year, we're already hearing a lot about "giving tax breaks to the
wealthy" or "making the rich pay their fair share." This drives me
nuts. The rich won't ever "pay their fair share" under our current tax
system. That's because we don't tax "richness" (aka wealth) in our tax
system. We tax income. When you tax income, you don't tax the rich, you
tax people trying to become rich. Just because somebody makes a lot of
money in one year does not make them rich. Ask anyone who works in
So why don’t we tax the rich? Two reasons. First, being rich means
that you already have a lot of money (for example: those who have net
worth in the millions, hundreds of millions, or billions). And if you
already have this kind of money, you don’t need to add to it by having a
high income. You can add to your wealth by other means, such as
capital gains on investments that are taxed at a lower rate than income
(Mitt Romney is now taking heat for this). Second, rich people can
afford expensive and creative accounting firms to help them hide their
income in various ways that are unavailable to most people -- trust
accounts are one example (ask the Kennedy family about this).
"We don't pay taxes. Only the little people pay taxes"
Leona Helmsley, 1983
The late Leona Helmsley, co-owner with her husband
Harry of the Helmsley Palace hotels (and a net worth over $1 billion),
had it right. The only reason she eventually went to prison for tax
evasion was because she didn't keep her mouth shut.
So, under our current tax system, the actual rich hide their incomes,
and most of them do it legally. But, rather than deal with this
situation, as a “solution” to our budget woes, we hear a lot from
politicians about taxing “rich” people with incomes over $200,000.
This, to me, is one of the biggest untruths our politicians deal in
(putting it politely). Just because you have a high income doesn't mean
you're automatically rich, it just means that you’re trying to become
rich by being productive. And it's pretty hard to become rich when the
government takes so much of your income away. For example, if you earn
$200,000 a year (which some people call "the rich") and pay half of it
in taxes (federal, state, local, etc.), it would take you 5,000 years
(presuming you had no living expenses) to become as rich as John Kerry
became by marrying Teresa Heinz.
So, who do we tax when we tax income? Non-rich folks like you and me.
And since there are a lot more of us than there are of them, this is
where the government gets its tax revenue. Do you think rich people
want this situation to change? Of course not. That’s why they give
their campaign contributions to politicians who make claims of taxing
the rich, when they do nothing of the sort.
If we really wanted to tax the rich in this country, we'd have to change
our present tax system from an Income Tax to a Net Worth Tax: which is,
to me (unless I hear differently) a good idea. Then you'd pay taxes,
not according to how much you EARN (how much income you make), but
according to how much you HAVE (how rich you are). The bigger your
piece of the American Pie, the more you pay. Every year, instead of
figuring out, or having your accountant figure out your net income
(gross income less deductable expenses) you’d figure out your net
worth. Net worth is the value of what you own (property, businesses,
stocks, bonds, cash, cars, antiques, etc.) less what you owe on them.
Figuring out your net worth is way more fun and takes a lot less time
than wasting all those hours figuring out every last expense you can
deduct against your income. Under a Net Worth tax system (aka a Wealth
tax), you figure out your net worth, and you’d pay a percentage of
that. How much of a percentage? I don’t know, maybe 2 – 5%, maybe
more. We could set a minimum net worth, below which nobody has to pay
any taxes. But we could start by having every taxpayer (and yes, this
would include foreign nationals who own a piece of the USA) figure out
their net worth next April 15th and send it along with their income tax
Same with corporations, and in this way we’d avoid billion dollar
companies like GE paying nothing in taxes (corporations can't hide their
net worth on balance sheets, if they had a negative net worth, nobody
would invest in them). Then, we’d simply figure how much tax revenue we
need to run the government (assuming we can control spending, but
that’s another story…) and decide what percentage of the total national
net worth we need. Tax compliance would be easier too. While genuinely
rich people can hide income, it's a lot harder to hide mansions,
corporations or yachts.
OK, if you think I’m nuts, tell me why this won’t work. And why am I
the only one talking about it? Probably because I’m not rich, but I am
certainly taxed. 04.28.12