Just Another Shot in the Foot

I worked in the Tax field for 17 years, mostly managing a staff of tax accountants and their support. During that period I either completed, reviewed, researched, or had responsibility for the preparation of about 74,000 tax returns. These included returns for individuals, trusts (lots of those), estates, partnerships, private foundations, and occasionally, small corporations. Although I ended my participation in taxation almost 16 years ago some things stuck with me, things about the nature of taxation in the United States.

Like many in that field, once my expertise had been elevated to the level of being humble, I arrived at a conclusion contrary to popular opinion. I concluded that the massive body of law known as the Federal Tax Code (which includes Tax Regulations) is generally logical. There are actually a manageable number of themes that form the basis for the Federal Tax Code (the Code) from which most all tax law (fine tuned by the Courts) run consistent. State and local tax codes are less so, but most take their lead from los Federales. Once you have a grasp of the basics, when faced with a specific tax issue you can usually reach an accurate conclusion, even before you research case law (Court interpretations).

Opponents to the Code, moreover opponents to taxes generally, hold copies of the Code above their heads like dumbbells (no pun intended) shouting "look at this massive intrusion into our lives". However, for the vast majority of the American population the Code is relatively simplistic, even for businesses. I would venture a percentage of…say…95% are affected in a way that should be perfectly understandable by your average middle school student. Admittedly, inconsistencies are more prevalent on the State and local levels.

Our Federal tax system is mostly complicated (especially in volume) by use of the Code for social engineering and providing benefits to those who have the legislative clout to tweak it. Instead of just giving money to special interests, the Code is used as the vehicle for distribution - which provides a stealth element to the transfer. How easy would it be for a Congressman to hide behind a vote setting up a multi-billion dollar trust fund for oil companies? Credits and deductions are way easier. Arguably, many such laws in the code have positive intentions and outcomes. However, the inequitable or equitable use of the Code, which is really about appropriations, is not my theme here. It has to do with who is paying the bills and who doesn’t want to.

There is a huge faction in the US, mostly Conservative and frequently of limited income and wealth, who have been brainwashed and programmed to believe taxation, by definition, is evil. Although they may understand the collective requirements of funding a country, their emotional response to taxation is more closely aligned with the Roman tax collectors found in the New Testament. Taxing is the 2nd most prevalent target of the Tea Party set, right after Obama and right before Government, period. They have been successfully led (by whom?) to believe that the answer to the national fiscal quagmire is the elimination of Federal taxes combined with the elimination of Federal government spending, or as close as you can get to both. Even informed, educated Conservatives will respond in a similar fashion, which is both fascinating and frightening. What they fail to understand is, along with the vote, taxation is one of the few tools, weapons really, that the general population has to defend itself. These Conservatives are taking their beloved pistols in hand and emptying the barrel into their tootsies.

The evidence of wealth concentration in the United States is undeniable and has reached levels without precedent, in both extent of wealth and concentration. Personally I believe the primary facilitator of this lack of precedent is the demographics of population growth, which is also without precedent. Edward N. Wolff, a PhD at New York University and noted authority on the accumulation of wealth, calculates that 38% of all wealth in this country is owned by 1% of American households. If you take individual home ownership out of the definition of “wealth”, then the ownership of the top 1% increases to 50% of all asset value (property, stocks, bonds, cash, businesses, other real estate, commodities etc. etc.). Anecdotally, you just need to compare the net worth of Tiger Woods to Jack Nicklaus, or the level of Bernie Madoff’s larceny. The bottom 20% of households (about 60 million people) own nothing, their debts exceed their assets or they have no calculable assets at all (yard sales don’t count). My guess is that there are quite a few of those bottom 20% folks holding up signs at Tea Party conventions.

In order to eliminate our deficits, Wolff suggests substituting an annual tax on wealth (Property or Asset tax) instead of a tax on income (as income is an inaccurate representative of net worth). By starting at a level of $250,000 (eliminating 80% of the population from the tax entirely) and applying a progressive tax starting at 0.2% and rising to a maximum of 0.8% (for the numerically challenged: that’s eight-tenths of one percent, or 80 cents for every $100 of value) he believes we would be out of the red, all other things being equal. The very wealthy would bear the majority of the tax, but just how onerous would a tax be that diminished one’s multi-million or multi-billion dollar wealth by less than one percent annually? Could this happen in this country? Not likely.

Who would be hurt by such a system and who is helped? Answer that and you’re befuddled why such a method of taxation never even rises to the level of a discussion, while regressive taxes such as the “flat tax” or “value-added” tax are bounced around regularly. The streets outside the US capital are not filled with protesting multi-billionaires holding signs showing a Hitler mustached Obama and slogans about creeping socialism. They don’t have to. They have convinced their Conservative surrogates in the tens of millions that taxation, along with Government and Obama, is in direct opposition to their own well being. They know the general population has a gun in its hand, but the powers of wealth are chuckling mightily. With Pavlovian certainty, they know it has been trained to only shoot straight down.