Jeff  Carter

The short answer is sure they do. They have more income so they pay more taxes. Statistically, the upper income earners pay almost 100% of the taxes to the federal government. The tax debate is so skewed with misinformation that it’s hard to make sense.

When it’s hard to make sense, it’s easier to drive home fallacious points about income gap’s, a smaller middle class, salary and wage discrepancies and the rest of the class warfare arguments you see popping up all over the media and in virtually every left wing political comment or speech.

The Wall Street Journal brought some sense to the debate with a look at Republican candidate Mitt Romney’s taxes. Romney, like Warren Buffett and other wealthy individuals that live off investment income pays a tax rate close to 15%. But when you look at the reality behind that tax rate, it’s closer to 50%. Why?

Because they are paid via dividends and interest on bonds they own. The companies that they are invested in pay a corporate rate of 35%. Wealthy investors that live off investments are paid after all the costs of running the business and taxes are taken out of the cash flow. They get the remains. In many cases, companies choose to buyback stock instead of pay a dividend. When that happens they get even less, and there is no guarantee that the stock will go up because of the buyback.

Instead of looking at who pays what, wouldn’t it be better to change the tax policy to incent everyone to do better? The job creation in America since Obama began driving the car has been abysmal. He likes to say the car was in the ditch when he took over control of the wheel. But, he hasn’t even had the presence of mind to call a wrecker to get us out of that ditch and on the road again. Instead he has taken it deeper into the ditch.

What we need going forward is a tax plan that doesn’t pick and choose winners and losers like the archaic one today. Currently there are deductions for this, alternative minimum taxes, add ons for that. What we should do is have a flat rate for both companies and individuals. 15%, no write offs. For individuals, that would mean take your income, subtract out FICA taxes you pay, multiply the net number by 15% and send it in.

That would be a far bigger stimulus to the economy than any government spending.

Remember too, all the time, money and energy that is paid to accountants to figure all this tax stuff out could be re-allocated to different uses. The human capital that is used to decipher the tax code could also be used differently. A flat tax with no write offs would have huge effects on our society believe it or not. The tax code influences your behavior.


Jeff Carter

Jeffrey Carter is an independent speculator. He has been trading since 1988. His blog site, Points and Figures was named by Minyanville as one of The 20 Most Influential Blogs in Financial Media.
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