The late comedian George Carlin once quipped:
The rich are there to make all the money and pay none of the taxes. The middle classes are there to do all the work and pay all the taxes. The poor are there to scare the daylights out of the middle class so they’ll keep working and paying the taxes.
Carlin knew whence he spoke. At the time of his death, his net worth was estimated at $300 million.
It seems to be a fact of life that the rich get richer and the poor get poorer. The ostensible desire to correct this imbalance is at the very heart of President Obama’s demand that the rich “pay their fair share.” This, he proposes to accomplish, by taxing income above $250,000 at a higher marginal tax rate. Currently, the top rate is 35 percent. Obama wants to raise it to 39.6 percent, the same as it was during the Clinton era.
But therein lies the rub. As a rich man himself, Obama has to understand that the wealthy are skilled at gaming the system. The Internal Revenue Code, the federal tax bible, is a thick tome with over 1.3 million words. Much of the language is unintelligible to the average shlub.
That is why the rich go out and hire high-priced tax attorneys, whose job is to sidestep financial landmines. If you raise their rates, they will find back doors and false walls in the tax code that will enable them to dodge the tax man.
These tricks are known popularly as loopholes. Some reside in a gray area that straddles the fence between legitimacy and illegality. Closing off these escape routes would raise revenues. Simply increasing the rate of taxation on the top 2 percent will not.
So why is the president fighting so hard against the Republican solution to the debt crisis—which is to close loopholes? The answer is that raising rates on the rich “feels” right, even if it will ultimately fail to generate the desired revenue. In a Friday editorial, Investors Business Daily put it this way:
Barack Obama has the rules of propaganda on his side here: The simple beats the complex, and social-justice symbolism packs an emotional punch that economics can’t match. But the reality is clear: You can jack up rates on the rich all you want, but that doesn’t mean you’ll get more tax revenue out of them.
IBD notes that historically changes in rates have had little impact on tax revenues, which are more directly affected by swings in the economy and the stock market. “Rates,” they rate, “are a political sideshow.”
But that is why this argument appeals to the president, who seems to enjoy political theater and posturing more than he does governing.
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well Howard…I must object. the “back doors and false walls in the tax code” in the individual realm are far and few between. the term “loophole” is being wrongly applied to entirely legitimate/intended tax breaks like home mortgage interest. Obama is undoubtedly getting hammered by his supporters on the 2 coasts where real estate values are high.
That is true (well, mostly true). There are also many legitimate deductions, and these are—as you write—the ones the GOP favors trimming or closing.
“the ones the GOP favors trimming or closing” (guess I need to study HTML)…
my guess is that is purely a power play…Obama and his supporters have been throwing out the term “loophole” for years to explain why the rich pay no taxes. The GOP has apparently adopted the definition as a means of saying “put up or shut up”.
returning the rates to where they is nothing but good….simultaneously trying to close some of the loopholes would be better.
please name a single “loophole” that can be eliminated (and don’t confuse it with legal deductions). my point is that the term “loophole” (which as its name implies refers to a “hole”, i.e. an unintended benefit) has been allowed to morph to include intended benefits. the bad connotation associated with “loopholes” remains. if you want to eliminate deductions, then say so.
sorry that I’m using terminology to which you object, teejk, and you’re quite correct that it’s imprecise.
didn’t mean to sound threatening fuster but I am a retired tax person and I have been trying to fight the “new” meaning of the term “loophole” for years (trust me…I know what it means and in the corporate environment I may or may not have found a few but even there they are largely “timing”…pay me now or pay me later).
In the individual tax world today, “loopholes” do not exist. We still have “valuation” issues (that pair of pants that no longer fit donated to a charity) or off-shore accounts where they escape US reporting requirements)…neither are “loopholes”…in the former case, the only real measure of value is a traded market or cash…in the latter case, off-shore (non-reported) is fraud.
there’s nothing for which you should apologize and I didn’t find your comment threatening at all.
and I was agreeing with you about the imprecision of the employment of the term…
http://www.investopedia.com/terms/l/loophole.asp#axzz2En2SKMfW
most of what is complained of as “loophole” is not