Wednesday, January 25, 2012

Once skinny kittens - And - Do the math on dividend taxes...

When we talk about fairness (lack thereof) in this country, make no mistake, we're talking about outcomes (haves vs. have-nots), as opposed to opportunities. When we're talking about the share of the pie growing faster for the 1%, we're not talking entirely about current 1%ers. There's been substantial movement in and out over the years---that is, a number of today's "fat cats" were yesterday's skinny kittens. And many will only suffer the humiliation of inclusion into the 1% for a single year---due to selling the farm, the family business or the coastal residence (their capital gain explains their relatively low tax rate). When we talk in terms of shared responsibility, we're obviously not talking about the fact that the top 1% paid 25% of all taxes in 1991 and 37% in 2011. When we're talking about the Buffett Rule, we're not talking about taxing earned income, we're talking about taxing investment results.

When an investor sells stock in XYZ to buy ABC, she pays capital gains tax on gains on XYZ, even when she uses all the proceeds to buy ABC. She therefore either has to invest less in ABC, or use some of her earned income (on which she already paid taxes) to pay the tax due on the gain on XYZ.

When a billionaire receives his income via corporate dividends and pays that shameful 15% tax, those who'd have us believe he's gained an unfair advantage, strategically leave out the fact that that income to the corporation (owned by shareholders) was taxed first at 35%, then distributed as a dividend (no deduction to the corporation) to be taxed, once again, at 15%. You do the math.

Now, having done the math ($1mill income to the corp [owned by shareholders] costs $350,000, the remaining $650,000 dividend to the shareholder costs $97,500, for a total tax on the $1mill of $447,500 - or - an effective tax rate of 44.75%), when it comes to dividends, are you still thinking the fat cats are getting a break? Now be honest...

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