HE SAYS:

There is an informative video making the rounds from Dick Morris, a former campaign manager for President Clinton.   This is of particular interest since it is a Democrat warning of the tax consequences if President Obama is re-elected.    The examples used in the video mostly pertain to a family with a combined income of $250,000 although the tax increases promised by President Obama will also have an impact on those making less than that amount.   Dick Morris asserts, for example, that a family with an income of $250,000 will pay about $37,000 more in Federal income taxes each year and that a family with an income of $150,000 will pay about $15,000 more in Federal income taxes each year.   Watch the video for the details.

Your first reaction may be that it is a great thing to increase the taxes on those that are perceived to be rich or, perhaps, you are simply indifferent since these taxes may not affect you.   I would suggest that this large increase in taxes should concern not only families making $250,000 a year and families who aspire to make $250,000 a year but everyone since the less expendable income anyone has will affect us all.   Dare I mention that there is also the notion of fairness since households with $200,000 or more in income earn about 26% of all reported income but pay about 47% of all Federal income taxes collected?*   This discrepancy gets lost in the hysteria over the claim that the so called rich do not pay their fair share.

Sure, the government will have more money from these taxes but when was the last time you actually trusted the government to use our money wisely or to directly help its citizens?   This kind of “trickle down” economics never seems to work.   Think about where all of that stimulus money went.   Whereas, people with expendable income spend it in their communities, buy large ticket items like houses or automobiles, buy more discretionary goods and services, go out to restaurants more often and, generally, spend that money for the benefit of small and large businesses.   All of this spending provides the residual benefit of increasing the sales tax revenues for state and local governments.   Also, people earning more than $100,000 a year provide a majority of all of the charitable contributions made in this country.**   Finally, these people are usually the ones who operate successful small businesses and who create a good deal of the private sector jobs in this country.

On a different but related note let’s look at the flak being generated over the news that Mitt Romney paid an effective tax rate of 15% on $20 Million of income.   First, let’s be clear that we are talking about $3,000,000 in taxes.   Just to put this in perspective, Romney’s taxes represent about the same amount of taxes paid by 400 middle class households assuming a median income of $50,000 also at an effective tax rate of 15%.   More importantly and what is never mentioned in the debate is that the 15% tax rate paid by Romney was on investment income at the Capital Gains rate and not on wages.

This is significant in that the money Romney used to invest and generate that income would be money previously earned and already taxed.   To compare his tax rate paid on investment income to that paid by a wage earner as if Romney is getting an unfair tax break is deceptive and dishonest.   There are valid reasons to impose a lower tax rate on investment income so as to encourage investments that help our economy, as an incentive to take the risks involved in any investment, to reward investors for holding the investment for a year or more in order to be entitled to the lower tax rate and in recognition of the fact that the money used to make those investments has already been taxed.

Do the math and decide if it really adds up to a better country.   Regardless of where you stand on the upcoming Presidential election, you should, at least, look past the hype, know the facts and understand the consequences of your choice.

*IRS data from 2009 the most recent year calculated on the IRS web site.   Also to be noted is that households making $1 Million or more have on average an effective Federal tax rate of 29.1% whereas households making $50,000 to $75,000 have on average an effective Federal tax rate of 15%.  (IRS data according to the Tax Policy Center as reported by Fox News)

**2005 Google study for the Center on Philanthropy, page 19

On Monday, Joe ponders the legalization of marijuana in “Hazy Dazes”.

WHAT DO YOU SAY?