Posted on 11/19/2012 6:16:10 AM PST by econjack
A Shocking Story About Greed and Taxes
By Jeff Clark
Monday, November 19, 2012
Raising taxes on the rich raises taxes on everyone.
My home state of California just passed Proposition 30, which increases income taxes on residents who make $250,000 a year or more. The top marginal tax rate is now 13.3%, the highest of any state.
Proposition 30 was sold to the voters as "this won't cost you a dime, but it'll make the rich pay their fair share to put our schools back in shape."
Since so many voters thought they were excluded from the tax, and so many voters have no understanding of economics, the lower wage earners were able to vote to take money away from the higher wage earners.
But… they'll get hit just the same.
I was having this discussion a few weeks ago with the gentleman who pays me $4,300 per month to rent my old house. His kids attend public school – the cost of which is paid for through property taxes. Since I own the property he lives in, I pay the taxes. So he believed he could vote to raise taxes to improve the schools and it wouldn't cost him a dime – since he doesn't pay the taxes.
I had to explain to him that the amount I charge for rent is based on my ability to earn a profit on my investment (the home). That means I have to charge him enough to pay all the taxes and insurance on the property and generate a higher income than I could receive on an alternative investment.
If my property tax payment goes up, I would have to increase his rent by a similar amount. So while he doesn't pay the property taxes directly, his vote to increase my taxes would be a vote to increase his rent.
He was shocked… SHOCKED… that I would be so greedy as to force him to shoulder the burden of the increased cost of my investment. I explained to him the alternative if I was unable to earn a fair return on investment was to sell the house and move my money elsewhere – which would leave him and his family without a home.
Again, he expressed shock at my greed.
Funny, though… he didn't seem to mind it so much when he thought he was voting to take my money to spend on his daughters' education.
This is an educated man who is an executive at a large corporation… Yet he has no understanding of the basic laws of economics.
Is there any wonder we are in the mess we're in?
Prop 30 imposes an extra income tax, so it gets around the property tax issue. But the economic argument is the same. By imposing extra taxes on the "rich," the rich then need to raise prices in their businesses to make up for it… or else take measures to avoid the tax completely. That means everyone pays.
Best regards and good trading,
Jeff Clark
The article missed one point, the guy renting the $4,300 house gets in line with his son every school day for the Free Lunch program.
Wow, that 70% effective top income tax rate during the 1950s must have killed the economy back then.
I have a friend that is fairly wealthy and has been sitting on some major cash for a few years. He was hoping a Romney presidency could unleash that cash by changing many of the anti-business laws, rules, and regulations. With Obama getting the seat and the Republicans already caving, the writing is no longer on the wall for him, it is written in stone: We are doomed. So, he is taking that cash and putting it someplace safer. He has control over $1.9 billion in cash. None of the owners of that equity fund desire to spend it through business investment. As one investor put it this past weekend, “Are you kidding? Not less than 8% of it is taken in taxes EACH YEAR! No way am I going to invest in a three year business venture just to see 24% of it gone right off the top. And God only knows what capital gains taxes are coming. They are due to reset but no doubt those taxes will be increased past my personal income tax rate. Let’s not forget the hostility towards innovation and achievement with regulations that will probably outlaw what we are trying to do here. Forget it. I would rather hold onto my money than risk putting it out there. There are safer holdings that guarantee a better return even if they are near zero.” It was a recorded conversation for legal purposes and that is the exact quote.
Obviously this landlord doesn’t live in San Francisco where rent control prevents him from passing on some or all of that tax increase. Selling the property could help, but the rent control laws protect some tenants in that situation anyway. It’s so bad that IF landlords get low-rent paying tenants out, either by bribe or by moving in a “family member”, the units stay empty because landlords are giving up on being landlords. They estimate that 20,000 units are vacant in SF because of this situation.
Also, about that $250,000 limit. It won’t be long before the CA government employee union rank and file are hit by this. It is possible that right now, a married couple consisting of a teacher and firefighter with ten years’ experience will be affected by this rate, but unions have always tried to structure pay so that benefits hide the reality of what the pay really is, since benefits are not considered taxable income. Time to include them, I say and put everyone on the same footing.
A guy who pays $4,300 a month in rent, thinks he’s not rich??
I may go back after I quit working, I sure wouldn’t want to try it as a productive citizen or when I still have kids in the house.
Heh, heh... $100,000 will buy you a boat... not a yacht.
Rush just said on his radio show that approx. 37% of Californians are actually working (employed or self-employed), and of those only approx. half pay income taxes. So about 18% of the population of California is paying taxes to support the system.
” Wow, that 70% effective top income tax rate during the 1950s must have killed the economy back then.”
Back then, you could deduct almost everything down to the suit on your back(uniform expense)
He should be more direct about it. Just put an automatic rent increase in the lease agreement. If property taxes go up by X%, your rent goes up by X%. Very simple.
http://www.ntu.org/tax-basics/who-pays-income-taxes.html
or
http://taxfoundation.org/article/new-data-top-1-pay-greater-dollar-amount-income-taxes-federal-government-bottom-90
If they still won't believe you, tell 'em I said they are stupid and shouldn't have the right to vote.
Those are two theories, not one. Neither one is my pet theory...google them and learn something. You can cite examples of and make a case for each. The federal tax on gasoline makes sense because it’s used to fund the federal highway system...a pure Benefit Received tax. Funding legitimate Federal spending for the policing of property rights (e.g., a standing military, a legal system) and social overhead capital (e.g., public buildings) fits the Ability to Pay principle of taxation. They are not my criteria, they are the criteria established long ago and subscribed to by people who still have a few neurons firing.
Start the conversation by asking what percentage of taxes the top 10% should pay. I usually have people say something like "they should pay at least half of all the taxes". Then show them the actual figures.
This usually leads to a fair amount of sputtering on their part.
It amazes me that people are so stupid. Who do they think passed the tax code in the first place? Congress created the code that is so complex, I doubt anyone full understands it. How about everyone pays 17% (Friedman's number)...no exemptions, no minimum income exclusions. That way, everyone has something in the game. As it is now, 51% have a say in Federal elections even though they don't pay for it. To me, they shouldn't get to vote.
Exactly...see my later post...
My point is they want to believe the lies. It’s the basis of the whole appeal of liberalism and Obama. Would a normal person look a politician like Obama’s people look at him? It’s not sane. We’re not dealing with rational people here. It’s not that they’re all individually insane, it’s that they have this belief that all their problems are caused by something or someone else. They can’t be made to look in the mirror and see the source of all their problems. Appealing to their rational sense will do no good, because they have no rational sense to appeal to. Talking to a brick wall is the analogy I will use.
Something similar was done here in VT. The libs and of course the teachers union wanted the "Gold Towns" (their term) to pay to educate the kids in the poorer "receiving towns". There were just a few towns that were gold towns so it was supported. Of course now most towns are gold towns and spending has skyrocketed.
Here is the result, from wikipedia:
According to one study, enrollment in kindergarten through 12th grade has declined by nearly 10 percent during the 1990s. During the same period total staff numbers have increased by more than 20 percent. Per pupil spending grew from $6,073 in 1990 to $13,664 in 2006.[19] A study by the Census Bureau lists Vermont with the fourth highest expenditure per pupil in the country at $11,835 for 2005.[20] There are several ways to compute per student spending. An alternate computation gives $15,575 per pupil in the 2008-9 school year, third highest in the country.[21] The average effective spending per pupil in Vermont was $11,548 in 2008.[22]
That’s true, so what was the effective top tax rate back then?
There are alot of ‘old houses’ in Calif & many of them are sprawling, beautiful, and in very good condition.
Depending on where this house is, the rent of $4300 a month isn’t out of line.
I sold my 1250 sq ft house- a tract house built in 1953- on a lot 52 x 125 in 1995 for $125,000. Nothing special.
The last time I heard it changed hands again was about 4 years ago-—it went for $510,000.....and it was over 50 years old. I took good care of it, but I don’t know what kind of condition it was in when it went for over 1/2 million. Brand new, this house was $12,800.
To get a decent return on your investment, the rent would have to be over $5000 on that tract house.
BTW- 12 adults moved into that 3 bedroom house at the $510,000 price-—all of them negro.
They lost the house in less than 3 years....12 adults couldn’t earn the money to pay the mortgage!!!
When I lived in it, from 1966 to 1995, I paid the mortgage by myself.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.