Taxes and the One Percent

James Stewart, writing in the New York Times (Saturday, 1/28/12)
makes tax code arcana revelatory.

For most of my adult career, I was self employed, an employer, and lived in Maryland, which had state and county taxes. Every year, I tried a different scheme to salt away enough money in specifically designated "tax accounts" so when April 15th arrived, I could write those $30,000 checks to the IRS, the state etc.
And every year, no matter how much income my business had generated, I was wiped out, down to almost nothing, my accounts "nuked."

I felt poor.

The problem is, it turns out, I had the wrong sort of income.

If my income had come from capital gains (from stock or bond investments) or from "carried interest" (whatever that may be--rich people would know) or had it come from tax free municipal bonds, or been salted away in accounts in the Cayman islands or Switzerland, I would have lived well without having been laid low every April.

But, like Mr. Stewart who paid 24% of his "adjusted gross income" in federal taxes, and 37% in combined federal and state and local taxes, I found I was actually paying much higher percentage of "taxable income" --49% in federal income tax for Mr. Stewart and 74% of the "taxable income" when you combine the federal, state and local taxes and throw in the "self employment tax" and I always got hit with the dreaded "minimal alternative tax."

I always had the feeling I was missing legitimate deductions.

Friends drove huge Ford Expeditions and Cadillac SUV's, and I wondered how they could afford them--and they told me there was some huge write off for oversized vehicles which qualified as trucks.

Now that I am an employee, I do not pay alternative minimal tax, self employment tax, and because I live in New Hampshire, no state income tax.

I may be living in a fool's paradise, but I feel rich.

But I wonder, why is it I was penalized by my government when I was a "job creator?" I was self employed, which meant I needed to employ others, and yet I was penalized with a "self employment tax." What was that all about? My wife suggested this was like the wife slapping her husband when he goes out the door in the morning, not for something she knew he had done but for the things she knew he did she didn't know about. "The presumption is, if you are self employed and reporting your own income, you are cheating."

The presumption was, if you are self employed, you are deducting things which are bogus, and since we cannot find out exactly how you are cheating, we'll just slap you on principle, knowing you will abuse the system when we are not looking. Or something. My best guess. Can't really know what they were thinking with the self employment tax or who was doing the thinking.

But, I paid my taxes, every cent, without ever looking for a slick deduction, and I told myself, well, this is the real patriotism. None of this cheap patriotism wearing an American flag lapel pin, or pasting an American flag on my bumper. I did the hard thing, made the real sacrifice. I paid every cent I owed in taxes.

But the guy who was rich enough to plunk down his money in "investments" and could live off the "carried interest" or "capital gains" well, his government didn't ask him for that kind of sacrifice.

What was he doing that meant his government was not asking him to sacrifice?

It's not like he was in a combat zone, dodging Improvise Explosive Devices.

I was a patriotic, making my sacrifice every April 15th.

But like the dog faced soldier who was sleeping in foxholes and taking incoming rounds, I knew there was some general somewhere, sleeping indoors, more than likely comforted by a pretty young female aide.

Welcome to the Land of the Free, Home of the Brave, where liberty reigns supreme and we have a government of the people, by the people for the people.