Cannibalizing The Young

Here is a paraphrased comment I put on Left, Right, and Center blog regarding a topic they need to address: how tax policy cannibalizes the young.

Suggested topic for major discussion: tax rates. Obama pays a 20% federal rate on 800,000 last year. Romney is paying 13% of multi-millions. Last year was the first year I made a good salary in my adult life and I ended up paying 27-28%? My lifestyle is a cheap - rented apartment with no dishwasher and driving a 10 year old car and I'm paying a higher tax rate than these guys? Look - my life is good - I love what I do, have great friends, a great relationship, and I'm admittedly frugal. But I hear these tax statistics and it seems radically unfair. Tax policy seems geared toward helping those with wealth maintain wealth and those at the very bottom to get by - at the expense of the people in the middle doing what they can to acquire wealth. The most obvious example would be the continued propping up of housing prices via interest rates, tax breaks, and banks holding onto distressed properties. This simply helps those already in homes at the expense of someone like me who would be a prospective home owner, but refuses to pay the ridiculous price for a good place to live (granted, this is an LA regional problem more than a national problem, but the point remains). I don't have time to understand all the nuance of tax policy, but my gut instinct is that we are cannibalizing the young to pay for the old - we do it blatantly with healthcare, social security, and then sneakily via real estate investment breaks, capital gain taxes, loan out corporations, trusts, and other stuff I know nothing about. Please discuss and put your big brains onto this issue.

Just make a simple progressive tax schedule that applies to all income equally. Here is my proposal:

0-20,000 - 5%
20,000-30,000 - 7.5%
30,000-40,000 - 10%
40,000-60,000 - 12.5%
60,000-80,000 - 15%
80,000-100,000 - 17.5%
100,000-150,000 - 20%
150,000-200,000 - 22.5%
200,000-300,000 - 25%
300,000-400,000 - 27.5%
400,000-500,000 - 30%
500,000-1 million - 32.5%
1million to 10million - 35%

Why treat capital gains differently? Why give real estate breaks to anyone? (which, by the way, just helps those who are buying investment properties anyway) Why punish productivity (income) vs. passive income (investment)? I'm sure there is a clear economic argument -- but look at this way -- money in the hands of individuals is fungible. If you earn $20,000 in investment income on top of your salary, just tell yourself that is your first $20,000 and you're paying only 5% "capital gains" tax on it. I mean, honestly, what difference does it make? What are they scared of people with 10 million bucks in investments investing it elsewhere to avoid paying the 35% tax? I don't see how this works. If they live in the US, they have to pay the tax. If they invest in US companies, they have to pay the tax. If they are benefitting from our military keeping our country free, our government making roads, our public institutions like school and police keeping the communities safe, we don't need to justify collecting taxes from people at this high end of the income scale. Not only that - it should be a point of civic pride for anyone making that much dough - the type of my-kids-will-never-need-to-work money to pay the taxes. I mean - how is this an issue people can argue with a straight face?

And we wouldn't have these stupid discussions on how much Romney or Obama pays in tax rate. You'd simply look at the schedule and see: Romney pays what everyone else pays on his first mil, but then pays 35% on the rest. Obama pays 32.5% on most of his income and what everyone else pays on the rest. Why is it such a bad thing to have a transparent and fair tax system everyone can buy into? Why do we have all these gimmicks designed to maximize "productive" behavior like buying houses and having kids. You think people really have kids for the tax benefits? Come on. This kind of government engineering is foolish, not what the founders intended, and reeks of nanny-statism. It is a vote buy off and invites more and more levels of corruption.