The New Tax Scam

If America's politicians and those who report on them are to be believed, December 2010, in addition to being the last month to kill your ancestors so that you can get a tax-free inheritance [not too quick, John, this applies only to those with ancestors worth over $3 million], is when President Barack "Hawaii" Obama, the corporate controlled U.S. Senate and the corporate controlled House of Representatives must renew the George W. Bush Memorial Tax Cuts.

You probably don't recall that under President Dwight David Eisenhower the top margin income tax rate for the richest Americans was near 90%. Starting with President John if-I-just-live-until-pop-dies-I'll-be-a-billionaire Kennedy, the top tax rates have been lowered at regular intervals.

Also keep in mind that most rich people are not like you and me. If you consider a $1 million per year lawyer rich, you don't get around much. He's just a highly-paid working stiff, a member of the middle class. No, a rich person gets most of their increase in wealth through investments. They own things. That means their income-like substance is actually classified as interest, dividends, or capital gains. The best are capital gains, because you (or rather they) don't have to pay capitals gain tax until the gain is "realized." Allow me to illustrate.

You own Apple stock, a lot of Apple stock, and are known for yelling at employees and selling commodity products to consumers for designer product prices. Your stock was priced at $13.87 on, say December 31, 1990 and today it is worth $317.44 per share. You own 5.6 million shares. Your capital gains during the period is (317.44 - 13.87) x 5.6 million, or $1.7 billion.

How much federal tax has this particular rich person paid to the federal government on the $1.7 billion increase in wealth during this period, classified as capital gains? Nothing. Zero. I kid you not. No one pays taxes on capital gains until the asset that has increased in value is sold.

It's true, I know it's true, not just because every financial advisor can tell you this, because a few years ago I began building my own retirement fund, buying some stocks. I only report capital gains (or losses, in my case) when I sell a stock. The IRS would not have it any other way.
Multiply this by about 1 million people whose increased wealth mainly comes from capital gains, and you have a capitalist love fest.

And (this is a very big And) capital gains, if actually taken by sale of stock, are taxed at a special extra-low, friend of Congress and Presidents rate. As are dividends (sort of like interest on a savings account, but paid on stocks).

And no Social Security or Medicare tax is paid on capital gains, dividends, or inheritance.

So what are Obama, the Democrats, and the Republicans arguing about? Exactly how deep the feather beds of the richest Americans will be after January 1. Do not be deceived. Yes, the payroll taxes, including the Federal Income Tax, are important. But what the truly rich are really worried about are the capital gains tax, the tax on dividends, and the estate tax.

The second-tier rich people, the ones with actual incomes who pay income taxes, are of course pretty powerful as a class, and numerous compared to those whose main concern is capital gains tax rates. They care about the income tax rate on incomes over $250,000 per year. They contribute heavily to candidates for congress.

It sounds like Hawaii Obama is going to trade a tax cut extension for the rich in return for being allowed to extend Federal unemployment payments to the unemployed. The Republican Party voted trillions to bail out the likes of GE, Citibank and Goldman Sachs, but a few hundred dollars a week for a long-term unemployed person, why, that's socialism! It is un-Christian, the work of the devil.

Which leaves us with the astonishing federal deficit in place. Which means (and I know you knew this already) the Tea Party Republicans and the Regular Republicans were using the deficit as a phony political issue. They did not care about Bush era deficits that financed the Islamic Wars and the hyper-expansion of the police state (Homeland Security). They would like to throw poor people off unemployment and Medicaid and Social Security, but that is just a matter of principle. Deficits are fine as long as the federal dollars go to the military industrial complex and special projects to enrich government contractors for civilian projects.

Here's what is going to happen: the rich will get what they want. Having a Democratic Party majority in the Senate and the first Hawaiian President in American history are not going to prevent that.

And if history is any indicator, the American worker is just going to take it on the chin. Because we have the weakest-spined workers in the world. American workers (and I include the unemployed) won't march, won't riot, won't even organize a union at their work place, much less register and vote Green Party or for a socialist party. They won't even try to make the Democratic Party work for them.