Why a "Millionaire" Tax is a Bad Idea

Due to mud slinging during the current presidential campaign of Mitt Romney, the idea of a "Millionaire" tax has been brought into the spotlight. This tax, dubbed by some as the "Buffet" tax, would presumptively tax those who make over a million dollars a year at a 30%ish tax rate instead of the 15% that these wealthy citizens often pay. While I can get behind equality, I am totally against targeted taxing of the rich because they are rich.

How can the rich get away with paying a lower tax rate?

The uber rich like Warren Buffet or Mitt Romney pay a lower tax rate because they make their money from investing instead of a normal paycheck like you or I receive (and because they have really good accountants). Instead of being mad at this lower tax rate they pay, it should be a lesson to us that 1. If you want to get really rich, investing is probably the best way to do it, and 2. Earn a living by investing instead of by a paycheck to pay lower taxes. This is outside the scope of this article however, but a ridiculously popular book that you can learn these principles from is Rich Dad Poor Dad. Check it out.

Consequences of a "rich" tax

Discouraging investing

The "Millionaire" tax would essentially be a penalty to those who make oodles of money. What would be the motivation for someone who made $950,000 to breach the $1,000,000 mark? None! He or she would essentially lose money if they made that extra push, discouraging investing.

That my friends is anti-capatilism.

In this rocky economic climate we need as many investors to pull out there pocket books as possible. Investing fuels economic growth, creating jobs and wealth for many other americans. My job was created by someone who invested his dollars into starting a company and I appreciate it.

Now, investors like my bosses are still human, and I am not suggesting that we bow to their every whim, but I also don't think that we should discourage anyone from dumping money into the economy.

Possible IRA pain

The other option would be to raise investment taxes for everyone. Can you imagine how irate retirees would be, who, expecting to pay lower capital gains taxes when they retire, all of a sudden had to forgo an extra 15% of their potential income? Especially if they knew they had to pay the higher tax rate to target millionaires. I would be super mad.

Slippery Slope

If we start targeted taxing out of jealously or spite, it can turn into a slippery slope. Next it could be that they should pay a higher tax rate, or target caucasian males because on average they make more money than any other demographic. It may be hard to believe that that would happen, but if you can target one group, why not another?

So while I won't argue that a tax reform may be in order, let's not target the rich, or anyone for that matter out of spite, it's really not good for anyone.

The Occupy (Wall Street) Movement...Effective?

In 2011 it was hard to escape at least hearing about the Occupy movements around the country. These “socialistic” style events, where there technically wasn’t a true leader, were the object of interest in news feeds on every social media stream and news reporting agency across the county. But how effective were these movements really?

Let’s take a look at the most well known of these movements, Occupy Wall Street. When I first heard about the gathering happening at the stock trading mecca of America, it piqued my interest. As I scoured the news for more information, I couldn’t find a single article (including wikipedia at the time) that could tell me what the protests were all about! It seems as though there still might be a little confusion about that matter. The closest unified consensus about the “gathering” seems to be a protest against the 1% of richest Americans, and how they are separating financially from the rest of the 99% of us who aren’t making hundreds of thousands of dollars a year. Where unemployment is higher right now than it has been in decades, how does this segregation seem fair? Point taken.

Despite the fact that these events were poorly organized by design, similar to a communistic society of freeloaders, it did garner national attention. That is pretty impressive all things considered, and although it is hard to gauge, the movement possibly even raised more awareness in Washington D.C., that the people of the United States are seriously concerned about the direction of the economy.

However, I think elected officials were fairly aware beforehand of the condition of the economy.

Now, while I completely understand the dangers of a growing divide between classes, I also realize 2 things. First off, although I am not in the 1%, it’s kind of cool that people do make that kind of money. It gives hope that anybody can get to that point. Not everyone has the drive, but it is the American dream. The second thing I recognize is that many of the people who showed up to those protests are either in, or will be in,  the top 1% wealthiest people in the world at least some point in their life.

Recent studies have shown that to be in the top 1% wealthiest in the world, you only have to make mid 30k per year. With the media household income in the U.S. at around $46k right now, realistically, this protest makes the Occupiers sound like spoiled entitled children.

Before anyone jumps on me with arguments about how I’m a capitalist pig and don’t really understand what is going on with the economy, blah blah blah, let me assure you that I know first had the hardships of high unemployment. As a worker who has been the victim of layoff from 2 different jobs in 2011, I would like nothing more than for some serious job security. Additionally I spent multiple years living in a third world country where hot running water and carpet were a luxery. I’ve witnessed first hand a family of 5 who shared the same queen sized mattress in their tin shack, watched people bathe in rivers because they had no where else to bathe, and parents go without food on a regular basis so their kids can eat.

So yeah, I have a fairly good idea of the lameness of high unemployment and horrors of poverty.

A better way

The truth of the matter is that there a number of different ways these Occupy protests could be better, especially now that they have gained some traction. Here is my idea:

Lets say that at the Occupy Wall Street rally there were 500 people at any given time. This number may be wrong, but all the reports I’ve read say the number was hundreds. Now lets assume that any of these protesters could at the very least get a minimum wage job. While some may not be able to get jobs, plenty were college grads who I firmly believe could find a job that pays much more. Maybe not exactly how much they want or expected to make, but for the sake of this argument, it will even out the wages to at least minimum wage per person.

Minimum wage in New York is $7.25 an hour. Out of 24 hours during the day, we will give these protesters 8 hours of sleep, an hour for every meal, and an extra hour for breaks. That leaves 12 hours of protesting or work they could be doing. So in 30 days (because many of the participants rotated in and out we won’t give them days off) @12 hours a day making $7.25 an hour they would make $2,610 per person. If we assume a 30% tax rate on this amount, the Occupiers are left with $1,827 each during that month.

$1,827 x 500 participants= $913,500 

That’s pretty close to $1 million dollars that could be donated to a serious cause. Since the Occupy Wall Streeters are so concerned with the inequality they face, they could take that money and donate it to a successful organization that dedicates itself to pulling people out of poverty. One organization that I know of that does that isGrameen Bank. The donation could be made to many organizations, but I really like the idea of microloans, and Grameen according to Wikipedia has helped over 25 million (over 50% success rate) impoverished Bangladeshans get out of poverty. (Out of poverty by Bangladesh/Grameen standards includes “such standards as having all children of school age in school, all household members eating three meals a day, a sanitary toilet, a rainproof house, clean drinking water and the ability to repay a 300 taka-a-week (around 4 USD) loan.”)

The idea behind microcredit is that someone loans an impoverished person a small amount of money to invest in a business or something, and they can take the proceeds from the business and not only improve their quality of life, but pay back the loan so someone else will be able to benefit as well. Muhammad Yunus won a nobel prize for starting Grameen and is largely credited as a founder of micro loans.

Now, back to the example. If each micro loan was given at the amount of $200, divided into our $913,500= potentially  4,567 people/families. At a success rate of 50%ish that is roughly 2,283 people/families pulled out of poverty from our original 500 people donating 30 days of their time, making minimum wage instead of standing outside on Wall Street waving signs.

Which sends a bigger message to you?