Our Tax Code Discourages Work.

Over at the New York Times, author and journalist Timothy Egan, writes a column about our tax code entitled Tax Face Off: Romney vs Me.

This year, I did my 1040 and its attendant nightmare forms while comparing my family’s financial documents with those of Willard M. Romney’s. He paid 13.9 percent in taxes on income of $21.7 million for 2010 and about the same rate for the not fully completed 2011 returns.

I’m going to pay double Romney’s rate on a mere fraction of his income. But you won’t get any class-war envy from me about a man worth upward of $250 million paying the same rate as someone earning, say, $55,000 a year. Nope. There’s a larger point here than the inequality one, compelling though it is.

Remember: The tax return is a blueprint for how to earn and spend money. It encourages us to do some things and discourages us from doing others.

One disincentive, comparing Romney’s taxes to mine: don’t work. The tax code discourages work, certainly for the rich. And Romney’s plan for the future would further discourage work for poor households with children or those paying for their kids to go to college.

Take a look at Line 7 of the 1040, the one where you report wages, salaries and tips — work. It’s from your W2. Romney, of course, had no wages, salaries or tips, which can be taxed at up to 35 percent. His biggest disclosure is Line 13, capital gain — paper profits — where he weighs in with $12,573,249 from 2010. On that, he pays a mere 15 percent.

The other place to report money earned by doing actual work is on Schedule C. That’s where I put income from books, talks, pamphleteering. And so does Romney. Under the profession category, he doesn’t report himself as a businessman or a politician. He’s listed as “independent artists, writers or performers” — just like a mime, or Carrot Top.

In 2010, Romney’s take from this dodge we share, mostly speeches for his part, was $528,871, a mere 2.5 percent of his income. Were he to get serious about being a hardworking indie performer, he might earn millions. But again, even if he were able to take a deduction for that car elevator he’s putting into his remodeled manse in California, his earnings from his speaking business would be taxed at up to 35 percent.

Better to do no work and pay taxes at a far lower rate on capital gains or a category Romney shares with certain hedge fund managers: compensation from his Bain Capital days also taxed at 15 percent called carried interest.

Another disincentive, as mentioned: don’t send your kids to college. Currently, I can apply for the American Opportunity Tax Credit, which gives families paying tuition a cut of up to $2,500 on taxes owed — a meaningful break.

Romney knows something about college. He has two degrees from Harvard. Three of his five sons — Tagg, Matt and Josh — have M.B.A.’s from Harvard, giving the family a coxed scull of Crimson-red advanced degrees. It’ll cost you about $84,000 a year to attend Harvard Business School, with tuition, housing and related expenses.

But don’t try getting a tax credit for that under a President Romney: his plan calls for eliminating this college incentive, along with doing away with an expanded credit for working families with children at home.

What else? Home mortgage. The government encourages you to load up on home debt and, in that sense, certainly pushed unqualified people into carrying oversize loans, which fed the housing collapse. That, and those tax-rewarded hedge fund managers making risky bets, helped to bring the world economy to it knees. Your tax code at work!

I’m not fluent enough in Internal Revenue Service argot to understand why I probably should have stashed some money overseas. But with a Swiss bank account and holdings in Bermuda and the Cayman Islands, Romney by example demonstrated another kind of incentive — invest in foreign countries while paying the absolute minimum in taxes to your own nation.

“I pay all the taxes that are legally required and not a dollar more,” Romney said earlier this year.

That’s the key thing: legal, always the greater scandal. I’ve been audited twice; once, I prevailed, another time my math was off. But Romney and the one-in-four millionaires who pay a lower tax rate than most middle-class Americans glide along on audit-tested breaks, courtesy of a lobbying army working night and day to preserve the absurdity of the tax code.

So, taking my cue from the social engineers who’ve manipulated the code, I’m looking to follow Romney’s example next year: work less, stash money overseas, certainly don’t pay for junior year in college. And, of course, complain about my burden.

Beezer here.  Egan nails it.  Our tax code discourages labor and its wages.  We are incredibly naive, aren’t we.

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14 Responses to “Our Tax Code Discourages Work.”

  1. captaal Says:

    Sounds like class envy to me but that’s what you have been for all the time. He was right when he said “the govt encourages you to load up on your home debt” which led to the housing crisis and we all know Frank and Dodd headed that fiasco. Does this guy and you want capital gains to go to 35%? You like most liberals are jealous of those who have worked to make something of themselves and now you want to share it with them though there was no effort on your part. Your socialistic views will bring us down and we will fall. The lazy and incompetent will win but the rest will fall.

  2. beezer Says:

    We were doing just fine economically when Cap gains were at 35%. The rate of capital investment has declined since the tax rate was lowered–particularly by corporations. The last cap gains increase came from the dot.com bubble, if memory serves me correctly. So that was pretty much a fakeout.

  3. captaal Says:

    Now I understand why you are no longer a stock broker.Capital gains should be reduced to zero. Taxes are already paid on earnings which are put into invesments, double taxation I see. You believe govt is the answer to all problems but govt is the cause of most. Bureucrats are nothing but paper puchers who do nothing but spend other peoples money witout consequences. Their lack of knowlege and culpibility is bringing us down a road that will lead to our demise. You like many of your liberal friends feel you can just sit on your couches and wait for a govt check while the 50% who pay taxes shoulder the responcibility for your support. We are truly heading toward socialism much like Europe which is falling.

  4. beezer Says:

    I don’t know where to start. First from the investment perspective. Ideologues like you predicted inflation and crushing interest rates, beginning almost three years ago. I knew that the opposite would take effect because I understand how the real world operates–not the Potemkin Village one I used to believe in, and you still do. In short the ideoloques got their collective investment shirts handed to them, whereas people like Paul Krugman got it exactly right. Rates staid low, as did inflation, and the bond market soared. The shorts got killed.

    I don’t believe the government has all the answers, never have. But I also know the government has some important tools that can help when help is needed, like today. As an ideologue you believe the government cannot help. Simple and simply wrong.

    Almost none of the 14 million unemployed or underemployed were that way four years ago when the banking system collapsed under greed and leverage. They’d love to work but the private sector is still sick and can’t hire profitably.

    As for socialism, Medicare, Medicaid, Social Security and the VA health care system are all socialist. As are Big Oil and Big Ag tax subsidies. The bank bailout was socialist. The Middle East wars are socialist endeavors, although the low income families carry a disproportionate of the fighting responsibilities. Electric Utilities are socialist, for the most part. Urban transit is socialist. Roads are socialist. A great amount of pure science is government paid for.

    Obviously you’re living in denial. There are many, many endeavors that need government policy and funding support to exist. And it works beautifully in many cases.

  5. capt aal Says:

    it’s true,medicaide is a socialistic program put through by Johnson,a socialist or dem, both the same, however ss is an insurance policy paid for by workers. Oil subsidies are nothing but treaks to encourage exploration . Ag and transit subsidies should be eliminated, they accomplish nothing.

  6. beezer Says:

    Oil obviously no longer needs any subsidizing. I’m not against subsidies, per se, they have their purposes.

    Health care, like SS, should be a pre-tax expenditure not tied to employers. Taxes may go up nominally if we do this, but after tax income would not have to deal with paying the bill–so the overall effect would to free up income for other purposes. If your taxes go up $6k, but you don’t have to pay health care premiums double that as a result ($12,000 per year is an average for a family of four) then you’ve got more spendable income.

    And I think it helps get away from the fee for service model which we currently operate under. It’s a broken model and simply is inappropriate for health care.

  7. captaal Says:

    It’s not necessary to give even tax breaks to oil companies but instead encourage them to drill by giving them federal land which is known to have a high amounts of oil and in return guarantee lower prices within the US. The Obama administration has shut down any exploration on federal lands stating oil companies want to drill in national parks, which is just bull.

  8. beezer Says:

    The advantage of domestic oil and gas is not that the price will drop but that the money won’t go overseas and our trade deficit will decline.

    Right now we need to keep subsidizing alternative energy and get some legislation through that subsidizes using natural gas for transportation. That will lower the trade deficit substantially. It would moderate domestic oil prices, I think, but global fundamentals will inevitably cause oil prices to rise over time. The fact is the Far East is just beginning to bid on fossil energy sources. And the Far East is huge.

    Which is why we need to keep alternative energy advancing.

  9. captaal Says:

    Solyndra?

  10. Chris Herbert Says:

    Dot com bust? Enron? LTCM? Housing Bubble? Great Recession? Trillion dollar bank bailouts? S&L bank collapse? Orange County Bankruptcy (derivatives!)?, Lehman Brothers? Continental Bank?

  11. captaal Says:

    You prove mu point, Obama sucks.

  12. Chris Herbert Says:

    No response deserved.

  13. captaal Says:

    Don’t need one, now that you agree with me.

  14. Alisa Seckman Says:

    I just discovered how we can cut a Trillion Dollars in one year! Watch this http://bit.ly/zz6Bmh

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