Thursday, September 28, 2006

Reverse Robin Hood

Lori M. LeVasseur, CPA, is the Deputy Treasurer for the DEC in Seminole county. She has 25 years of tax preparation experience and a Master’s degree in Taxation. I appreciate her wisdom and sincerely hopes she will become a regular contributor. (See how at the end of the post).

Share in her wisdom: My hope is that one of those guys in a beat-up pickup truck with a "W" sticker will read it and learn something:

Taking from the Poor, to Give to the Rich

By Lori LeVasseur, CPA

What has this country become when we are giving huge tax cuts to the most wealthy of our citizens and cutting the Medicaid and Social Security of the poorest of our citizens? The highest marginal tax rate is now at 35%. When I began doing tax work 25 years ago, the highest marginal tax rate was 50%. This 35% rate is the lowest top marginal tax rate in my 25 years in practice and in the history of US taxation.

How can we, as humane people, take money from those who need it for survival and give that money to those who already have plenty? As a CPA I have worked for rich, middle class and poor taxpayers. And there is one observation that I will make. I have never seen a wealthy client “suffer” from paying a little more tax. However, I see plenty of poor and middle class people “suffer” from lack of health care, lack of affordable education, bankruptcy and other problems that the wealthy are immune to. My wealthy clients complain about their tax bills all the while polishing their Mercedes and Rolex watches.

I think some of these Republican senators who think it’s a good idea to take from the poor and give to the rich should sit at my desk for a tax season and see how the tax law applies to real people. Let me give you two real live examples:

Jack: Jack is one of my high income clients. Jack is in sales and his taxable income is about $500,000 a year. Jack took last year’s tax cut and invested it in mutual funds that buy stock in China and India. He sends his son to Princeton. He has top of the line health insurance. He has two houses and two expensive cars. His wife likes jewelry.

Pauline: Pauline is 78 years old. She receives about $9,000 in Social Security and $7,000 in pension income for a grand total of $16,000 in income. She has a small and dwindling bank account. She is a breast cancer survivor, has severe rheumatoid arthritis and last year she broke her hip. She has no family to care for her and depends on people from her church to take her to the grocery store and church. Her only insurance is Medicare and she receives Medicaid benefits.

If we raised the top marginal tax rate back up to 39.6%, Jack would pay approximately $8,000 more in income tax. This is less than 2% of his income. He may have to trim his wife’s jewelry allowance. This would not negatively affect his quality of life.

If we reduce Pauline’s Medicare coverage and Medicaid benefits, her health care will suffer. She has NO other option for her health care. No one is going to insure an already sick 78 year old lady and she lacks the funds to pay for private insurance anyway. This would negatively affect the quality of her life.

Now that you know both Pauline and Jack, do you think it would make sense to take money from Pauline and give it to Jack??

Before Bush began his tax cuts in 2001, the top marginal tax rate was at 39.5%. This was lower than the top rate of 50% the wealthy paid previously. It was an amount that allowed the government to take care of our most unfortunate citizens and yet was fair to the wealthy. Bush then brought the top rate, where THE MAJORITY OF TAX IS PAID, down to 35% in the face of 2 wars and the pending baby boomers retirement. This just does not make sense. The Republicans argue that if they now raise taxes (I would just call it reversing a big mistake) it would be “unfair” to the wealthy and would harm the economy. They credit the tax cuts to the wealthy with fueling the economy. If only tax cuts can fuel an economy, then how did Bill Clinton have a booming economy with the tax rate at 39.6%? Tax cutting is not the only way or the best way to fuel the economy.

Consider this scenario. Follow the money. OK, you give the wealthy person a tax cut. He takes the money and spends it or invests it. Theoretically this “trickles down” and fuels the economy by creating jobs, etc. But what about my wealthy clients who are now more likely to invest their tax cuts in China and India? The US dollar is falling and the wealthy are good investors. They are investing abroad. How is that fueling the US economy? Now follow the money if this same money is not given in a tax cut but collected as tax on the wealthy and paid for Medicaid benefits or Social Security benefits for the poor. This money goes into the US economy when the elderly person pays for doctors, prescriptions or necessary consumer goods. This money isn’t likely to end up in China or India. This money benefits the poor and fuels the economy. This is a better idea than benefiting the wealthy and foreign countries.

Capitalism by its very nature will create poor people. Capitalism creates a competition for income that will insist that some people be poor. We can’t all win with capitalism. So there will always be economic losers, poor elderly people, poor children and disabled people. We have to take care of them somehow. If we don’t take care of these people with Social Security and Medicare, then how will we take care of them? How are budget cuts to these benefits that help the poor going to solve the problem of the poor? As much as Republicans would like them to, the poor are not going away.

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  1. This was posted as a diary on DailyKos

    Check out the comments.

  2. According to Newsweek, the hidden agenda for the tax cuts is to only tax those who earn a salary or wage while completely abolishing investment income.

    Bush wants to significantly lower taxes on capital income, such as dividends and capital gains; create two huge investment shelters; and eliminate the inheritance tax. Almost all income would come form paychecks. Those who earn income from investments, the wealthiest of Americans, would not have to pay anything. This would create a breed of aristocrats that will be able to inherit a billion, tax-free, invest it, compound the interest, and pass it to their heirs with no taxation whatsoever. In return, the middle class and poor will have to pay full taxes on everything they make. This is not only wrong, it is very bad policy: the problem lies in the fact that the majority of the wealth in this nation is held by a very, very small percentage. So if the richest of the rich aren't paying taxes, we have no chance of balancing the books. Newsweek (04/12/04)

    The Tax Cut Folly: A distributional analysis released by Citizens for Tax Justice shows that when the tax plan is fully phased in:

    The typical tax cut for the median income taxpayer will be $600 a year.
    For the 78 million taxpayers in the lowest 60 percent of the income scale, the tax cut will average $347 a year.
    In contrast, at the top of the income scale the average tax cut will be $53,000 annually--virtually identical to the $54,000 annual tax cut proposed by the President.
    "Congress has given the President what he truly cared about--gigantic tax cuts for the rich," said Robert S. McIntyre, director of Citizens for Tax Justice. "But Congress reneged on its promise to honor fiscal responsibility. Instead of a tax cut one-quarter less in size than the President's plan, Congress actually increased the fully-phased-in cost of the tax cuts by a fifth."
    "As a result, over the upcoming years, average taxpayers will pay dearly for this tax cut plan in reduced public services, a return to budget deficits or, most likely, both." Citizens for Tax Justice (05/26/01)