Soaking the Rich

Dow down 83 points yesterday. Gold down $25.

We’re waiting for a sell-off…either at the end of QE 2…or in anticipation of it. When will it come? We don’t know, but it won’t keep us waiting forever.

Meanwhile, we are seeing more and more rich-bashing in the press.

Most people hate the rich. And why shouldn’t they?

The rich are good at hogging the good things in life. That’s why they’re rich, after all.

They get the fancy digs. The fancy cars. The fancy girlfriends.

You see them enjoying life in business class seats, while you ache in economy. You see them pulling their Mercedes and Audis into their big garages, while you make do with a humble split-level on the wrong side of time. And their wives always look like they just came out of a beauty spa….

Their stocks are going up…while you can’t find a job!

The rich learn how to manipulate the system for their own benefit. That’s the way it always works. Money likes power. Power likes money. Usually, they find a way to work together.

The rich howl about how much in taxes they pay. They whine about ‘soak the rich’ proposals. They kvetch about ‘giveaways’ to the zombies. But, they are probably more in control than they appear.

Take Mark Zuckerberg for example. Please. Here’s a guy who says he would be “cool” if they raised his income taxes. In this refrain, he joins the sanctimonious choir headed by Warren Buffett, Ted Turner, and other do-gooders.

Well, guess what. You know why they don’t mind an increase in the income tax rate? It’s because

1) they are so rich that the marginal utility of money for them is close to zero. They won’t even notice an income tax hike. Money hardly counts when you have as much of it as they have. It is like an extra snowball to an Eskimo. It just doesn’t make any difference.

2) They don’t pay much in income taxes anyway. They tend to have their wealth in stocks. And they make most of their money from stock market gains, which aren’t taxed as regular income; they’re taxed as capital gains.

Here’s Newsweek with the story:

It’s easy for Mark Zuckerberg to say he’s ‘cool’ with raising income-tax rates. Because it won’t affect him.
It drives economist Bruce Bartlett crazy every time he hears another bazillionaire announce he’s in favor of paying higher taxes. Most recently it was Mark Zuckerberg who got Bartlett’s blood boiling when the Facebook founder declared himself “cool” with paying more in federal taxes, joining such tycoons as Bill Gates, Warren Buffett, Ted Turner, and even a stray hedge-fund manager or two.

Bartlett, a former member of the Reagan White House, isn’t against the wealthy paying higher taxes. He’s that rare conservative who thinks higher taxes need to be part of the deficit debate. His beef? It’s a hollow gesture to say the federal government should raise the tax rate on the country’s top wage earners when the likes of Zuckerberg have most of their wealth tied up in stock. Many of the super-rich see virtually all their income as capital gains, and capital gains are taxed at a much lower rate—15 percent—than ordinary income. When Warren Buffett talks about paying a lower tax rate than his secretary, that’s because she sees most of her pay through a paycheck, while the bulk of his compensation comes in the form of capital gains and dividends. In 2006, for instance, Buffett paid 17.7 percent in taxes on the $46 million he booked that year, while his secretary lost 30 percent of her $60,000 salary to the government.

“It’s easy to say ‘Raise taxes’ when you know you’re not going to have to pay those taxes,” Bartlett says. “What I don’t hear is ‘Let’s raise the capital-gains tax.’

The Daily Reckoning