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January 30, 2012

It’s that time again.. Ahhh, W2’s flocking to emails and mailboxes everywhere! My new friend Randy asked me just yesterday, “Spend it or save it?” Randy, like 2 chainz says “It’s mine, I spend it!” That is your earned money and you owe it to your fellow people to stimulate the economy as best you can, when you can.

Now on a side note, I caught maybe the last 10 minutes of the President’s SOTU speech.  One of the things he mentioned was raising taxes for those who make over $1 million dollars.  One friend of mine became outraged by this gesture and said you shouldn’t be punished for hard work.  I agree.

Except I cannot think of a job that pays $1 million on the books.  President? $250,000. CEO of Allstate? $520,000. And so on and so on. In the case of CEO’s, they are compensated through ESOs (employee stock options) and those are considered to be “tax advantaged.” But even if they did, with all the tax credits/profitable donations available, these folks could drop their taxable income into a more viable bracket without batting an eye.

Take Mitt Romney and his 13% tax rate on $21.7 million earned in 2010. We can assume most of his money was made from invested personal wealth. And as a result, the realized capital gains are taxed at the 15% rate. The main driver behind this is that his original earnings have already been taxed at a higher rate, which is why capital gains are taxed this way. Maybe in this case, that is fair. We shouldn’t be attacking Mitt and questioning his tax rates.

But what about those who make capital gains off leverage? You know, money that is not theirs. Why should they invest somebody elses money, earn a cut of it and still qualify to be taxed at the 15% rate? That is the real problem here. Why not have 2 brackets in this instance? 15% for those realizing capital gains on personal investments and 25-30% for those realizing capital gains off leverage? But then again, you can qualitatively figure in the risk from investing off leverage and argue that that is why they deserve the 15% tax rate; the associated risk.

The reality is that the number of folks who would be affected by an increase in taxes (for those in excess in $1 million) is minimal. In fact, it is 0.3%. That is one three out of every 1000 Americans. Raising taxes for the rich may not be the answer, but it shouldn’t be blasted for being considered. I think we can all agree tax reform is neccesary, we just can’t agree on how to affectively do so.

OFFBEAT: Bruce, is that you?



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One Comment
  1. Darrecia permalink

    I agree almost 100% with this one Matt (all the invested tax stuff threw me off though). Keep it up!

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