I don’t mean to turn this blog into a political soapbox, but I think there have been some issues missed by the media, who seem always to boil down arguments to the simplest and most divisive denominators. So, I thought I would explore.
By now, we all have met Joe the Plumber. Joe says that a tax hike on people making over $250,000 would hamper his ambitions to expand his company.
But there’s a more direct impact of new tax plans. I call him–and her–Joe and Josephine Investor. Capital gains and dividend tax increases will be levied against all investors, not just rich ones. For those who reinvest dividends, the tax is a triple whammy. Corporations are taxed. Their dividends are taxed. And then when the money is re-invested, this is taxed as “income,” although technically it’s not being used as such.
In other words, taxing investment income will hurt all investors, not just the rich it’s aimed at.
The middle class investors, who are hoping to one day rely on his trading and investment incomes to become financially independent, would find the barriers to that entry perhaps not stopped, but hindered.
So, maybe they could take solace in the fact that this money would be redistributed to help the nation’s poor. After all, we’re constantly told that the wealthy are getting wealthier and the poor are getting poorer. The government would use this money to “spread the wealth around.”
Unfortunately, a quick look at the statistics suggests that this isn’t true. Tax receipts have steadily climbed with economic expansion, right along with this “income gap” between rich and poor. Similarly, the budget–and, despite this increase in funding, the deficit–have rapidly increased.
From this, we can deduce that the real problem doesn’t seem to be redistribution of wealth, but that the redistributors, i.e. the government, aren’t doing such a great job. In fact, they’re doing a lousy job.
The solution, I feel, isn’t to increase taxes.
An initial solution is to move beyond looking at the economy as a zero-sum game between classes and unleash the exponential investment power of the entire population. The wealthy have become wealthier in large part due to the investment choices they have. The poor and middle class don’t have the access to exponential-type investments, like hedge funds and private equity firms.
This will take improved education and better investment vehicles (which we’re trying to work on).
Obviously we need to remove the middle man (or middle bureaucracy) from the equation; or at least improve the redistributors. Investing directly into people might be a start. Whether it’s a corporation or a web of government agencies, mindless bureaucracies have less of a chance to improve conditions like wealth disparity, but direct investment and individual action will.
Business Strategy, Dreams Come True, Investing, Money
income tax, Investing, redistribution, tax, taxes
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