Sunday, March 1, 2009

Why taxing the rich won't be all that easy

Clfford Thies points out an unlovely but very important truth about paying for everything by levying higher taxes on the wealthy:

Lifting the caps on Social Security “contributions”, ending deductions for charitable and homeowners’ interest expense, raising the top federal personal income tax rate and the corporate tax rate, ending the capital gains tax preference … get the idea? If you have a high income, they’re coming after you.

But, the idea that you can heavily tax the rich is bogus. As the author of the referenced article indicates, “If you look at the background of the top 1%, you realize that they meet my criteria of knowledgeable, worldly, disconnected to location for wealth, and willing and able to pay for proper legal advice.” In response to excessive taxes, these people will simply shift themselves and their wealth overseas. Instead of getting more out of them, the government will actually get less.


During the next 4-8 years there will always be tax attorneys, tax shelters, and avoidance behaviors open to those with greater wealth. Bill Gates, Donald Trump, George Soros, or Oprah Winfrey (much less George Klooney, Sean Penn, Donovan McNabb, or the president of any bank you care to name) will not be brought to their knees by the new taxation regime, because the ultra-wealthy already possess the resources necessary to shelter their fortunes.

Instead, it will be the several million Americans between $250K-$1M who end up paying the largest amount of the new tax burden, the not-quite-millionaires whose ranks, one suspects, will be extended downward toward any family making a six-figure income as the bills come due to Bejing....

7 comments:

Brian Miller said...

Bingo.

Most people haven't lived and worked abroad. I have.

While it's incredibly difficult for a middle-class rube like me to get "permission" to work in the UK, France, or Australia -- an endless process of restrictions, red tape, paperwork, tests, delays, passport stamps, etc. -- I was able to do it.

If I was worth a million or more, it would be incredibly easy. I would just hop on a plane to the consulate of my preferred country -- Canada, Australia, New Zealand -- and apply under the "investor class" designation.

My assets would be shielded from taxation in the USA as well as honored under a domestic no-tax policy to encourage investment. After a year or two, you're a citizen of the country in question.

If the IRS comes after you demanding a share of your assets, you merely renounce your citizenship or simply point out in the foreign court that the US has no jurisdiction.

One of the funnier stories from a few years ago was an IRS plan to "catch tax evaders" who lived and worked abroad when they went to renew their passports locally. The idea went that the passport would be denied and you'd be issued a single "one way ticket home to the US" to face tax court, huge fines, etc.

The program was a MASSIVE failure.

Why?

The US citizens they were targeting had expatriated and assumed foreign citizenship years ago. They no longer had or needed US passports and never showed up to renew them.

Brian Miller said...

And needless to say, once that wealth was gone from the country, it never came back.

Add in the specter of nationalization of public companies, very high taxes, government management of huge swathes of the economy, and rampant market fraud that are all part of contemporary American life, and all the wealthy folks will be heading for the exits.

Anonymous said...

It's simple: Greed over duty to country.

These folks have much more than that needed for the necessities plus a comfortable life-style.

I have no problem with folks wanting to earn more and wanting to keep more, but there are always limits, based on community and country needs.

And yes, the government has the power through an elected legislature to enact certain limits, where tax policy is one example.

When the country is in a crisis, as now, I don't think it is asking too much to accept a tax increase along the lines that the Obama tax policy would enact if passed, especially since Reagan and Bush-43 instituted tax policies that favored those who would now take extraordinary measures to avoid paying their taxes.

"...ask what you can do for your country!"

Am I old fashioned?

Perry Hood

Steve Newton said...

Perry
Here's why, when it comes down to it, we will never agree on certain fundamentals:

I have no problem with folks wanting to earn more and wanting to keep more, but there are always limits, based on community and country needs.

Followed by:

And yes, the government has the power through an elected legislature to enact certain limits, where tax policy is one example.

Last one first: show me the constitutional theory that allows the government to tax for purposes of redistribution of wealth, as you suggest. I know it is your preference to believe that, but show it to me as accepted constitutional law.

As for the other question, it all sounds so Bidenesque and patriotic when you say that, except:

1) Who gets to decide in each community and country what constitutes too much wealth? You suggest an amorphous standard of "necessities and a comfortable life" which means absolutely nothing, except Perry saying, "At some point above what I've got, what they've got is too much."

2) Leaving all concentrations of wealth in government and/or corporate hands, rather than individual hands, is a sure road first to authoritarian government, followed by totalitarianism. Wealth in private hands is generally just as much of a counterbalance to political oligarchy as the second amendment. Perhaps more so.

3) There is nothing unpatriotic about wanting to conserve and protect wealth legally earned. Nor is there any patriotic requirement not to minimize your taxes--see the decision by Learned Hand.

Anonymous said...

"Last one first: show me the constitutional theory that allows the government to tax for purposes of redistribution of wealth, as you suggest. I know it is your preference to believe that, but show it to me as accepted constitutional law."
Let me turn your question around, Steve. Show me the constitutional theory that prohibits....

Were you speaking out about this when Bush cut taxes in a manner that distributed the income to the higher earners? I hope so!

Nevertheless, the progressive tax system has been utilized for how many years? Has it ever had a Constitutional challenge in all that time?

And then we have the regressive tax known as FICA. Has that been challenged?

On your comment 1) - "Too much wealth" is your term, not mine! And your assumption about me is just that, an assumption. I think it is not asking too much for all but those below the poverty level to be required to give back, as is the mechanism in a progressive tax system. I think of it as similar to having a draft to meet the required manpower quota to adequately defend our country. The principle of being required to give back is similar, and needed.

On your comment 2) - In our system the way it operates, wealth in private hands is power that translates to power in government in order to magnify and perpetuate wealth. No government in our system would ever be small enough to expel this circular function of wealth and power.

On your comment 3) - I agree!

In my view, we have to deal with the reality we perceive, pragmatically. It would be foolhardy, to believe that our forefathers could have created a document with absolute, therefore ageless, principles and rules called laws, as many religions attempt to do. Their genius was in creating three independent branches with the Supreme Court being one of the three.

If wealth redistribution via a progressive tax is still required, and I believe it is, perhaps it is time for the Supreme Court to have a look at it.

In the meantime, let's upgrade FICA to be an across the board flat tax. That would make some resolution to the longer term entitlement financing problem. And yes, SS and Medicare are essential, in my view.

Perry Hood

Anonymous said...

"During the next 4-8 years there will always be tax attorneys, tax shelters, and avoidance behaviors open to those with greater wealth."

It sounds like what you are saying, Steve, is that since there will be some who will get away with breaking the law, that we shouldn't have the law to begin with.

I hope you don't mean that!

Perry Hood

Steve Newton said...

Perry,

1) On whether I was speaking out against the Bush tax cuts... Since I didn't have a blog then (and neither did anybody else in DE) I suppose you'd have to take my word for the fact that I spoke up strongly against the idea of cutting taxes while fighting one and then two major wars; that I spoke up strongly against what I felt to be the improper structure of the tax cuts. But I also question whether you have the right to demand that response....

2) As for Americans avoiding taxes--you miss the point entirely: seeking tax shelters and restructuring your wealth to avoid paying taxes is not illegal (as long as your strategies operate within the letter of the law) and it's not unpatriotic. I give you Associate Supreme Court Justice Learned Hand in 1947: "there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible"

Perry, this is the way the US Constitution works: no ex post facto laws. If what people did to earn and shelter income was legal at the time they did so, then you cannot make it illegal retroactively. You can legislate to make it illegal in the future, but you cannot go back for a "do-over" to punish people who acted legally.

As for your Constitutional theory, it's the living document theory, which is legitimate, but....

You still have to go through the process, either in the courts or through amendment, to change or interpret the damn thing. As you pretty much admit, this has not yet been done....