Mimsy Were the Borogoves

Editorials: Where I rant to the wall about politics. And sometimes the wall rants back.

The rich get richer because of big government

Jerry Stratton, April 17, 2010

Zach Carter writes on AlterNet about “10 Ways to Force the Stinking Rich to Share Their Wealth”. His tenth solution should be his first:

10. Simplify the Tax Code

In 2008, Goldman Sachs paid a total tax rate of just 1 percent. The bank did this despite being one of the largest and most profitable banks in the country. Under any reasonable tax system, the bank would have paid the full 35 percent tax rate for the largest corporations. But the bank didn't do that. It pays lots of tax lawyers very well to sift through the massive U.S. tax code and find loopholes that will benefit Goldman Sachs, at the expense of the United States.

The sheer complexity of the U.S. tax code encourages this kind of behavior. It allows corporations and rich individuals, to take the time to exploit the system for their own advantage, and makes explaining this exploitation very difficult. That's why stories about taxes are always so technical and boring (apologies). Overhauling the tax code and imposing a simple, progressive system would end a lot of abuse. But don't hold your breath. Congress has always had the power to reconfigure the tax code. Instead, it has spent decades inventing new loopholes.

If you wonder why the rich keep getting richer, look at the complexity of our tax laws and the complexity of business life in general. Of course the rich are getting richer. The government is taking control of more and more parts of our lives. As the government takes more control, it becomes more important to influence not just elected representatives but also unelected policymakers if you want to make any headway. The rich can do that.

As politicians put more barriers in place against starting your own business or retiring early or handling your own finances, it requires more money and more influence to pierce those barriers. The rich get richer, the poor stay where they are, and the middle class get poorer.

When you need to hire lawyers to know how to start a business, you don’t have the average person starting a business.1 When you need to pay quarterly taxes and fill out social security employment paperwork just because you made a few hundred dollars extra on a side business, you don’t have the average person doing anything that will make them a few hundred dollars on the side. Especially because you’re going to need a lawyer to navigate that paperwork.2

It’s been going on for years, but the latest congress has made things worse by a mile. Complying with the new health takeover laws alone will be a killer for some startups.

The rest of Carter’s article describes precisely why it is so hard to simplify our insane tax laws. He argues once in favor of simplification, and nine times in favor of punishing the “stinking rich” by adding more complexity. We absolutely need a simple system. But if we set out to punish the rich, we’ll keep piling exceptions and band-aids into the system to keep the rich from evading punitive laws. “We should pay one rate, but they should pay a higher rate” inevitably leads to a complex system. Everybody tries to make sure they’re in the “we” and not in the “they”. People with more money are most successful at it. People with more votes are somewhat successful. And everyone else tries very hard to avoid crossing the IRS.

Look at Carter’s proposed solutions. Despite his plea for a simple tax system at the end, his actual proposals are filled with vague, eye-of-the-beholder exceptions. From the title (stinking rich is not an IRS income category) to the pejoratives (it isn’t easy to define “kingpins”), to his inability to see anyone except poor and rich. “Poor people don’t buy stocks”. A tax on stock earnings targets “Wall Street”. If you own a mutual fund or anything else with stocks in it, you’re part of stinking rich Wall Street and need to be taxed more.

He has no real figures in his article. He doesn’t say we should raise taxes on people who make $100,000. He just says “the rich”. He doesn’t say we should raise taxes on people who have mutual funds. He uses the euphemism “Wall Street”. He doesn’t say we should tax the families of the dead who owned houses in California. He says we should tax “millionaires”. A lot people who don’t realize it are very close to “millionaires” by his definition, especially those who own houses in California. Hell, I’m halfway to being a millionaire and I own almost no property.

There aren’t enough rich to pay for the big government Carter wants. So he has to redefine rich to mean people like me. The adjectives (stinking) and euphemisms (Wall Street) mean nothing; he’s hoping we won’t realize who he really means.

  1. A few years ago, I made over $300 on Amazon referals. I got a letter from the IRS, why was I not filing social security paperwork? You don’t know how frightening a letter like that is until you receive it. The IRS is a paperwork hammer for keeping people from wanting to improve their situation.

  1. <- ACLU’s Texas textbooks
  2. Low taxes ->