Taxing "The Rich"

That inflammatory title ought to be enough to get some juices flowing, eh?

Before the food fight starts, let us state that we are strong believers in everyone paying their fair share of the tax bill. As we think more and more about this topic, which is especially divisive now, two famous quotes come to mind:

The first (intended to lighten things up) is from Arthur Godfrey, who said

I'm proud to be paying taxes to the U.S. The only thing is - I could be just as proud for half the money.

and the second (intended to remind us to listen to both sides) from the Irish author St. John Ervine, who said

Every man....should periodically be compelled to listen to opinions which are infuriating to him. To hear nothing but what is pleasing to one is to make a pillow of the mind.

With that out of the way, let's talk about the so-called 'Bush Tax Cuts' and what to do about them.

The 'Bush Tax Cuts' is a colloquialism that refers to the Economic Growth and Tax Relief Reconciliation Act of 2001 (aka EGTRRA). This significant tax legislation made a number of changes to the US Tax Code, some of the most notable of which were across the board reductions in the tax rates for each bracket and a lower tax rate for "qualified" stock dividends and long-term capital gains.

However, in order to get the legislation passed in the Senate (look up the Byrd Rule if you want to know why), the provisions of EGTRRA were designed to "sunset" (revert to the world as it was in 2000) on January 1, 2011.

So here we are staring down 1/1/11 and knowing that if nothing is done, tax rates will go up for all taxpayers across the board. Given that the economy remains fragile, would that be a good idea?

We believe it is a bad idea. The studies we have seen (the serious stuff, not the arguments filled with hyperbole and partisanship) suggest the actual dollars involved will not have a meaningful effect in either direction - i.e. if the lower rates are extended for a few years or not. But our view is that the uncertainty of tax and fiscal policy that is plaguing our federal government right now is a major factor in the reduced levels of investment and consumption we are seeing.

Someone - preferably the President - needs to step forward and provide that leadership, articulate the vision and champion the cause.

Unfortunately, all we are getting in this election year is a bunch of polarizing rhetoric (on both sides). The risk in that is that nothing gets done and the economy continues to languish. The ranks of the unemployed remain bloated.

We deserve better.

So anyway, from our perspective extending the tax cuts for a couple of years makes tremendous sense. But it should be accompanied by more clarity with respect to how we chart a course out of the heavily-indebted, deficit-spending status in which we find ourselves.

For some perspective on the issue, we highly recommend a couple of articles from sources we respect - namely the Washington Post and the New York Times.

In the Post, you will find straight talk about the so-called 'Bush Tax Cuts' that cuts through the hype and demonization being spewed on both sides in this election year.

In the Times, you will find an opinion piece penned by contributing columnist Peter Orszag. The significance of this one is that Orszag was the 37th director of the White House Office of Management and Budget, just leaving office about six weeks ago. His views on extending the lower tax rates are in direct contrast with those of his former boss, President Obama.

Five Myths About the Bush Tax Cuts
William G. Gale
The Washington Post
August 1, 2010

One Nation, Two Deficits
Peter Orszag
New York Times
September 6, 2010