Citizen's Rent 2005: Tax Reform III: Funding Tax Cuts for the Rich with New Taxes on the Poor

I'm getting angry, really angry.

On what planet does it pass muster to "reform" the tax code so that the working and middle class have an increased tax burden and decreased health coverage while the wealthy get more deductions and more tax breaks. Here are the ideas on the table, complements of the Bush administration and his fawning corporate and wealthy supporters:

Those ideas include repealing the alternative minimum tax, establishing generous new savings accounts that would effectively end investment taxation for almost all Americans, simplifying tax rates and allowing most business investment to be fully deductible. Those changes would be paid for by ending the deductibility of state and local taxes and taxing health insurance and Social Security benefits as income. (WaPo)

Let's take these one by one. And I'll caveat this by saying I'm not an expert, I don't have anything to recommend my analysis except to say that I'm a reasonably well informed person. As an entrepreneur, I've taken investment money from wealthy individuals while I've struggled to provide benefits for my employees. I have some investments of my own. I have family that spans the gamut, from wealthy to middle class to working poor. My take is based on being an informed citizen and my personal experience with taxes, investments, business and retirement. The details might require a degree in economics but at a high level it all seems quite transparent.

Alternative Minimum Tax: I'm no expert in this. All I know is that some folks who have received stock grants have had to pay taxes on their value when they aren't able to sell those stocks to get the liquidity they need to pay the taxes. I'm sure it's oh so much more complicated than this. But can't we just fix it so that people are paying taxes on real income and not paper value that can disappear on a bad market day?

Ending investment taxation for almost all Americans: Proponents of this like to trumpet the fact that a huge percentage of US citizens have some investments. But the truth is that most of those investments are in retirement funds that are not taxed today. Perhaps this plank of tax reform will increase the ceiling on how much can be invested in those tax free accounts, but how many people are maxing that out now? The real desire here is to end dividend taxes, which are primarily paid to the wealthy. It's being proposed under the guise of a tax break for all Americans and that's semantic bullshit.

Simplifying tax rates: Sure, we'll suddenly find all those loopholes for the wealthy closed. Didn't we hear Bush mention those? Oh, that's right. He mentioned them when he argued against Kerry's plans to repeal tax cuts on the wealthy to provide health coverage to uninsured children. Remember? Bush said that the middle class would end up paying for the new program since the wealthy could hire experts to figure out how to avoid paying taxes. I don't remember him saying anything, though, about closing the loopholes those experts used. You can expect this call to simplify tax rates to be a way of reducing taxes on the wealthy and eliminating deductions for the middle class. It's a sure bet.

Allowing business investment to be fully deductible: Okay. So if some wealthy guy puts a couple of million dollars in a dot com venture and loses it, it's no big deal. It's deductible. He didn't really lose anything. This eliminates the risk on the part of the investor. As an entrepreneur, it's to my benefit. It will make it easier for me to raise money from angel investors since their risk largely goes away. They don't risk losing the millions they give me. They just risk the return they would have received if they'd invested the money elsewhere. Not a bad deal. And the quality of my business plan, my product, my management team is less relevant since the risk is minimized. Business investments are a speculative business based on a high risk/high reward ratio. This turns that on its head and makes it low risk/high reward. Screw that. We need the discipline that risk creates. Or did everyone want to return to the days of the Internet bubble when profits didn't matter and it was all about buzz?

Ending the deductibility of state and local income taxes: I addressed this at length in an earlier post. Suffice it to say that this means your federal taxes go up and the cost of local government services also goes up. Bully for us. We get to pay more.

Taxing health insurance benefits as income: Well, this is an interesting alternative to the earlier idea of ending the business deduction on health benefits, which I addressed here. And isn't this so much better. Has anybody actually stopped to figure out how many people won't be able to pay this new tax? That's what it is you know, a new tax. You think the person making $10/hour with kids to take care of can manage to increase their tax burden by hundreds of dollars? Hell, most of us would take a real hit.

Taxing Social Security Benefits: WHAT? We're going to eliminate the tax on investment income but tax social security? That's a nice way to recommend privatization of social security. Private accounts wouldn't be taxed but social security payments would. On the other hand, I'm sure all those folks who are barely surviving on the meager income they receive under social security are more than capable of suddenly paying a NEW TAX. On the elderly! Geez, they just got hit with a 17% increase in Medicare premiums. They already can't afford prescription meds. Now we're going to hit them with a new retirement tax. Again, I just can't believe that this is being proposed. It's ludicrous on its face and yet why do I think it's actually going to get serious consideration? What crisis can justify taxing the elderly poor? God, this is ridiculous.

This whole thing is total bullshit - we already have a huge deficit because we've reduced the tax burden of the wealthy. Now we're going to pay for that by increasing the tax burden on the lower and middle class? In what world does this make sense? How can we allow it to happen? This penalizes the vast majority of Americans. Why in the world would we allow it to happen? Just so we can transfer social security savings to private accounts? I'm close to despair.

I don't know how to fight this. I don't know why serious people aren't walking out, why they aren't agog at the audacity of those proposing additional tax cuts for the wealthy and new taxes on everyone else. Where are the champions of the poor? Where are the defenders of the middle class? Where is our voice? Who speaks for those of us who don't have the cash on hand to buy access and tax breaks? We desperately need real leadership here. We need people who can rally us, who can fight this, who can help the public understand the price they are going to pay if Bush succeeds. I don't know who will step up, but someone better.