of our graduated tax system and what that means. A person I work with thought that it was possible to get a raise, be in a higher tax bracket and take home less money!!?? They thought that every dollar they earned was taxed at the level of the new rate, not just the additional dollars. Turns out lots of people dont understand this, which is why they think we should not have a cutoff of income below which no income tax is paid. They cant stand that someone making less then 40,000 pays no income tax and fail to see that they themselves pay no tax on their first 40,000 of income too. Making those lowlifes pay 10% on that will simply raise all our taxes by 4000 dollars a year. Great job guys!!!

        Sometimes the ignorance is just painful to watch

  • Vics

    There are so many things wrong with our tax system, I don’t know where to start.

    Social Security? Originally started as a safety net for those in need? If you make $106,000 per year, you (and your employer on your behalf if you work for somebody) pay approximately $13,250 in social security tax. Assuming Mitt Romney’s income was “earned”, he too would pay $13,250 in social security tax on about $20 Million in income (I’m not using Mitt Romney because of his political affiliation but because his income figures were recently headline news.)

    That is just 0.066% compared to about 12.5%. To put this in perspective, Romney’s social security tax burden is equivalent to the person making $106,000 per year paying just $70 in social security tax. Warren Buffett’s SS Tax burden (assuming his income was “earned”) is equivalent to the $106,000 earner paying just $5 in social security tax!

    Is the entire system upside down? We penalize hard work with higher taxes (earned income from a job) while we reward those who make their money through qualified dividends and capital gains with a 15% tax rate. Might the “big money” seek out new business opportunities and actually create jobs if they were taxed at a much higher rate as opposed to investing passively in McDonald’s (which doesn’t create one single job)? If “earned income” were taxed at 15% and dividends & capital gains taxed at 35% or 40%, would the after tax reward then make starting a new business and creating jobs more attractive than passively “investing” in existing businesses such as McDonald’s or IBM (which creates no jobs)? Clearly, there would be more after-tax dollars filtering through the economy that would increase expenditures and increase demand.

    All food for thought…but no change can come until the people rise up because the politicians are bought and paid for by the elite that benefit from the tax code and it’s the politicians who have to change it.






Recent Posts


ECONOMIC ALL-STARS


Archives