TAX THE MILLIONAIRES & BILLIONAIRES

 

TAX THE MILLIONAIRES & BILLIONAIRES

 

Bob Fahnestock

 

This seems to be the constant and incessant rally cry of the administration regarding the deficit and the national debt. Unfortunately it indicates either complete ignorance of the subject or deliberate deception. The amount of taxable income of an individual has nothing to do with whether or not they are a millionaire/billionaire. Millionaires and billionaires are determined by something called the fair value of net assets. This is measured by taking the fair value of everything they own (assets) and subtracting all of their debts (liabilities). If that amount equals or exceeds one million dollars, then they are considered a millionaire. It has nothing to do with how much income they earn. One can be a millionaire and have zero income and one can earn one million dollars a year or more and have negative net assets. For instance, I can own land valued at one million, have no debts, live with my parents, and have zero income. Or I could have paid one million for a house that has a $750K mortgage and a fair value in the current depressed market of only $500K. In this case my net assets are negative regardless of how much I earn. Voters would be surprised at the number of ordinary Americans who worked at the same job most of their life, saved their money, paid their bills, and are now millionaires—and living on $40,000 to $60,000 per year of retirement income. Many will need all of these assets just to cover their medical costs in old age. Politicians do not seem to realize that changes in the income tax law create a dynamic environment. When taxes are increased, taxpayers find a way to legally pay less tax, or worse yet, find ways to earn income off the books. The result is that the government collects less total tax revenue and not more. An alternative available to the very wealthy is the ability to take advantage of the tax law to reduce their taxable income. When the founder of the Dodge Motor Corporation retired his widow sold the company to Chrysler Corporation. The deal was structured such that she was paid in municipal bonds. Yes, the gain on the sale of the company was taxable but she lived the remainder of her life on nontaxable municipal bond interest income. In the case of a high income earning businessman or physician, they simply work less and earn less. Despite the current rhetoric concerning taxing those earning over $250K this group of taxpayers are largely small business people. Small business employs the overwhelming majority of Americans. I have seen numerous tax returns for small business owners where the tax liability (amount owed the government) exceeded $250,000. These are certainly not people we would consider billionaires. Taxing people in the highest income categories only serves to reduce the number of people they hire, increasing unemployment, generating less tax revenue to the government. So why deliberately mislead the populous?

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