VIEWPOINT: America's tax system is rigged for the wealthy

December 11, 2010

By RICHARD CLARK

PANAMA CITY BEACH

When I am through with this letter I think you will believe what Obama does, but not quite the way you thought.

As you know, we have been hearing a constant diatribe on the left about tax cuts for the wealthy. I would like to clear up a few persistent misconceptions about this issue that the left-wing media have been disseminating. It is my sincere hope that this will get out to the public so it can truly understand what is happening. I promise to be as succinct as possible.

1) Elites have been shifting the tax burden onto the middle class. This will occur no matter what the Congress does with marginal tax rates. The fundamental reason for this is that the well-heeled derive a large portion of their income as unearned income.  In other words, their income comes in the form of long-term capital gains and dividends, which right now is taxed at the 15 percent rate versus the top rate of 35 percent.

On top of that, no SSI is paid.  Whereas the middle class derives most of its income as earned and is therefore taxed at that rate of 35 percent. So if they raise the marginal tax rates on those who make $250,000 or above they are not taxing millionaires and billionaires as they keep repeating but just shifting more and more of the tax burden onto the middle class who derive their income from salaries and small businesses.

The rich get richer and the middle class gets poorer and smaller. President Obama and the Democrats are outright lying to people and they think we are too stupid to get it.

If they were truly going after the rich they would raise the long-term capital gains taxes on income derived from unearned income above $250,000 to the marginal rate and close the rest of the myriad of loopholes available to the wealthy. Make them pay the SSI tax on that income as well. This leads me to my second point as to why a bailout of California, New York and Illinois is going to happen.

2) Tax-free municipal bonds are favorite investment vehicles of the wealthy. They have a lot invested in these states and municipalities as these investments generate a lot of income for them with zero tax risk. If these municipalities go bankrupt then the bond holders would have to take a haircut.

Since we know that the system is rigged for the uber-wealthy (remember TARP?) it is no surprise that we are hearing the media report on the risk of default. That perceived risk drives up the interest rates on these bonds, which makes them better investments for the wealthy and the union pensions who know that the feds will never allow default.

While the average retail investor gets driven away by fear, higher interest rates mean more income at the zero rates. This is due to the bond price being driven down and the yield being driven up. This makes them great deals and a very big inflation hedge. You watch as the Warren Buffets of the world start to heavily invest in the municipal bond market.

3) Which brings me to my final point: the "death tax." This is by far the most egregious of all the taxes in my humble opinion. It takes family businesses away from heirs. There is only one way to offset the effect of these taxes, and it is life insurance — or as I like to call it, protection money for the wealthy.

The proceeds from life insurance are not taxable, so the wealthy who can afford the large premiums buy this to offset inheritance taxes and basically come out of probate unscathed while the middle class gets raped by the feds. Guess who is lobbying for the return of the death tax and owns (I believe) six companies that sell it? That’s right, Warren Buffet, that paragon of virtue lionized by the mainstream media.

So in this current tax deal the notion that the death tax exemption for those over $5 million is gone is nonsense. People with that kind of money will be buying life insurance to offset the tax hit. This is just so the public gets used to the idea of a death tax when they institute it for good.

The system is rigged for the wealthy and both sides of the aisle know it. Let everyone pay their fair share. It is simple. Making money requires time. If you are taxing people you are taking their time. We should base the tax system on time, not income. Twenty-five percent of our time from everyone seems about right regardless of income. Everyone participates, no exceptions.