Thursday, May 04, 2006


That's the sound at the IRS who's seeing record revenues from the taxes dollars rolling in. I've included a full copy of a piece in today's Wall Street Journal at the bottom of this post. It's an example of how the trickle down effect works with certain tax incentives. While I think any tax structure keeps more dollars in the individuals (and not the governments) hands stimulates the economy, one in particular is proven by the SEC revenues illustrated in the WSJ piece.

The capital gains tax tends to keep those who hold stock doing just that, hold. Being in the startup world, and sitting in its Mecca, its more than just anecdotal that huge numbers of shares are not sold because they're in the short term capital gains tier. So you sit on them until you're into the long term capital gain tax rate...and even then you might just sit. Why does this matter so much. Because, when I sell those shares guess what I do? I buy a car, or a house, or I buy different stock, or invest in a CD, or a startup, all cases that stimulates the economy. When I turn a stock cert into cash no matter what I do with it the money goes into a system where it helps all economic levels...from CEO to the mailroom guy, from the car dealership owner to the car dealership car wash dude, and so on.

"capital gains receipts from 2002-04 have climbed by 79% after the reduction in the tax rate from 20% to 15%." That's huge!

The other interesting statistic here is that 3% of us pay almost the same in taxes as the other 97% in combined! The good news is the number of us in the 3% grew by 19%+ . And while many liberals (and many border on being socialists) claim the rich don't pay their fair share, enjoy tax benefits the poor don't, blah, is interesting that "The richest income group pays a larger share of the tax burden than at anytime in the last 30 years with the exception of the late 1990s -- right before the artificially inflated high tech bubble burst."

So I have an interesting question. Maybe those of use in the 3%, who pay the lions share of the tax in this country, should get more say on how that money is spent. 100% of the those who can vote can vote people into office who will decide to tax the hell out of me and have those in the lower 97% pay almost nothing. Seems only fair if I'm going to pay so much more than someone else my input on how we spend should count more.

Seems unfair otherwise doesn't it? Do I really use more of the public schools than someone else?Do I use more of the military than someone else? In fact, shit...I create jobs and help keep more people away from public assistance of all types....none of my tax dollars should go towards welfare or other hand out programs!

Ok, this is partially in jest....but lets face it...the guy who makes $100k who has some deductions but nothing fancy pays $20k in federal income tax. Then there's the guy who makes $1M and can take advantage of more complex deductions so say their rate is only 15% (which would be unusual, not many who make $1M would be that low) so he pays $150k. If you make $45k a year you probably think F both this guy who makes $100k and $1M....they're rich. But you see, the reason the guy who makes $45k even has a job is because of both of them.

All of us have the opportunity to be in the top 3% or in the $1M+ a year camp...nobody but you blocks you from that. We wouldn't have 97 jobs if we didn't have 3 in this $200k and up income level. If we had 100% parity in our economic system we would have communism...and of course everyone contributes equally so that would work just fine!

Supply SideHow to Soak the Rich (the George Bush Way)
By STEPHEN MOOREMay 4, 2006; Page A14

With the House and Senate preparing to vote on extending George W. Bush's investment tax cuts, it's no surprise the cries against "tax giveaways to the rich" grow increasingly shrill. Just yesterday Senate Minority Leader Harry Reid charged that the Bush tax plan "offers next to nothing to average Americans while giving away the store to multi-millionaires" and then fumed that it will "do much more for ExxonMobil board members than it will do for ExxonMobil customers."

Oh really. New IRS data released last month tell a very different story: In the aftermath of the Bush investment tax cuts, the federal income tax burden has substantially shifted onto the backs of the wealthy. Between 2002 and 2004, tax payments by those with adjusted gross incomes (AGI) of more than $200,000 a year, which is roughly 3% of taxpayers, increased by 19.4% -- more than double the 9.3% increase for all other taxpayers.

Between 2001 and 2004 (the most recent data), the percentage of federal income taxes paid by those with $200,000 incomes and above has risen to 46.6% from 40.5%. In other words, out of every 100 Americans, the wealthiest three are now paying close to the same amount in taxes as the other 97 combined. The richest income group pays a larger share of the tax burden than at anytime in the last 30 years with the exception of the late 1990s -- right before the artificially inflated high tech bubble burst.

Millionaires paid more, too. The tax share paid by Americans with an income above $1 million a year rose to 17.8% in 2003 from 16.9% in 2002, the year before the capital gains and dividend tax cuts.

The most astounding result from the IRS data is the deluge of revenues from the very taxes that were cut in 2003: capital gains and dividends. As shown in the nearby chart, capital gains receipts from 2002-04 have climbed by 79% after the reduction in the tax rate from 20% to 15%. Dividend tax receipts are up 35% from 2002 to 2004, even though the taxable rate fell from 39.6% to 15%. This is as clear evidence of a Laffer Curve effect as one will find: Lower rates produced increased revenues.

What explains this surge in tax revenues, especially at the high end of the income scale? The main factor at play here is the robust economic expansion, which has led to real income gains for most tax filers. Higher incomes mean higher tax payments. Between 2001 and 2004, the percentage of Americans with an income of more than $200,000 rose from 12.0% to 14.2%. The percentage of Americans earning more than $50,000 a year rose from 40.8% to 44.2% -- and that's just in two years. While these statistics are not inflation-adjusted by the IRS, price rises were relatively modest during these years, so adjusting wouldn't alter much.

We can already hear the left objecting that the rich are paying more taxes simply because they have hoarded all the income gains, while the middle class and poor wallow in economic quicksand. But, again, the IRS data tell a more upbeat story of widespread financial gains for American families. The slice of the total income pie captured by the richest 1%, 5% and 10% of Americans is lower today than in the last years of the Clinton administration.

So how can the media contort these statistics to conclude that the Bush tax cuts only benefited the affluent? The New York Times claims that the richest 0.1% got 5,000 times the tax benefit than those with less than $50,000 of income. That figure can only be true if one assumes that there were no economic benefits from the tax cuts whatsoever; and that lower taxes on income, capital gains and dividends resulted in no changes in the real economy -- not the value of stocks, not business spending, not employment, not capital flows into the U.S., not corporate dividend payments, not venture capital funding -- nothing. The underlying assumption of this static analysis is that tax cuts don't work and that incentives don't matter.

Of course, in the real world, financial incentives through tax policy changes matter a great deal in altering economic behavior. And we now have the evidence to confirm that the latest round of tax cuts worked -- five million new jobs, a 25% increase in business spending, 4% real economic growth for three years and a $4 trillion gain in net wealth. So now the very class-warfare groups who, three years ago, swore that the tax cuts would tank the economy rather than revive it, pretend that this robust expansion would have happened without the investment tax cuts. Many Democrats on Capitol Hill recite this fairy tale over and over.

One final footnote to this story: Just last week, the Department of the Treasury released its tax receipt data for March 2006. Tax collections for the past 12 months have exploded by 14.4%. We are now on course for a two-year increase in tax revenues of at least $500 billion, the largest two-year increase in tax revenue collections after adjusting for inflation ever recorded. So why are the leftists complaining so much? George Bush's tax rate cuts have been among the most successful policies to soak the rich in American history.

Mr. Moore is a member of The Wall Street Journal's editorial board.

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