Wednesday, November 27, 2019

Understanding "Wealth" & Taxation...AND Making a Case for What YOU Believe


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Some folks complain that tax cuts are always, "Skewed toward the wealthy."

Seriously? Tax cuts skewed toward the wealthy?

That's like complaining that "Life is skewed toward the wealthy," because the highest paying jobs go to those with the rarest and most difficult skills to master.

Yes that's true...and gravity is skewed against the fat kid who likes lots of cake...I get it.

ALL of THAT is true, at least so far as it goes.

Truth is, ANY RATE CUT, like the 2017 GOP cut that reduced tax RATES by 2% across all income groups delivers less to the guy earning $50,000/year than the one earning $500,000/year because lower income earners pay a LOT LESS.

The person earning $50,000/year pays about 20% in income taxes (appx. $10,000/year), so a 2% rate cut means about $200/year to that individual.

The person earning $500,000/year pays about 36% in taxes ($180,000/year), so that 2% cut equals about $3,600/year.

The basic complaint DOESN'T seem to be about tax rates, but about income disparities, which are made clear by the value of each worker's work skills. Yes, a Thoracic surgeon, or a good attorney earns about 20, 30, or more times what a truck driver, school teacher, or cop earns, because very few people can master the skills of the surgeon or the attorney.

There's NOTHING "unfair" about such income disparities.

At any rate, the truly "rich" DON'T rely on income for wealth. That's why NONE of the richest 1% in America are top income earners.

You can't get rich working for someone else.

Jeff Bezos has an "INCOME" of $100,000/year, Warren Buffet pays himself an "income" of $84,000/year. Their wealth comes from low tax and even nontaxable sources, like investments taxed at the lower Capital Gains rate, or exponential stock valuations - stocks splitting 4 or 5 times, so that 2,500 shares becomes 5,000, then 10,000, then 20,000 and then 40,000, etc., so that initial 2,500 shares at $20/share (a $50,000 investment), becomes 40,000 shares at $150/share (a $6 million holding) all of that $5,750,000 is UNTAXED until cashed out at the lower Capital Gains rate.

THAT is how real wealth is created/earned.

The only way the idea of of "the greedy rich," OR, "punishing the rich for taking more than their fair share" makes sense is IF there were only so much wealth/currency in circulation at any time...BUT that's NOT the case.

Jeff Bezos didn't glom $140 BILLION from a fixed amount of wealth in existence, instead, he created about $2.5 trillion in wealth for the economy and kept $140 billion (mostly in stock valuations) for himself.

Only a handful of people (mostly innovators) move humanity forward. NONE of those are found in governments. They are the Ford's, Tesla's, Carnegie's, Edison's, Gates', Jobs', Musk's, Bezos', etc. The last innovators in government were Tom Jefferson, Ben Franklin, etc. and they delivered us a Constitutional Republic instead of the widely accepted Monarchy, a Constitution that delivered LIBERTY as "freedom FROM government action." The Bill of Rights, the first 10 Amendments ALL restrict government action. Those innovators produced a government model that made government a servant, NOT a leader. That's why they made local government more powerful than any central government.

It's these innovators that create the opportunities others live off of. Those people create the private sector entities that fund a public sector.

Most people don't understand how money and taxation work. I once had an email exchange with a very well-read friend who vehemently took issue with the idea that, "There isn't a fixed amount of wealth available at any given time, as it's innovators/entrepreneurs who create wealth."

His position was that , "Governments print currency, so government creates the wealth available and there is only a certain amount to go around, since there is only a specific amount of currency in circulation at any given time." I knew the guy, I even liked the guy, but on this, he was wrong.

He never made any arguments explaining why his view was right. He claimed it was, "obvious," or "self evident."

I knew that, his view was erroneous.
First, currency ISN'T wealth. It's merely a representation of wealth.

A new business, say, a restaurant creates wealth that didn't exist before it opened. It exchanges $1,000 worth of food supplies into $25,000 worth of prepared meals every day and through that magic of commerce, produces a number of jobs, from chefs and managers to wait staff and busboys and generates new, never before existing tax revenues.

The owner earns the most for taking the risk, having the vision and starting the enterprise...and that's right & just.

Through that small business, new wealth is created. That owner, by taking 35% of the profits for herself isn't glomming too much wealth, she's created new wealth that wouldn't have existed before.

It took a few years, but that friend came to see his original view was in error (as anyone who really thinks about that would), because he read more about how economies work.

That's how people change their minds...on their own terms and by dint of their own reading/research. That's also why many people NEVER change their minds, they don't READ....they VIEW...they trust sources that they don't understand. If we understand a source's arguments and accept them as true, we can make such arguments for our views, based on them.

That's why the positions many take that, "It's true because it's obvious/self evident," or, "It's true because that's what some "expert" in the media said," are always losing ones.

NOTHING is "self evident"...AND "experts" are often wrong.

Moreover...IF you can't make your own compelling cases for your views you probably don't understand the subject well enough.

So, how can it make us mad when others disagree? They might understand the issue better than we do.

Why be mad at others just because they may know more than we do, when we can actually read and find the answers for ourselves?
If others disagree with things you KNOW to be true, you're always going to be able to make strong arguments for why your view is right and the opposing one wrong.

If NOT...that's a sign we need to read more.
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