Forbes, Jan. 23, 2012
Should Wealth Creation Be Rewarded?
"Do we want to motivate people to create wealth or not?" is the
question posed by Dean Zarris in Forbes op-ed "Should Wealth Creation Be
Rewarded?" He contends:
"It’s the unspoken question, the elephant in the room, [photo from
Forbes] when President Obama attempts to whip up the populace with stories
of “billionaires paying lower tax rates than their secretaries†and other
class-warfare demagoguery."
Zarris believes, "that only investment actually raises the country’s
total standard of living, it’s just plain suicidal to erect barrier after
barrier to success. The rational thing to do is to make
investment and wealth creation as easy as possible, and just like dangling
the proverbial carrot in front of the horse, low tax rates on capital gains
need to be a big part of the plan."
The 2-4-8 Response:
The Wealthy Don't Need Welfare (a/k/a Incentives)
Wealth creation (as you describe it) is generally
rewarded by high income and subsequent individual wealth accumulation. Your
article suggests that Mitt Romney needs “low tax rates on capital gains†as
if the ability to keep 85% of his profits encouraged him to work harder and
better than he might have if he could have kept only 62% of his profits. In
fact, a higher tax rate might have encouraged him to maximize business
profits if he really needed to realize the same amount. The fallacy of the
position is in the mistaken assumption that the Romney’s and Buffet’s of
this world need any government incentive at all to excel at business. For
them it is a lifelong sport, and they will play hard without regard to how
much they are paid. They will insist on high rewards because they can. The
inevitable consequence of their spectacular gain is a bit less for workers
in the business. The welfare of the workers is not a major concern of the
business since it relies upon the government to care for any exceptional
needs of the workers that may come with layoffs or major illness; just as
the business relies upon the government to educate and supply low wage
workers.
Individual wealth accumulation by a few is no longer
necessary since the government has created extraordinary tax incentives in
the form of 401k’s and the like, to encourage the masses to save. The
collective retirement funds are growing and are more than a sufficient
source of capital to fund the risk takers of the future. The real problem is
that there is a great deal of capital and cheep money but few businesses are
poised to expand and put people back to work – at least in the United
States. The fat cats have learned to move money and jobs overseas for the
quick buck and that is the real “elephant in the roomâ€.
I believe that the 2-4-8 Tax Plan is the solution. It
consists of three taxes: a 2% tax on the Net Wealth of Individuals, a 4%
Retail Sales tax and an 8% Payroll/Business Income tax. The exact same rates
apply to the rich and poor. There are no different tax brackets, deductions
or credits, and no favoritism. The three taxes would yield about $2.6
trillion per year (slightly more than the current combination of Income,
Social Security, gasoline and other federal taxes and fees).
It is hard
to imagine anyone that wouldn’t welcome a 2% tax on net wealth and a small
4% sales tax, in exchange for drastically reduced 8% individual income tax
rate. The concurrent elimination of social security, capital gains and
estate taxes and a significant reduction of the corporate income tax rate to
8% should guarantee near universal support for the 2-4-8 Tax Plan from
liberals and conservatives alike.
Eugene Patrick Devany, JD, MPA
www.TaxNetWealth.com
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