Friday, December 10, 2010

The Inconvenient Truth

Here's the problem with the American perspective (and that in Britain, for that matter): There is no means by which playing "tax the rich" can close the gap.

Here, again, is the budget picture in terms of deficits in dollars:


So let's assume we don't pass the tax cuts for the "rich." Ok, that's $70 billion a year. The gap between revenue and spending is over $1,600 billion.

In other words "soak the rich" gets you 4.4% of the problem.

And remember, this change gets rid of the dividend, capital gains, and income tax preferences for the wealthy, defined as "those who make over $250,000 as a couple, or $200,000 as an individual."

If we "**** the rich" even more, we could probably take another $200 billion off that number. That still doesn't matter, simply on the mathematics.

Beyond that level you probably run into "avoidance" - that is, perfectly legal choices to make less.

There have been plenty of years where I've written really big checks to the IRS, and not all of them were related to MCSNet. The last few years have been pretty good. But this much I can tell you - if the government was to, for example, tax everything I made at 90% beyond $200,000, I would never make more than $200,000 a year again. Ever. I will not work hard to earn that money only to turn 90% of it over to the government.

Those of you who get up and go to work every day simply don't get it or don't care to listen. You get paid time and a half for hours over 40, and double time on weekends and holidays. The former is actually Federal Law, not employer preference.

I, on the other hand, was literally on-call 24x7 for a decade building what I had with MCSNet. I didn't have an actual vacation - a time when I could choose to shut off the pager and phone for so much as 24 hours - for more than five years. For a decent part of that time I not only ran my own joint I worked for "the man" at the same time. Today, as an entrepreneur, I still can't take that vacation. I had it for a few years when I was effectively "retired" but now it's gone again, as I run The Ticker and forum. I go on "vacation" or have a "nice weekend" and my phone and laptop are always with me, as I have to be able to respond to potential problems with the infrastructure - and if I hired someone to watch the infrastructure I'd have to be able to respond to "business issues."

The motivation to do this - to take the risk of material loss of one's capital and to trade one's personal life off like this instead of being a working drone that works for "the man" from 9-5 and then comes home to watch "Dancing With The Stars" - is money. Remove that motivation by confiscating what I earn and I will stop doing it and sit in my hottub drinking Cognac or fishing every day instead - that's a promise and a fact, and your illusory "tax revenue" will fail to materialize.

Exactly where does that "avoidance" behavior begin? I don't know. But what I do know is that it begins at a lot lower level than you probably think. And the spiral that this promotes downward in tax receipts is both very real and impossible for the government to stop or prevent.

1 comment:

Stephen R said...

It's called The Laffer Curve: