Third Party & Independents Archives

November 14, 2007

Warren Buffet - Keep Estate Taxes !

The world’s wealthiest, Bill Gates, George Soros, and Warren Buffet want the Estate Tax to remain. Warren Buffet, the 3rd wealthiest person in the world, is on record. His case before Congress is that keeping the estate tax results in more efficient capitalism. Who will put a million dollars to more productive use in a capitalist economy, a Paris Hilton who inherits wealth, or a Bill Gates who gets a small government loan to create Microsoft in his garage?

Bloomberg TV writes: Buffett [CEO of Berkshire Hathaway Inc.], said that in the last 20 years, tax laws have allowed the "super-rich'' to get richer. "Tax-law changes have benefited this group, including me, in a huge way,'' he said. "During that time the average American went exactly nowhere on the economic scale: He's been on a treadmill while the super rich have been on a spaceship.''

The history of the world is permeated with wealthy kings, queens, nations, and tribes being attacked, conquered, and looted for their wealth and treatment of the non-wealthy. The U.S. government protects and defends wealth in America against such historical looting with its courts, military, police, and public servants who defend American wealth in international arenas. There is a high cost for such protection of affluent person's wealth.

Warren Buffet's argument that the widening wealth disparity between tread mill workers and the super rich is dangerous to America's future, is a meritorious argument. Our country was founded in part by the wealthy King George of England's attempts to tax the colonialists who could ill afford the taxes and had no voice in the King's Court to plead their case. Warren Buffet is reflecting the discontent growing in America that the children of the middle class will not fare as well in their work lives as their parents now fare in our society. Against the backdrop of the super wealthy having increased their wealth so substantially in the last decade, his argument is made the stronger.

Buffet and others are not advocating making paupers of the rich. A billionaire who wills his estate to his two children who incur a 45% estate tax, will still inherit $550 million dollars to divide between the two of them, or $225 million dollars each. No one could logically argue the billionaire's children would not still be incredibly rich. And yet, that is precisely what some Republicans and Libertarians attempt to use as a basis for their call to repeal the estate taxes.

The debate should be over what the cut off amounts are for enforcing the estate tax, not whether there should be one. The wealthy would not be wealthy without the protections and safeguards for wealth provided by the great American society at large, its laws, its military, its courts, its public infrastructure, its patent and trademark enforcements, its Securities and Exchange Commission, its Federal Communications Commission, and more which afford opportunity and protection for wealth creation in America.

To repeal the estate tax is to ask the working non-wealthy to bear the cost of these protections and opportunities provided by the federal government. The old saying, "You can't squeeze blood from a turnip" is applicable. At a time when America has a 9+ Trillion dollar national debt, with more debt coming in the form of SS and Medicare costs, America must go to where the money is available to continue functioning.

Given the choice of keeping all their wealth, but seeing America fail as a nation and government, or paying an estate tax which still leaves inheritors wealthy, it appears enlightened self interest would back the Estate Tax. And that is precisely the position Warren Buffet, Bill Gates, and George Soros among others.

Buffet advised Congress to keep the Estate Tax in place, and use the $24 billion it raises to give a $1,000 tax rebate to low-income households. He said: "We need to raise about 20 percent of GDP to fund the programs the American people want from the federal government. Further shifting this burden away from the super-rich is not the way to go.''

He referred to taxing the poor: "I can't imagine a tougher problem than living in the United States and having a $20,000 income and having $3,000 taken out of that." Obviously, the $3000 that would be taken from the breadwinner making $20,000 per year for Soc. Sec. and Medicare taxes, makes no moral or ethical sense if the super wealthy are exempted from the Estate Tax. Warren Buffet made news recently too when he surveyed his office staff and found they paid a higher percentage of their income in taxes than he did.

Instead of debating whether there should be an Estate Tax, Republicans in Congress should be debating over just what level of wealth constitutes very wealthy to which estate taxes would apply. A family farm for example with $50 million dollars in farm assets, and whose 2 parents own the farm with 2 children but, only have a net annual income of $100,000 per year from operations, should not incur, if the parents die, an Estate Tax, provided, the inheritors continue to operate the farm.

But, this is where it gets tricky. If the children inheritors of the farm sell the farm 2 years later collecting $50 million from the sale, they have walked through an enormous loophole in the estate tax law. This is not fair to those others who incur the Estate Tax because the inheritors haven't the education, skill, or talent for keeping the farm enterprise operational. This is the issue Congress should be debating.

This is also the issue Warren Buffet refers to when talking about the estate tax being a more efficient use of capitalism. Far more often than not, the child inheritors of wealth will not have the skills, talent, or will to carry on with the productive entrepreneurial endeavor. Paris Hilton may be talented in the beds of the Hilton Hotel chain, but, she shows no signs of having the talent needed to put inherited wealth to productive entrepreneurial use creating more business, new technologies, more jobs, and new wealth. The Estate Tax permits the U.S. Government to give the less well off opportunities to become the new Bill Gates, Warren Buffet, or George Soros who will create new enterprises and wealth as a result.

Posted by David R. Remer at November 14, 2007 11:59 AM
Comments
Comment #238341

I see no reason why inheritance should not be taxed at the same income tax rate that MOST Americans pay (e.g. about 21%) ?

We don’t need more hand-outs and freebies for the wealthy, when most Americans are already getting hammered by 10+ regressive systems. Besides, most people don’t pay any estate taxes.

Warren Buffet is absolutely correct. That tax system needs work too, since Warren Buffet, 2nd wealthiest person in the U.S., paid an income tax rate of 17.7% while his secretary (with income of $60K) paid 30%.

Also, our current tax system is severely perverted, abused, costly, complicated, and unfair, due to a myriad of tax loop holes and deductions that make it effectively regressive.
Some simple, no-brainer fixes would help enormously to make things more fair and less complicated.
But, then, lots of common-sense, no-brainer reforms could be implemented if it wasn’t for the Do-Nothing Congress that won’t allow any reforms that might reduce their power, opportunities for self-gain, or the security of their cu$hy, coveted incumbences (and 95% to 99% re-election rates).

Posted by: d.a.n at November 14, 2007 02:16 PM
Comment #238344

d.a.n, you will be interested to know that Buffet claimed he neither sought, nor took advantage of any tax loopholes in his IRS reporting. Which, if true, means, many other very wealthy are paying an even lesser tax rate than Warren Buffet, while as you say, the workers of America pay a substantially higher rate on monumentally less income.

Posted by: David R. Remer at November 14, 2007 02:34 PM
Comment #238346

David:

Warren Buffet is correct. We need an estate tax. A strong one.

It’s fine to earn your own $$ but to have it handed to one because of a blood line is an entitlement we cannot afford.

I like the way Mr. Buffet states his case. It is bad for democracy.

Posted by: Craig Holmes at November 14, 2007 02:45 PM
Comment #238348

Craig, thanks. Yes, Mr. Buffet is a pretty smart fella’, and with a decent set of values. For someone as busy and wealthy as he is to take the time to survey his own office staff on what rate they pay on income compared to his own, speaks volumes of his values.

People who have made their wealth through industry are not, by virtue of being rich, lesser in morality, ethics, responsibility, or wisdom than anyone else. The children of the rich, on the other hand, are another highly debatable topic, for which I have yet to find any thorough empirical data. Anecdotal citations from the lives of Paris Hilton to Theodore Roosevelt, are hardly empirical research.

Posted by: David R. Remer at November 14, 2007 02:58 PM
Comment #238351

d.a.n,

In an interview after the hearing, Buffett said that after his wife’s death in 2004, her estate paid $82 million in federal taxes and $32 million in state estate tax. He said he would give the Gates Foundation his Berkshire Hathaway stock, valued at more than $40 billion, and estate taxes would be paid on the assets he leaves his children.

The Gates Foundation is devoted to innovations in health and education for all Americans. A donation worthy of exemption from Estate Taxes, I should think, as it fosters America’s future well being as does government spending, and very likely more efficiently.

Posted by: David R. Remer at November 14, 2007 03:10 PM
Comment #238353

Maybe Buffet can change the perception that the estate taxes should be reinstated. It’s possible, but not without a marketing blitz.

This nation, that only a minute fraction of which will ever be affected by this estate tax, wholly supports getting rid of, what has been referred to as the ‘death tax’. That kind of thinking is difficult to overcome.

Posted by: john trevisani at November 14, 2007 03:12 PM
Comment #238357

john, two things working for reinstating it. Democrats in control of Congress, and names like Buffet, Gates, and Soros, selling it. If the wealthiest want it to remain, who are those to be unaffected by to complain?

It is the kind of powerful selling blitz needed, which you refer to. You will find also that Democrats are for reinstating, Republicans against, and Independents are divided.

It is the independents who, as a majority, have to be sold by the blitz. Being independents, they tend to be a bit more informed and rational on such topics in my estimation. The Estate Tax automatically reinstates in 2011, if Congress does nothing. And the opponents to it, are not, and will not be, in power in 2011. That is almost guaranteed, if current polling data are any indication.

Posted by: David R. Remer at November 14, 2007 03:30 PM
Comment #238360
Given the choice…

It’s the notion that we have to have this tax or we will fail as a country as the only two options that invalidates most of the article, I’m afraid.

There is no reason that we can’t run the federal government in a way that does not require overtaxation on the poor and middle class AND double taxation on the rich as well.

Well lack of political will, common sense and an educated well-informed citizenry are reasons we can’t, but other than that!

Posted by: Rhinehold at November 14, 2007 03:43 PM
Comment #238363

Rhinehold, reality trumps ideology, every time. As it must. Necessity is the mother of invention, and the government going deeper into debt creates a necessity for increasing revenues without harming people’ s lifestyle. The wealthiest in America will remain the wealthiest in America, even after estate taxation. It is not wrong. It is necessary.

As necessary as the sun despite the sun’s ability to cause skin cancer. One would not argue for blocking out the whole earth’s sun light because some will get skin cancer, would one? Better that a few inheritors who mismanage their inheritance become working folk, than allow the government and society of America to fail under a debilitating debt.

America became the wealthiest and most productive nation on the planet WHILE Estate Taxes were in place. Ample evidence Estate Taxes have not harmed America or her future.

If you want more efficient government, vote out incumbents who keep it inefficient. But, don’t kill the horse that carries you because it isn’t traveling faster than it can. You won’t end up where you wanted to go.

Posted by: David R. Remer at November 14, 2007 03:51 PM
Comment #238365

David
Sorry to bring this up here, but the email in the “Rules and Participation” section does not seem to be working and some are wanting to use it.
Is there way for you to check on it?


Posted by: Tim Huff at November 14, 2007 03:56 PM
Comment #238376

David:

I think from a rich persons point of view, they are very very aware that inheriting wealth is not the best way to produce quality human being. History is very clear that inherited wealth creates some of our most useless citizens. It is just wrong for the future of our country.

It creates a whole class of people waiting for others to die.

Posted by: Craig Holmes at November 14, 2007 06:13 PM
Comment #238387
Rhinehold wrote: [1]It’s the notion that we have to have this tax or we will fail as a country as the only two options that [2]invalidates most of the article, I’m afraid.
I’m not sure anyone said the nation would fail without an estate tax, but if they did, that may not be far from the truth, because it would worsen this trend of the past 30+ years. Thus, I don’t think the article is invalidated.

What we need is fair taxation, which we don’t have. The problem with some estate taxes is the the excessively high estate tax rates (e.g. as high as 50%), and the high exemption level (e.g. $2 million). The only exemption level should be on any income below the poverty level.

What we really need is to tax income fairly, regardless of where it comes from. Tax on earned income should not be taxed at a lower rate than any income from a windfall inheritance. Why exempt any portion of inheritance income (above the poverty level)?

The federal government could raise almost the same revenue (with about 6% in spending cuts) with a simplification of the existing tax system by making it a 17% Income Tax Rate/Poverty-Level-Exemption/No-Deductions/No-Corporate-Tax Plan, which would tax inheritance, capital gains, interest income, and all income above the poverty level (e.g. $12K for single person, $17K for 1 dependent, $22K for 2 dependents, … , etc.; poverty levels adjusted annually and may vary by location), making it progressive at the lowest income levels, and gradually approaching a neutral 17%. Eventually, after the 77 million baby boomer bubble passes, perhaps the 17% can be lowered (e.g. 15% or less).

This isn’t class envy.
The issue is fairness, and it’s becoming increasingly clear to most Americans that there are many clever and regressive systems that did not come about by mere coincidence.

Posted by: d.a.n at November 14, 2007 08:42 PM
Comment #238390

Tim, thank you. We are working on it.

Posted by: David R. Remer at November 14, 2007 08:54 PM
Comment #238402

What about a family farm that has been in the same family for generations? What about a small grocery store? There are a hundred-fold if not a thousand-fold more such enterprises in America than there are billionaires like Buffet or Bill Gates. Such assets may have a fairly substantial worth if sold, but they’re often working on a tiny profit margin already.

When the older generation dies, if you tax these assets as though they’re “income,” or at a high death tax rate like 50% or above, then these businesses, farms, etc are simply going to evaporate. And who is going to snatch up all these distressed properties? Rich folks like Warren Buffet.

I think there’s a great deal of ignorance surrounding this issue of estate taxes. That is, if you’re just thinking about how the ultra-rich pass on their wealth from generation to generation and if you think that something should be done to make this more fair.

The fact is that it’s incredibly, almost laughably easy for the massively rich to avoid such a tax altogether by investing their wealth in any of a number of tax-sheltered options. Or they can simply move money offshore or into tax-exempt foundations that their descendants control.

Who the death tax hits the hardest is the middle class or anyone else whose assets are tied up non-liquid property.

The irony here is that high estate taxes actually enable the very wealthy, who have the ability to avoid such taxes, to consume the wealth of the middle class.

Posted by: Liam at November 14, 2007 10:58 PM
Comment #238406

I should also point out the huge flaw in this quote from the first paragraph of David’s article.

Who will put a million dollars to more productive use in a capitalist economy, a Paris Hilton who inherits wealth, or a Bill Gates who gets a small government loan to create Microsoft in his garage?

Bill Gates never got any “small government loan” to start Microsoft. His parents were millionaires, and if anything, he’s an example of how the already wealthy take their wealth and put it to use and make it grow.

Paris Hilton is obviously an annoying bimbo—granted. But from an economic standpoint, she’s far from an example of a filthy rich person who never did anything. I’m certainly not defending the merit of the tv shows, modeling, and products she’s involved in marketing. Far from. She could have spent her whole life doing nothing at all with the wealth she comes from (and personally I wish she would have) but she’s actually doing things with a lot of economic value. Things which employ and enrich a lot of people from stage-hands, to make-up artists, to marketers, to people who sell magazines and newspapers, etc.

Also, where is Paris Hilton’s money? Sewed up in her mattress? I don’t think so. It’s invested, and therefore it’s very likely in your house, your car, and in the start-up money for many small businesses.

Posted by: Liam at November 15, 2007 12:01 AM
Comment #238410

Liam, your reading skills need brushing up. I said “a” Bill Gates, not The Bill Gates. Look it up in your dictionary for meaning.

As for how fat cats get away without estate taxes, your comment is in DIRE need of some education. The U.S. Gov’t. reaps 24 Billion dollars a year from Estate Taxes. Either that is an AWFUL lot of stupid rich people, in which case they couldn’t put the money to good use anyway, or your statement is false, that the wealthy have enormous escape avenues from Estate Taxes.

Stupid rich people, or effective Estate Tax collection? Now that you have an opportunity to consider this logical conundrum surrounding the 24 Billion in Estate Taxes, which do you think is more likely?

Posted by: David R. Remer at November 15, 2007 12:50 AM
Comment #238413

Also, Liam, charitable organizations oppose repeal of the Estate Tax. As in the case of Warren Buffet, a lot of what he wills will go to a non-profit Foundation rather than to his children, and the 40 billion going to the Foundation is exempt from Estate Tax. Estate Taxes are an important incentive for some to will at least parts of their fortune to private non-profit charitable organizations.

There are about 18 super wealthy families that appear to be responsible for the opposition to the Estate Tax in the media. A public poll [PDF] however, shows that 57 percent prefer keeping the tax as is or reforming it. Only 23 percent favor repealing the tax. The number favoring preservation or reform rises to 68 percent when respondents learn more factual information about the estate tax like the following:

The recent rise in the estate tax exemption level from $1.5 million per person to $2 million ($4 million per couple) means that less than one-third of one percent of all U.S. estates — or 0.27 percent — were affected by the federal estate tax in 2006.

99.73 percent, were able to pass on 100 percent of their assets to heirs tax-free. Out of an estimated 2.3 million deaths in 2006, an estimated 6,343 estates paid the tax. The number of estates taxed will fall to 0.16 percent in 2009, when the exemption rises to $3.5 million.

So, as you can see, the Estate Tax is not the enemy of small business persons or family farmers, only the heirs of much larger and far more wealthy business owners and farmers are affected. And after the Estate Tax is collected, the heirs will still be wealthy.

The Estate Tax promotes research and development and charitable giving in estate planning which benefits the nation and society immensely.

The Estate Tax at 24+ billion revenue per year helps hold deficits down by $24 billion a year.

The Estate Tax affects very, very few Americans, just slightly over 1/4 of 1%.

And as Buffet argues, the Estate Tax by redistributing wealth for education, health, and R&D, more entrepreneurs, innovation, and capitalist formation result.

And reforms are being debated and discussed that would exempt family businesses, provided the heirs continue to operate the business as their primary occupation. Hence, no heir who wants to run the family business would be forced to sell it to pay Estate Taxes, if that is what voters demand of their representatives.

It would appear your source of information on this topic is indirectly fed from the 18 Super Wealthy families working to promote repeal without a full exposition of the facts.

Posted by: David R. Remer at November 15, 2007 01:15 AM
Comment #238425

David, thanks for an excellent article and for the link exposing this silliness of the “death tax” for what it is, the aristocracy misleading the people. The super 18 seem to have gained the loyalty of 23% of the American people with their misniformation campaign. I wonder if it the same 23% that are the Bush faithful? I agree the conversation should be the lower limit at which the tax starts.

Rhinehold, dont you have to pay taxes on the wealth twice before you can have double taxation? If the money belongs to “A” and “A” dies then the money goes to “B” for the first time, right? Therefore “B” is receiving this money as if it was income for the first time, right. Would you have us believe that “A” whose is passed on is again paying taxes on the accumulated wealth and not “B”.
If its the family farm/ranch/business and “B” is working on the farm/ranch/business cant “A” transfer the reins of the farm/ranch/business corporation prior to death without the estate tax coming due?

Posted by: j2t2 at November 15, 2007 08:58 AM
Comment #238426

All this “double taxation” and “hurting the farmers” rigamarole is just people parroting the spin machine that turned “estate tax” into “death tax” in the first place. The only bad thing I can find about it is the possibility, with land prices being what they are, is some famers getting the shaft. So why not just put a clause into it that if a certain percentage of the estate’s value is in farmland, the get a deduction. Problem solved.

L

Posted by: leatherankh at November 15, 2007 09:11 AM
Comment #238434

j2t2, I am glad my research on the topic was appreciated and informative. Thank you for your comment.

Posted by: David R. Remer at November 15, 2007 11:19 AM
Comment #238440

I myself see it as double taxes on money already earned, but also see where it helps put badly need funds into the system. Now what I would rather see is a flat tax for everyone, be it from the rich or poor, and do away with some of the so called entilements that the government give out.

Posted by: KT at November 15, 2007 11:47 AM
Comment #238448

Does anyone really think that the only rich are the only ones getting their estates taxed and no one else is? Got news for all y’all. It aint happening that way. Everyone’s estates are being taxed. So the poor guy that works all his life to make some sort of future for his kids has 45% of his $100,000 estate taxed too. That will leave only $55,000 for his kids to split. Or $27,500 per child if he has 2 kids. Or $13,750 if he has four. Not even at the poverty level. This is fair?
Most folks can’t afford to shell out $45,000 without selling off the estate. And believe me the government doesn’t think twice about seizing the entire estate if the heirs can’t pay to inorder to get it’s money.
So go ahead and support estate taxes. And when your youngins end up losing everything to the government because they can’t pay the tax while the rich kids inheriting $1,000,000,000 are paying the $450,000,000 tax and pocketing $550,000,000 do ya really think that your youngins will think they’re be better off because the rich are paying estate taxes too?
And do y’all really Congress is about to give the working person a break without making sure that their big contributors (the rich) get one?
And y’all really think this is fair?

Posted by: Ron Brown at November 15, 2007 12:35 PM
Comment #238449

KT, a flat tax is my preference as well, since it benefits both business and workers. Tax reform however, is an enormous uphill battle politically, because of the large numbers of constituent groups who would be affected by changes, some paying more, some paying less, and many who would pay about the same but would be told that they would lose deductions.

I see no problem anymore with double, triple, or quadruple taxation, since it has already existed for the Middle Class since the Reagan years. They pay tax on their income, then they pay tax to enter National Parks which they already paid for with income taxes, then, they pay gasoline and tobacco taxes on their purchases, phone taxes, airline taxes, and on and on.

Money must circulate through the economy. The enormous problem America faces at this very moment is that so very much of our money is now circulating in foreign economies, not our own. This has consequences for foreign policy, domestic policy, our domestic economy, and our future sustainability. Our Fiat money system continues to erode in purchasing power which is not a problem so much if wages rise for the middle class. But, wages haven’t, in real dollars, been rising for the Middle Class. And the Middle Class is engine of our economy and salvation for recessions if, they can continue making purchases.

And whether or not they will be able to, is looming as an ever bigger question in both the short (this holiday and the 1st 2 quarters in 2008) and long term economic projections. Money circulating in our economy permits jobs and wage growth.

Our money circulating in foreign economies stimulates jobs and wage growth in foreign countries, until foreign nations decide to dump U.S. currency as China threatened this last month. If China were pushed to dump the 1 trillion U.S. Dollars they now hold, the floor would drop out from under our greenback’s value and interest rates would have to rise dramatically.

Not the kind of scenario that America can afford. It’s serious. Very serious. As the world’s largest debtor nation, and largest importer of goods, we are also the most vulnerable to policy decisions made by foreign nations like India, China, Malaysia, and the EU.

Contrary to popular belief, we cannot just keep printing more money and sending it overseas without grave consequences. America through its 31 years of consecutive trade deficits has sent enormous sums of greenbacks overseas. If they come back in a hurry, we are in real trouble. If they don’t come back, we remain vulnerable to other nation’s economic decisions. It’s a real pickle.

Posted by: David R. Remer at November 15, 2007 12:36 PM
Comment #238451

Ron Brown said: “So the poor guy that works all his life to make some sort of future for his kids has 45% of his $100,000 estate taxed too.”

Sorry, Ron, someone is feeding you a line of BullCrap. Currently you must have a 1.5 million dollar estate to incur Estate Taxes. by 2009, it will be 3.5 million.

It’s real simple, Ron, simply obtain an IRS form for estate taxes to verify this true. You are flat out wrong on your information. A House Committee met this week to discuss reforming the Estate Tax and the $4 million minimum ($8 million for a couple) was discussed much as becoming the new level for Estate Taxes to kick in.

You must be getting your information from a scare tactic misinformation source. The facts are readily available and verifiable. You should ignore who you’ve been listening to and pick up an IRS form to verify the facts.

Posted by: David R. Remer at November 15, 2007 12:47 PM
Comment #238471
KT wrote: Now what I would rather see is a flat tax for everyone, be it from the rich or poor, and do away with some of the so called entilements that the government give out.
How about a flat 17% on all income above the poverty level? That is, no one pays tax on the income below the poverty level. All income above the poverty level is taxed a flat 17%. That makes it progressive a the low-income levels, but then gradually approaches a neutral 17%. That is, if all the tax loop-holes, and other hidden taxes (e.g. corporate taxes) that get passed on to consumers are eliminated. The system we have now is supposed to be progressive, but is now regressive due to a myriad of tax loop-holes.
David R. Remer wrote: A flat tax is my preference as well, since it benefits both business and workers.
Yes, if all tax loop-holes are eliminated, which make the current tax system regressive.

The federal government has grown so huge and bloated, it could probably operate on MUCH less than it does.

But, we can not abandon Social Security.
We can not abandon our troops.
We can not abandon national defense.
We can not abandon the truly needy.
We can not abandon the $9.1 Trillion National debt.
We can not abandon the $450 Billion PBGC pension debt.
However, there are MANY things that can be cut from the ridiculously bloated federal budget (e.g. massive pork-barrel, graft, corporate welfare, waste, etc.).
One way to accomplish that is to first do the most simple things that will provide the most immediate and effective benefits, and a major simplification of the existing system is the first step (as outlined in the 17% Income Tax/Poverty-Level-Exemption Plan), because it doesn’t require vast changes to the current way revenues are collected, it would eliminate ALL tax loop holes and deductions, it is progressive at the low income levels and gradually approaches a neutral (flat) 17% (smaller than most of us all pay now which is about 21% on average), and eliminates the complex tax calculations and costs associated with record keeping and legal fees.
The 17% Income Tax/Poverty-Level-Exemption Plan may not be the final solution, but it is a pragmatic approach, and a simple thing that can be done now. Many of the wealthy might support it too. After all, consider that in year 2006, Warren Buffet, the 2nd wealthiest person in the U.S., paid a 17.7% income tax rate on his adjusted gross (less than the 17% income tax plan), which was lower than the 30% tax that his secretary made on her $60K annual income. By the way, Warren Buffet does not think this is fair either.
Later, perhaps after the 77 million baby boomer bubble passes, the rate could be drastically lowered (e.g. 15% or less), or replaced with a better system.
The problem now is that the federal government is taking 19%-to-20% of GDP in taxes, and then borrows and prints several hundred billion more per year; growing the National debt ever larger.

That is why it is plausible that the following 17% Income Tax System would raise enough revenues:

  • No one pays any tax on income below the poverty level (e.g. $12K for a single person, family of 2, 3, etc.; adjusted annually), regardless of gross income.

  • 17% income tax ONLY on income above the poverty level. That makes it progressive at the lower income levels.

  • No deductions of ANY kind on taxable income.

  • No corprate taxes that simply get passed on to consumers as a hidden sales tax (sales taxes are regressive).

  • 17% of $14 Trillion GDP is $2.38 Trillion (the federal government would have to cut spending about %5 to 10%).

Posted by: d.a.n at November 15, 2007 04:50 PM
Comment #238475

d.a.n, and let’s address the ice berg that will sink our ship of state ahead, health care. Let’s get on with a single payer, universal coverage, non-profit health care system for basic medical health and prevention.

The for profit system will still thrive on the dollars of those who can afford it, and elect it - as is the case now. Waiting rooms in those offices will see less wait, is all.

Posted by: David R. Remer at November 15, 2007 04:58 PM
Comment #238481

David, Yes, I agree. A single payer system would be better than the system we have now which has TWO middlemen (insurance companies and the federal government). Besides, it can’t get much worse than it is now.

There is a better way to do it, if only healthcare providers would take the initiative, and eliminate the middlemen.

Posted by: d.a.n at November 15, 2007 05:46 PM
Comment #238484

However, fixing Healthcare, alone is not enough. These other unfair systems must be fixed too, or the 30 year trend will continue to worsen (as 1% of the wealthiest become more wealthy; up from 20% in year 1980 to 40% of all wealth in year 2007).
And there is possibly one way to finally get all of those things addressed, if one state would champion the cause and demand a ruling from the Supreme Court so that we can determine whether Congress ever plans to obey the Constitution, or citizens need to find other methods.

Posted by: d.a.n at November 15, 2007 06:00 PM
Comment #238580

d.a.n, true enough that health care is not by itself sufficient, but, it is the single greatest threat to our domestic economic future, in the form of a 40 Trillion dollar unfunded mandate or mass suffering and poverty and preventable death should that mandate be voided.

Posted by: David R. Remer at November 16, 2007 11:55 PM
Comment #238605

David,

If the $24B could be offset by other taxes or spending cuts would this still be a worthy program?

I have a problem with the idea that those wealthiest among us are subjected to additional forms of taxation that the rest of us should not pay. There are all kinds of scenarios that result in inequalities of enforcement when we start drawing lines at which point someone must begin paying an extremely high tax rate when others don’t. They are the same kinds of scenarios that make the call for a flat tax so attractive.

Posted by: Rob at November 17, 2007 12:52 PM
Comment #238617

Rob, how many people do you think would answer yes, if the IRS called and said: “Would you like to not pay taxes this year?”

Yet, the vast majority of Americans do pay their taxes and do not oppose the concept of taxation. Given that taxation is a necessity, there are fundamentally only two issues regarding who is taxed and how much.

1) Who are those who have sufficient resources to pay taxes without inciting revolution and civil war?

2) How much taxes can be levied on the various strata of the population who can be taxed, before the perception of unfairness incites tax dodging or worse, revolution or civil war?

No one loves paying taxes. But, there are levels of taxes Americans are willing to pay as a self insurance toward living in a great nation and preserving that great nation for their children, PROVIDED, such taxation is perceived as fair.

Those who profit more in society have more to contribute to taxes without losing their status as having more. This is a fundamental precept of fairness regarding taxation held nearly universally around the world by all peoples in all societies.

Therefore, America has a progressive tax system. The more you make, the more in dollar amount you pay. (Though, currently, the wealthy pay less percentage of their income in taxes than less wealthy people do.) But, a progressive taxation scheme makes sense to people. If appears fair to most people.

Proponents of the Flat Tax argue that this cornerstone of fairness is preserved with a flat tax, while everyone pays the same rate, those with more, pay more. That too appeals to most person’s sense of fairness. Politically speaking, any tax reform will have to appeal to the public’s sense of fairness. If the public, as a majority, comes to the consensus that our current system is unfair, then it is logical to predict that the Flat Tax will be the new tax schema.

The Flat Tax has the advantage too of simplifying the tax code, compliance, and enforcement. A selling point. But, the at the core of it, taxes must be perceived as fair.

It was no accident that the proponents of the extremely unfair national sales tax scheme decided to call it the Fair Tax. What they chose to call it is fundamentally the only selling advantage it has to appeal to people’s sense of fairness. And that selling point is woefully inadequate once the public who can do arithmetic examine the scheme itself.


Posted by: David R. Remer at November 17, 2007 03:22 PM
Comment #238618

Rob asked: “If the $24B could be offset by other taxes or spending cuts would this still be a worthy program?”

Yes. Because there is a fundamental principle in economics that must be observed. Money must circulate in the society that creates it in order to prevent revolution and social upheaval. If the Estate Tax is abandoned, it creates the stage upon which a plutocracy and aristocracy will govern. (That stage is already under construction by our lobbyist system in the halls of government).

Wealth is power, and if too much wealth is held in too few hands, causing deprivation of both wealth and power in the populace as a whole, the government will be overthrown or civil conflict will occur. Democracy as a form of government promises the people will retain the ultimate reins of power. Plutocracy, rule by the wealthy, is antithetical to democratic forms of government, and time and again has been overthrown or embroiled in successive civil wars or conflict.

Posted by: David R. Remer at November 17, 2007 03:33 PM
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