Barker... vs. Obama... and Pretty Much Everyone Else on Taxes

It seems our president wants to increase taxes on "the wealthy."

Me? What I want to do is return to basic fairness - equality of apples to apples - with regard to taxation.

Before I get into specifics allow me to outline the rough perimeters of "Barker's Views on Taxation."

1) Taxes are ultimately paid by - and thus should be assessed - upon individuals. Just as we believe in "one person, one vote," so too should our tax system rest upon a foundation of "one person, one tax assessment."

Two people wanna get married? Fine! Get married! Two people wanna shack up? That's fine too! None of my business! (In terms of taxes that is!) You wanna have kids? Fine. You don't? Fine. You wanna buy a house? Your business. You wanna live in an apartment? Also your call. One "partner" doesn't work and is "supported" by the other... their business!

My point... Enough with the social engineering! This is - or at least used to be - America... Land of the Free. Let people live as they choose and neither reward nor punish them via taxation for the personal decisions they make!

2) Assuming we're gonna rely (in part at least) on an income tax, I'll buy into the concept of a graduated progressive income tax - meaning as income goes up, that consolidated income gets taxed at higher rates.

3) In line with number one and number two up above... the minimum tax rate must still be something... be it 0.5%... 1%... 2%; and on the flip side, no individual should ever have to cede to the federal government more than one-third (33.3%) of his or her income - period!

Bear in mind, folks, even here - at the highest rate... my proposed highest rate of 33.3%... that's only federal income taxes! On top of federal income taxes there are state income taxes, property taxes, school taxes, excise taxes, fees, surcharges... in other words even at a hypothetical top federal income tax rate of 33.3%, no doubt many Americans will end up paying over half of their incomes in taxes of one form or another each year.

Now... on to Obama's latest class warfare scheme vs. my appeal to common sense and basic fairness!

Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year.

Add in the planned phase-out of deductions and exemptions, and the rate hits 41%.

Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8% - nearly three times today's 15% rate.

(Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.)

OK, folks, let's address this issue of capital gains vs. dividends. Both are returns upon investment. Thus, logically, both should be treated equally in terms of taxation. Now if one wants to argue that investment income should be treated just as "ordinary" (salary) income is... that's fine. On the other hand, incentivising investment is clearly a rational governmental goal and thus support for two-tier "income" tax system can reasonably be justified. What would make absolutely no sense, however, would be a three-tier "income" tax system where the categories of capital gains and dividends are artificially separated and higher taxes are assessed upon dividends than upon capital gains! If anything, you'd want to favor dividends over capital gains! Dividends are about long-term growth... investments for the long haul; capital gains are in a sense more of a "wager" on the value of the paper itself from day to day hoping to profit simply by buying low and selling high with no real interest in the long-term health of the investment vehicle.

Look again at what Obama is proposing. He's proposing the exact opposite of what makes sense! The President is proposing we keep rewarding all the rich "gamblers" who make over $200,000/$250,000 in capital gains with a lower capital gains rate in relation to "ordinary" (salary) income while at the same time he's proposing to tax dividends (the truest form of "investment" income) at a rate even higher than the tax on "ordinary" income!

Of course, the White House wants everyone to know that this new rate would apply only to those filthy rich individuals who make $200,000 a year, or $250,000 if you're a greedy couple. We're all supposed to believe that no one would be hurt other than rich folks who can afford it.

Again... the president and I part ways...

First of all, as already outlined, the president's proposals break the boundary of 33.3% which I view as fair.

Second of all, while the president's plan singles out "the rich" in a way that goes far beyond a graduated progressive tax; it gives individuals making under $200,000 and couples making under $250,000 a complete pass on paying their "fair share" of increased taxation.

Third... with the differentiation between "individuals" and "couples" we're continuing along the same wrongheaded path of social engineering where government uses tax policy to "reward" some behavior and personal decision-making which of course "punishes" those who don't follow the path - the personal lifestyle path - that they government deems more reward-worthy.

In any case, allow me to lay out my concept for a fair, reasonable, rational, and personal freedom/responsibility-boosting federal tax code within the parameters of a system that relies largely upon income taxes and which views encouragement of investment as a proper tax code function:

The centerpiece of my concept is the median individual American wage.

For the sake of discussion, let's assume a current median individual American wage of $40,000.

Let's also assume that we have a progressive graduated income tax code where the current median individual American wage point is in line with the middle of eight brackets... with the lowest bracket being the "ordinary" income taxed at 1% and the highest bracket being the point beyond which "ordinary" income is taxed at 33.3%.

So... think something along the lines of... up to $10,000 is taxed at 1%; the next $10,000 is taxed at 2%; the next $10,000 is taxed at 7%; the next $10,000 is taxed at 15%...

(We're now up to an individual making a $40,000 median income. Do the math and this individual is paying $2,500 in federal income taxes on an income of $40,000. Maybe some of you think this is too much.Perhaps some of you think this is too little. In any case, the numbers represent the "concept." Obviously the rates/brackets can be adjusted.)

Anyway... the next $10,000 is taxed at say 18%; the next $10,000 is taxed at 20%; the next $10,000 is taxed at 24%; and everything (sticking to "ordinary" income for the moment; I'll get to capital gains and dividends in awhile) beyond that is taxed at the maximum rate of 33.3%.

(In other words... the feds will collect $100 off the first $10,000 of a person's income... $200 off the next $10,000... $700 off the next $10,000... $1,500 off the next $10,000... $1,800 off the next $10,000... $2,000 off the next $10,000... $2,400 off the next 10,000; and...

Above an individual income of $80,000 - which in our scenario represents double the median individual American income - the individual will "rebate" one-third (33.3%) to the federal government in federal income taxes.

Ah... but what of capital gains and dividends...???

Here's what I propose:

Why not institute the same logic with regard to how capital gains and dividends are taxed, only, in order to encourage investment, we assess capital gains and dividends at half the "ordinary" income tax rates up till these gains reach a threshold of $160,000 - which represents double the "ordinary" income threshold where the "ordinary" income tax hits its highest percentage?

Again... let me lay it out via scenario:

(And note... for all amounts under the top rate... in order to get the "break" on "investment" income one would have to actually "earn" (salary income... "ordinary" income) an equal amount to the dividends/capital gains income being "earned.")

Anyway... again... say you earn up to $10,000 via salaried or per hour compensation. You'd pay 1% of that in federal income taxes - $100. (Right? With me so far?)

Now... say on top of this you also earn (and additional) $10,000 via capital gains, dividends, or some combination of both. On this additional $10,000 of "investment" income you'll be asked to cough up not 1%... not $100... but half of that - 0.5%... $50.

And so on and so forth on up all the way to you making a salary of $160,000 taxed at various rates graduating upward in $10,000 dollar income increments through the first $80,000 with further "earned" income taxed at the top rate of 33.3%... and on the flip side... your matching "investment" income being taxed at half the "ordinary" rate up to the point where all "investment" income over the "regular" $80,000 threshold is taxed at the same exact top rate of 33.3% that top "ordinary" income is!

In other words, folks, here's what my concept is all about:

By keeping the limited two-tier tax treatment of "earned" vs. "investment" income I'm preserving the "carrot" of giving people a reason to invest in the economy and thus grow the economy. This I believe is just and right and serves everyone's long term interest - ours and society's!

I'm looking to spur on the working poor, working lower middle class, the working middle class, and even the working upper-middle class to continue working while also investing for their futures and yes their presents as well.

An individual making $80,000 ain't rich. That said... this individual is making double the median American individual wage so he or she is doing just fine! But, hey... why shouldn't this individual strive to do even better... to invest some savings... to invest for the future looking for an expanded return on investment as opposed to immediate gratification?

I want to incentivize such behavior. Put it another way... I have no problem with the government "rewarding" such behavior!

(Yes, yes, I know... I'm all about getting the government out of the "reward" and "punishment" business. But we're talking this one specific facet of tax policy. We're also talking my concept as opposed to existing tax law and as opposed to President Obama's proposals - both of which "reward" and "punish" to a much greater degree and much more unfairly - in my opinion - than does my concept.)

But here's the real beauty of my concept...

While "rewarding" (in a sense) the working poor... the working lower middle class... the middle class... and even the upper-middle class who choose to invest... it treats the rich who gain riches via capital gains and/or dividends no better than the rich who got rich from high salaries and other "earned" income (think sports and entertainment stars, et. al.).

If you make more than $80,000 in salary and other earned income this "more" is gonna be taxed at 33.3%.

If your "more" (more than $160,000 total - of which. again, $80,000 must be "earned" income) consists of capital gains and/or dividends... you're gonna be paying the same 33.3%!

What could be fairer than that...?!?!

Folks... I know this is a long - and perhaps convoluted - post.

I've tried to explain my "concept" here as simply and completely as possible... but I probably haven't done as good a job as I'd have liked to do.

That said... I'd really, really, really appreciate feedback on this one.