Wednesday, March 30, 2011

Tax Breaks for the 'Rich' Revisited

While reading through a message board today, someone posted a link on 'the evidence' that the 'game is rigged for the wealthy.'

Here was my reply:

So in the article,
"...most federal subsidies aimed at building wealth, such as certain tax deductions (officially called "expenditures"), credits, and preferential rates, go to the richest taxpayers."

It does not elaborate on what breaks we are supposedly talking about, but for starters, the terms for a subsidy and a tax 'expenditure' are quite misleading. This implies that the government just hands over a check for being rich. One actually has to do something, the activity that the tax deduction is trying to encourage the populous to do, in order to take it. If the deduction is being doled out, then the intended policy is working.

Also, to take advantage of most tax breaks, you actually have to be making income to be able to deduct something. Since the size of the break will be proportionate with the investment or activity, which will be proportionate to income, obviously wealthier people will be able to use more of a break than a poor guy. As an example, if a poor guy and a rich guy both buy houses of 50% of their net worth, and the poor guy spends 50k, but the rich guy spends 5M, clearly the rich guy is going to get a bigger deduction than the poor guy. This should not be a news flash to anyone. But suddenly, when the raw numbers are compared people scream and shout that it is unfair because the breaks are larger for the rich guy. They suddenly forget about the other side of his tax burden and that most of the tax burden in this country is shouldered by people making more than 100k a year. For example, if he got a tax break of 5k, that shouldn't be the end of the story as it usually is, but instead put in context to the 50k he paid in taxes that year. Populist media loves to focus on only one part of the story that attempts to anger the masses.

"This money helps the more prosperous buy homes, save money, start businesses, pay for college, and retire comfortably."

Once again it would be nice if instead of being aloof with the details that they would actually name some of the breaks. Many breaks apply to everyone, but many are phased out under certain income limits. While a 'rich' guy with a big house can get more deduction than a middle class guy with a small house, many breaks like IRA contribution, Pell Grants, and student loan interest are only available to those making less than 60k a year (approx.). So what breaks for the rich this sentence is supposedly referring to is quite intentionally vague.

In referring to the "preferential rates" for the rich, this is also misleading. Ordinary income rates are not preferential. In fact, they are quite the opposite with an exponential punishing marginal curve for higher levels of income. So I suspect that once again the author is using sleight-of-hand and referring to long term capital gains rates, which the 'rich' are likely to have more of. But this rate applies to everybody, not just the wealthy as the article is implying. Should it be policy to punish a rich guy if he happens to have more investments that qualify for these rates than a middle class guy? And as discussed in another article, the long term capital gains rate exists for a reason. Investments involve an aspect of risk - you can lose money. It's not like just showing up for work and collecting a paycheck. And generally long-term capital gains come from investing in a venture that creates jobs for other people, which should be encouraged.

If you didn't catch it from the front, well, the article leaves you with a biased tone towards the end. You should note that this is an opinion article (See 'Commentary' at the top), and given his previous writings it is clear he is just another populist.

Monday, March 21, 2011

Friday, March 11, 2011

Just Another Scumbag Politician Lining Her Own Pockets at the Expense of the Taxpayer

A Missouri Democrat, Senator Claire McCaskill, for the last five years has chartered 89 flights for herself through a company she owns (or has 'an ownership stake in', if you'd rather downplay the issue like the Washington Post does). Now there are no defined rules about this being allowed or disallowed, but clearly it begs the questions of how many of those flights were necessary (one flight every 20 days), and were the costs fairly valued (they say they were)? It is a dangerous financial situation for one party to be both the beneficiary and the administrator, for the spending of other people's money, of a transaction. Would we want our President passing a bill to buy 1 million of his books to donate to libraries? No, because that would be a conflict of interest.

So, it is interesting to note the liberal Washington Post mention of the "no profit" that was earned. Well I tell ya, that must be one crappy airline they are running over there! But all joking aside, this is a actually a spin to put the situation in the most positive light. Your average American doesn't think of profit the way an accountant does. Your average American will take profit to mean that it is the money above the cost actually incurred to make, package, and sell the product, or in this case, sell the flight. They would see any money beyond the cost to fill the plane up with gas, pay the pilot, and the fee to rent to airplane as profit incurred. But an accountant will also factor in a non-cash event called depreciation, which reduces profit. It is a mechanism to shield profits from taxation (or in this case, 'perceived benefit') while still passing through cash-flow. So while it may be true that at the bottom of the accounting ledger, net income (profit) was recorded as zero, it does not mean that positive cash flow didn't accrue to the owners. And of course by saying that they earned zero profit, this implies to your average American that the senator derived no benefit from these chartered flights, which is clearly misleading.

And think about it, if they got at least 89 flights out of it, and who knows how many other flights from public customers and they only made $200 in 'profit' would you think they would be partial owners to this company? Why would a firm like that even be in existence?

How often do you think this kind of thing happens? It does make you wonder why nearly every member of congress is a multi-millionaire, doesn't it?