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Post US Middle Class and Taxation
Created by John Eipper on 09/21/10 12:35 PM

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US Middle Class and Taxation (Tor Guimaraes, USA, 09/21/10 12:35 pm)

This is in reply to Randy Black (RB)'s 18 September post in response to my original post of 17 September:

RB: Tor Guimaraes commented, "leaving my capital gains Bush tax rate at 15% while workers pay higher rates is fat cat welfare." I'm curious about how Tor concludes that the rates are "Bush" rates, considering that Bush, in fact, was unable to pass spending bills without the cooperation of Congress and the Congress, I seem to recall, was controlled by the Democrats for Bush's final two years as President. In fact, the Capital Gains Tax (CGT) was 20 percent for Bush's first two years in office. I'm also curious as to how Tor concludes that "workers pay higher rates" regarding their capital gains. Or did Tor leave out something? Perhaps it's how one defines workers.

TG:  I agree that Congress were full participants in lowering the Bush tax rates.  Workers paid regular tax rates on their wages  while fat cats with major capital gains (including gains from the mortgage bubble fraud)  paid lower rates on such gains.

RB: Nevertheless, I fear that Tor will get his wish for higher taxes, as the capital gains tax will more than double in 2011 from 15 percent to 39.6 percent (or higher). Some folks "enjoy" donating 40 cents of every dollar earned to the Feds. Not me.  J.D. Foster, PhD, makes a good case that the increase in the CGT will be a wash as far as increasing income for the federal coffers. ... Abstract: President Obama has proposed raising the capital gains tax rate to generate billions in new revenues for the federal government. ...  If the President is serious about making jobs his "number one priority," he should instead propose reducing the capital gains and dividend tax rates to stimulate the economy.

TG:  First, allow me to share a personal story.  When I was an undergrad, to afford school I worked full time at an animal hospital.  The vet/owner was a good professional and made a lot of money.   He owned a great house as well as other real estate, was quickly paying off the pet hospital, and had some top-of-the-line automobiles.  Besides having a wild daughter, his constant complaint was how much he had to pay in income taxes.  After looking at my pay and checking out his major complaint in more depth, my conclusion to him was that in the future I sincerely hoped to have a similar problem in spades.  From that day on he stopped complaining to me about paying too much taxes.  Second, there are some realities about taxes we must keep in mind: everybody hates them; unless you don't want to have a strong military, national infrastructure, quality education to support democracy,  a social safety net, etc., we must pay taxes; therefore, the only question is who is going to pay.  

Poor people should pay less so they can survive and support their families.  We do not want to live in a world where large segments of the population in near poverty.  It is that simple but wealthy special interests try hard to obfuscate and reduce their tax burden while increasing their profits.   Last, despite JD Foster's collection of degrees and job titles listed by Randy, he is wrong: there is no historical evidence to support a hypothetical relationship between tax cuts and increased economic activity.  http://www.huppi.com/kangaroo/L-taxgrowth.htm <http://www.huppi.com/kangaroo/L-taxgrowth.htm>     In fact, I heard that historically in America the higher income tax rates correlate with greater economic growth.  

Randy might want to check that.

John Eipper commented:  ... what if the CGT (Capital Gains Tax) were significantly raised for short-term investments (less than one year), but left intact or even reduced for long-term?  This solution, I would think, would encourage investment over the long haul, which is the kind of activity that stimulates job expansion and overall economic growth.

TG: This is a good idea which has already been implemented.  The problem now is that it is impossible to effectively induce business investment (create new jobs) without first increasing demand for new production.  The middle class has been sucked dry by local, county, state, and federal taxes; by corporate cost cutting except for exec salaries and bonuses; by the dot.com and mortgage fraud bubbles, by trillion dollar military expenditures, etc. The middle class just doesn't have enough money to pay off their large debt and keep buying as usual.  Contrary to what some "experts" are saying,  lowering taxes for the wealthy will just increase the unsustainable federal deficit while allowing the Wall Street parasites to make higher profits by borrowing money from the Fed at close to 0% and lending it out at higher rates to everybody else worldwide.  Simply put: no spending middle class, then no new productive business investments and no new jobs.  Therefore, higher incomes should pay taxes at significantly higher rates.

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