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Post details: Romney 14.1

Romney 14.1

In his famous novel "Fahrenheit 451", Ray Bradbury writes:

"We need not to be let alone. We need to be really bothered once in a while. How long is it since you were really bothered? About something important, about something real?"

Sometimes we view the wheelings and dealings of our world as a form of necessary evil which lies beyond our control, almost as if some kind of permanent natural process was at work there. But if we bothered to bother about it, we'd find that in many instances the apparent immutability of social laws is only made possible by our apathy. This week's release of Mitt Romney's tax return (showing a measly 14.1% effective rate) was a great opportunity to shake some of the accepted dogmas and shine a probing light on the way our tax system works. And that is indeed what many did.

In politics though - no action comes without a reaction of equal magnitude and opposite direction. For the conservative punditry, taxing is a sacred issue, and taxing the wealthy doubly so. What followed that little probe was a hurricane of smoke and mirrors. In a time honored tradition of taking your opponent's position to the extreme, creating a ridiculously looking straw-man out of it, and then beating it publicly to death against the backdrop of cheering masses, the right hand side of the political spectrum filled the airwaves with an impressive swarm of easily digestible slogans, ranging from warnings of impending confiscation, to accusations of class warfare and (gulp) general hatred of success. Yet in a less hysterical Universe, a tax is not a confiscation, it is a remuneration. When you come back from a dealership with a new car - for which you just shelled out $20,000 - you don't write angry letters to your local editor that the car dealership just confiscated your money. It was just a payment for goods and services and most people understand that.

The inconvenient truth is that the wealthy benefit tremendously from the goods and services offered at the federal level. It is government which keeps the seas safe for shipping and trading routes, the government maintains the highways on which they truck their goods, the government backstops the financial system, and even such abhorrent function as entitlements is in fact beneficial to the producers. Imagine how much less demand for various products there would be if it wasn't for various forms of government support which put money in people's pockets. You see - the poor don't invest that money in gold or emerging market stocks. They go and buy stuff, which eventually fattens the bottom line of our beloved corporations. How many CEOs would not get their performance bonus if it wasn't for the despised government stimulus. Now ask yourself - who profits more from the stable business environment which our taxes collectively create - an average worker or the upper management? I think the answer is pretty clear. But on this planet of ours everything costs money. So we are not really trying to confiscate anyone's wealth, we are merely asking the rich to pay their fair share. And honestly, 14.1% does not sound like a fair share to me. Most of my friends pay double that rate.

Now closer inspection of the mystery of Romney's low taxes reveals that it is mostly caused by the capital gains rate. See, at some point we determined that income from capital gains is somehow nobler and more important than income coming from one's labor and we taxed it accordingly. And I think that attitude needs to change. Why would we think that a farmer working hard from dawn to dusk should pay more taxes than some dude whose income comes from capital gains in the portfolio established by his industrious and enterprising grandpa? Why would a teacher who spends evenings pouring over the efforts of the next generation of entrepreneurs and engineers have to pay more than a hedge fund manager who merely chaperones other people's money in the casino of financial markets? No disrespect but both labor and capital are instrumental to properly functioning economy, so why do we constantly favor the capital?

Equalizing these two would not mean that we hate success. It would just mean that we want those who succeed to contribute to the environment which enabled it. Just like the rest of us do. Sure - some functions of the government could be greatly streamlined and they should. But the costs of whatever remains ought to be carried by all segments of the society. Repealing the capital gains tax rates won't violate any laws of physics and it won't be the end of the world. But it's not gonna happen by itself. We'll have to push it through several lines of entrenched defenses and expect to catch some flak along the way. Because - as we know - for every action there is always an equal and opposite reaction.

I hope President Obama is bothered about this.


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