Fake Wealth and Income Statistics

Tendentious statistics are constantly put forth by various neo-Marxists trying to prove that American society is unjust and that confiscatory taxes should therefore be imposed on the wealthy. The advocates of a wealth tax don’t seem to be aware that we already have a 40% wealth tax imposed upon death -- the estate tax.

The neo-Marxists often contrast the maximum 37% tax on earned income with the maximum 24% (technically 23.8%) tax on long-term capital gains. But capital gains taxes are often a tax on inflation. For example, something that cost $1000 in 1999 would cost $1540 today, due to inflation. If you bought a stock for $1000 in 1999 and sold it for $2000 yesterday, you have a profit on paper of $1000 and would pay a $240 capital gains tax. But the true increase in value is $2000-1540 or $460 and the tax of 240 is a 52% tax rate on the real increase. If one is going to tax capital gains the tax should be indexed by inflation to be fair, but it isn’t.

The tax on dividends is the same as the tax on long-term capital gains, roughly 24%. But dividends are double taxed. Corporations have to pay a 21% tax on earnings and when those earnings are distributed as dividends to the stockholders, or owners, of the corporation, there is an additional 24% tax. The combination of the two amounts to a 38% tax, nearly the same rate as for earned income.

There are often statistics that the upper one tenth of one percent own more wealth than the bottom 25% of the country. These are just silly, because the lower 25% of households have negative net worth as calculated by the Federal Reserve. So, if you have one cent, you have more wealth than the combined wealth of 25% of the least wealthy households in the country. They may have negative net worth, but obviously they have good credit. People with negative net worth are often young persons, just starting out.

When income is calculated, the worth of valuable benefits provided to all members of society is not included. For example, police and fire protection, free medical, and free education. These benefits can easily reach $25,000 per year. Social security benefits are skewed to those of low income that get much more from their contributions than the wealthy. People with low incomes are excused from the taxes itemized above. The don’t pay taxes on capital gains or dividends. They pay very little on earned income. They are unlikely to pay estate taxes. They pay social security taxes, but that is a great bargain as they get back more than justified by a straight financial calculation.

The typical “poor” family as defined by the government has a car, air conditioning, two color televisions, cable or satellite TV, etc. How can this be, apart from poverty being a fake statistic? People may be poor one year and not in others, or a family may be supported by relatives.

The advocates of soaking the rich may protest that the wealthy don’t actually pay the full taxes due to loopholes. Quite true. But the “poor” also don’t pay all their taxes because they may work for cash in the underground economy. If the government wants to reduce taxes on the wealthy because they invest in solar power, that is a choice the government has made and it is not the fault of the wealthy in general.

The Fifth Amendment to the constitution says: “No person shall... be deprived of life, liberty, or property, without due process of law.” This may protect against arbitrary seizure of property, but it may not protect against confiscatory taxes. History makes is very clear that there is no freedom without private property. Communist countries, where the state owns most property as well as the means of production, are uniformly failures. Cuba and the former Soviet Union are clear examples. Without private property, the citizens are controlled by the bureaucracy that controls their livelihood. In Marxist states, the average citizen is reduced to being a serf dependent on privileged officials for his livelihood, his living quarters, and anything else he needs. To control the citizens, the government only has to threaten to remove one or more of these essentials. In these states, the government has a monopoly on education and does its best to ensure that future citizens don’t get rebellious ideas.

The Internal Revenue Service, the Veteran’s Administration, and the Medicare bureaucracy are examples of bureaucracies where the average “beneficiary” is helpless to dispute this fate at the hands of a massive and opaque bureaucracy. Not every bureaucracy is bad. For example, I’ve personally experienced the California Department of Motor Vehicles. It is populated by employees who work slow and could care less about the “clients.” On the other hand, I was highly impressed by the efficiency of the Illinois Department of Motor Vehicles, at least compared to California. As a rule, the bigger the bureaucracy, the worse it is likely to be. The U.S. Post Office has been terrible, although under the pressure of competition it has lately reformed.

The Soviet Union was well-known to be corrupt. For example, one had to bribe doctors in the “free” medical system in order to get care. The good side of this was that at least a path to medical care existed. In the U.S. under Medicare for All, bribery will probably be fairly well policed, so you will be out of luck if you are seriously sick.

It is quite annoying to hear billionaires like Bill Gates, Howard Schultz, or Warren Buffet try to be popular by advocating higher taxes on the wealthy. It was refreshing to hear Gates complain about Elizabeth Warren’s 6% per year wealth tax. Even lefty billionaires have a limit as to what they will tolerate.

Norman Rogers has websites: NevadaSolarScam.com, DumbEnergy.com and ClimateViews.com.

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