Tax the Wealthy — Baffled Again
I just don’t get it. I truly do not understand.
Over my entire lifetime and in this most recent presidential election cycle, I have heard some lower income taxpayers and many wealthy citizens cheer plans to increase income taxes on the wealthy. The crescendo proclaims that better times will follow to those less fortunate if only the high income people were paying more taxes.
Be it Warren Buffett, Oprah Winfrey, Ted Turner or others staking the claim of helping those less fortunate, the effect of a higher income tax rate is the same. With higher marginal tax rates, any lower income person virtually guarantees they will not have the assets necessary to make a better life for themselves or their families. The more you earn under the tax the wealthy plan, the higher the marginal tax rates thus making it more difficult for the poor to save and to get ahead. This is not a speculative comment. It is, in fact, a mathematical reality.
In 2005, the top 10% income earners paid over 70% of federal taxes, whereas the bottom 90% paid less than 30% of the federal taxes. Even this startling statistic fails to recognize the effective tax rate on assets is minimal on those taxpayers with disproportionate asset levels compared to most citizens.
Warren Buffett’s taxes as a percent of his assets are miniscule compared to a "wealthy" taxpayer in the same income bracket but with substantially lower assets. Mr. Buffett once commented that his tax rate on his income was lower than his secretary’s. Wait until she finds out how little tax he is paying on his assets compared to her tax as a percent of her assets.
This Buffett et al group has collectively funded a significant number of charitable causes that they support which is laudable. Apparently, however, they feel compelled to ask us to support the government "charities" that they want us to support rather than supporting those programs themselves. While I applaud their philanthropic efforts, I am dismayed that they feel so strongly that I should be denied my choice of charities to support.
In fact, Warren Buffett who feels that your estate taxes are not high enough, made his contribution to the Bill and Melinda Gates Foundation conditional (BMG) upon "…BMG (or any intermediary) must continue to satisfy legal requirements qualifying my gifts as charitable and not subject to gift or other taxes…." (See Berkshirehathaway.com)
Smart tax planning – absolutely! Disingenuous – possibly.
If paying taxes is good enough for you and me, I would suspect that the super wealthy might enjoy the same opportunity to contribute to the government spending programs that they espouse as well.
So…..in order to allow my fellow citizens who are wealth unimpaired to feel needed, I would like to propose a Gross National Asset Tax (GNAT for short). The GNAT tax acronym would represent the pesky little beast that is defined as a small insect that hovers around the eyes of humans (presumably to annoy). The GNAT tax would be like the income tax is to those of us not saddled with the horrible infliction of being asset encumbered.
My plan is quite simple. Apply the same tax rate of 35% to assets over $1 Billion as the government places on higher income individuals. The $1 Billion exclusion for the tax would be known as BAFLED (Basic Asset Floor Level Deduction). Certainly, those with assets over $1 Billion would be most willing to pay their fair share of taxes. After all if the tax rate is good enough for wealthy income earners, one would suspect that it would be good enough for those wealthy asset owners to pay the same asset tax rate as they would propose that others pay on income. Also, remember, to show concern for the tax the wealthy supporters, the $1 Billion floor is designed to prevent them from being traumatized from having to think of ever having to earn an income again.
With that BAFLED look at that pesky GNAT, I suspect even the most hard-line supporter of the tax the "wealthy" scheme may rethink their priorities. Now, if we can only get them to understand that it’s the spending that needs to be reduced!
Frank Ryan, CPA specializes in corporate restructuring and lectures on ethics for the AICPA. He is on the boards of numerous publicly traded companies. He can be reached at [email protected]