Mar 20, 2012

Here's Why Its Completely Fair that Romney pays 15%

When you tax productivity, you produce poverty. (Adam Smith, 17th century economist)

Turn on the TV and listen to politicians. The mantra for Obama's election in 2012 is "tax the rich!" OR
"make them pay their fair share."
I'm sure President Obama sincerely believes that increasing the taxes paid by the richest Americans is the right thing to do. Maybe he's really going to do it. Maybe he's saying it just to win the masses over. I can't really say.
What I can try to say though is that there is nothing wrong with Romney, or any other guy for that matter paying 15% or lower on capital gains. I daresay that it would be UNFAIR to increase the capital gains tax. If anything, it should be lower. Before you think I was paid by the GOP to say trash let me explain.

Say you have two people: Jack and Jill. They both do some work, and are paid with two apple pies. They both pay one apple pie as taxes and now have one pie left each. Now, Jack eats his one remaining pie. Jill trades hers for three oreos. Would it be fair for Jill to pay additional taxes on her three oreos? I'm thinking its not, right? After all, if she hadnt traded it, she was entitled to a full untaxed pie.
In the same way, lets say Jack and Jill work for $2 each. They both pay $1 as taxes and have $1 left. Jack spends his one dollar. Jill does not spend hers but either loans it or trades it for a future $3. When she gets the $3 in the future, why should she pay additional taxes on it? She already paid when she earned it! This is the same exact reasoning with capital gains taxes. Its why there are some people who think even 15% is too much and capital gains should be taxed at 0. Because capital gains is money you invested instead of spending. And if you tax capital gains the same way you tax ordinary income, most people will have no incentive to save their income and invest it, because it would be like double taxation. They would be more inclined to spend it instead. And what happens when investments and savings fall and people spend all their income? There will be no money for business, no new jobs created, no growth and definitely less income in the future. So government has every incentive to encourage people to not spend their remaining,after-tax dollars, and invest it instead. Thats why the gain on investment is taxed less. And that is the incentive raising the capital gains taxes will be taking away. America will pretty much be kissing their investment dollars goodbye because once you tax something, you get less of it. No one wants to save money after taxes, invest it only to pay more taxes after they generate returns.  And incase you don't know it, investors like Romney and Buffet and all others even though they pay such a low rate, have already paid ordinary taxes because the companies they invest in already paid corporate tax on the money made for them. It is the remaining, the one apple pie left that is returned as capital gains and taxed only 15%. So if you want to calculate the true tax rate Romney and co pay, add the corporate tax their companies pay, and then the individual low rate. If you do that, the real tax rate they pay is already more than 35%.

Meanwhile, the next time someone says its unfair for capital gains to be taxed at a low 15%, tell them to take their income AFTER they've paid normal tax, then go and invest it and then watch it get taxed again. Then tell me who is being fair to who. Stop listening to politicians when they seduce you with what you want to hear in order to vote for them. Think different.  Peace out.


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