Taxes and Fairness

Most of us avoid pestilence, and some postpone death, but all of us pay taxes.

Some pre-Tea Party types stubbornly perpetuate the myth that income taxes are unconstitutional, notwithstanding that the feudal kings in Europe routinely seized a share of crops and livestock for centuries before anyone invented ANY constitutions.

While no one is an ardent fan of taxes, except Nancy Pelosi and Joe Biden, taxes are in fact necessary.

But I say this: taxes ought to be fair. Fairness, however, is a concept more subject to twisting and torture than a Gumby in a microwave. (Warning:  Kids, don’t actually put your Gumby in a microwave. The result could be ugly, in fact, uglier than Henry Waxman attempting to smile. Maybe.)

Here’s a fairness poll.

Families which earn less than a certain amount get a child tax credit, so instead of paying income tax, they get money from we taxpayers for raising children they cannot afford to support. Is that fair?

Thanks to the bright idea of a payroll tax cut, workers making perfectly good wages pay less money into Social Security during a time of intolerable stress on the Social Security “trust” fund. Which said “trust” fund is largely mythological, as it’s really a bookkeeping entry in the Congressional debt ledger. Congress simply borrows all of that money we pay into Social Security and blows it on whatever, while promising to pay it back, some day. But meanwhile, why are we letting wage earners escape paying into a bankrupt fund? (Gee, if you ask the question that way, maybe we should let them escape this burden.)

Let’s talk about capital gains, a subjective quagmire.

Democratic politicians tend to think they represent workers who pay 15- or 20- or 28 percent of their wages in taxes, less some significant deductions. In fact, those workers don’t pay anywhere near that much. Republican politicians tend to think they represent high-wage, high-salary employees and independent businessmen, together with a bunch of people who make most of their money from investments, not labor. Categorizing taxpayers and voters is not actually that simple, but we can work with these assumptions.

Nancy Pelosi is the sort of person who could get inflamed that investors’ dividends get taxed at 15 percent while her union constituents get taxed at a higher rate, except they probably don’t because of child tax credits and huge deductions.

Railing against demands to raise the capital gains tax rate, Republicans indignantly point out that the money which was used to make the investment was earned as wages and was taxed at high rates when it was earned; the capital gains tax is a punitive second bite at the plump apple. Others point out that a tax on the sale of a business can be a disincentive to selling a business to an entrepreneur who may create new jobs.

I bought a distressed house and put hundreds of hours into fixing and improving it, only to pay capital gains tax on the difference between what I paid for the house and what I sold it for. I was unable to deduct or claim anything for my labor. Was that fair?

I bought a ranch and leased it to a fellow to run cattle on it. I bought fence posts, wire, railroad ties, heavy timbers, water tanks and other expensive supplies. I bought a tractor, a truck, a big flatbed trailer and other equipment. Although I spent several weeks each year building fence, repairing reservoirs, cleaning and repairing buildings, grading roads and repairing irrigation systems, I could not deduct any of the labor or expenses against my income because of the IRS passive loss rules. Was that fair?

When I started my own business I was quickly astonished by the number of checks I had to write to state and federal agencies each month. My tax burden routinely exceeds the cost of rent and utilities. My business writes several monthly tax checks, two quarterly tax checks and one or two annual tax checks. On top of that I pay quarterly income taxes and catch things up every April 15. And I don’t even live in Sweden.

People who earn wages or salaries suffer a monthly deduction for taxes but they don’t see how much their employers pay to local, state and federal government for the privilege of doing business in this country. I wish that they did.

The Democratic idea of increasing capital gains taxes so that rich people pay as much, theoretically, percentage-wise, as working people, gets a lot of press and makes little sense.

Here’s a plan: don’t discourage business sales with a punitive tax rate; keep the capital gains tax rate on actual sales of businesses at 15 percent. Tax dividends and stock sale profits at 20 percent. Flatten the income tax rate on all other sources of income at 20 percent, with a standard deduction for living expenses. Repeal all tax credits: child care, child raising, electric cars, exotic energy, Solyndra, etc. You can make arguments for individual tax credit programs but in the interest of debt reduction, let’s just jettison them all. Families still get huge deductions before the tax rate kicks in.

And let’s put that flattened 20 percent tax on sales of marijuana. Creeping legalization of marijuana use has eviscerated the ban while insane drug gangs massacre people on both sides of the border. Let’s just legalize it for anyone over age 18 and tax it. Hey, people who want to repeal  the intangible tax deduction for oil well drilling, jump on the marijuana tax bandwagon instead.

We tax alcohol and tobacco at high rates, why not Viagra and Cialis? Just think of it this way: if you are too old to pay taxes on marijuana and tobacco, you can get your chance with ED drugs. What about pimps and prostitutes? Why should they be exempt from taxes?

Yes this column has gotten random, but any search for tax policy “fairness” is doomed to the same fate.

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