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Archive for August 29th, 2012

Even though I’m not a Romney fan, I sometimes feel compelled to defend him against leftist demagoguery.

But instead of writing about tax havens, as I’ve done in the past, today we’re going to look at incremental tax reform.

The left has been loudly asserting that the middle class would lose under Mitt Romney’s plan to cut tax rates by 20 percent and finance those reductions by closing loopholes.

That class-warfare accusation struck me as a bit sketchy because when I looked at the data a couple of years ago, I put together this chart showing that rich people, on average, enjoyed deductions that were seven times as large as the deductions of middle-income taxpayers.

And the chart includes only the big itemized deductions. There are dozens of other special tax preferences, as shown in this depressing image, and you can be sure that rich people are far more likely to have the lawyers, lobbyists, and accountants needed to exploit those provisions.

But that’s not a surprise since the internal revenue code has morphed into a 72,000-page monstrosity (this is why I sometimes try to convince honest leftists that a flat tax is a great way of reducing political corruption).

But this chart doesn’t disprove the leftist talking point, so I’m glad that Martin Feldstein addressed the issue in today’s Wall Street Journal. Here’s some of what he wrote.

The IRS data show that taxpayers with adjusted gross incomes over $100,000 (the top 21% of all taxpayers) made itemized deductions totaling $636 billion in 2009. Those high-income taxpayers paid marginal tax rates of 25% to 35%, with most $200,000-plus earners paying marginal rates of 33% or 35%. And what do we get when we apply a 30% marginal tax rate to the $636 billion in itemized deductions? Extra revenue of $191 billion—more than enough to offset the revenue losses from the individual income tax cuts proposed by Gov. Romney. …Additional revenue could be raised from high-income taxpayers by limiting the use of the “preferences” identified for the Alternative Minimum Tax (such as excess oil depletion allowances) or the broader list of all official individual “tax expenditures” (such as tax credits for energy efficiency improvements in homes), among other credits and exclusions. None of this base-broadening would require taxing capital gains or making other changes that would reduce the incentives for saving and investment. …Since broadening the tax base would produce enough revenue to pay for cutting everyone’s tax rates, it is clear that the proposed Romney cuts wouldn’t require any middle-class tax increase, nor would they produce a net windfall for high-income taxpayers. The Tax Policy Center and others are wrong to claim otherwise.

In other words, even with a very modest assumption about the Laffer Curve, it would be quite possible to implement something akin to what Romney’s proposing and not “lose” tax revenue.

This doesn’t mean, of course, that Romney seriously intends to push for good policy. I’m much more concerned, for instance, that he’ll wander in the wrong direction and propose something very bad such as a value-added tax.

But Romney certainly can do the right thing if he wins. Assuming that’s what he wants to do.

Just like he can fulfill his promise the reduce the burden of government spending by implementing Paul Ryan’s entitlement reforms. But don’t hold your breath waiting for that to happen.

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If you can read the following and not get upset, you are not a good person. Please move to France (where higher taxes are “patriotic”) and don’t come back.

I’m engaging in a bit of hyperbole, but you’ll hopefully understand after reading this excerpt from a very disturbing report posted on Zero Hedge.

Jacques Wajsfelner of Weston, Massachusetts is a criminal mastermind. Big time. Like Lex Luthor. But rest easy, ladies and gentlemen, for this nefarious villain is about to face some serious jail time thanks to the courageous work of US government agents. You see, Mr. Wajsfelner was finally caught and convicted of a most heinous crime: failing to disclose his foreign bank account to the US government. Note– he was not convicted of tax evasion. He was not convicted of failing to file or pay taxes. His crime was not filing the annual Report of Foreign Bank and Financial Accounts (FBAR). Because of his failure to disclose his foreign bank account, Wajsfelner is now looking at FIVE YEARS behind bars in a Day-Glo orange jumpsuit. Oh, one more thing– Wajsfelner is 83 years old. He was born in Germany during the global depression and rise of Adolf Hitler. The Wajsfelner family soon fled the Nazi regime and made its way to the United States.

Please note that Mr. Wajsfelner didn’t get convicted of not paying tax. He got convicted for the utterly trivial and victimless “crime” of not reporting a foreign bank account.

So the government is sending a completely harmless old man to jail for something that shouldn’t be illegal (and if we had a flat tax, there would be no double taxation of saving and investment, so it wouldn’t matter for tax purposes if your bank account was in Georgetown, Kentucky, or Georgetown, Cayman Islands).

Now let’s compare the treatment of Mr. Wajsfelner with the way some real criminals are treated.

Then there’s Eric Higgins of Port Huron, Michigan, who was recently busted for major possession of child pornography and engaging in sexually explicit conversations with juveniles online. He was given 20 months. Oh… and Mr. Higgins was a US Customs & Border Patrol agent. …Or Ricardo Cordero, another US Customs & Border Patrol officer who was given 27-months for personally smuggling 30 Mexican nationals into the United States, and assisting another smuggler to bring 15 Mexican nationals across the border. This genius even had the smuggler testify as a character witness at his divorce proceeding! Or Jon Corzine, former CEO of Goldman Sachs and member of the political elite, who presided over one of the largest plunders in the financial system ever seen during the recent MF Global collapse. He walks the streets freely to this day.

The article closes with a very accurate – but understated – assessment of the federal government.

It seems pretty clear where the US government stands: the victimless crime of failing to report a foreign bank account is far more egregious than, say, possession of child pornography, engaging with minors in online sex chat, bribery, extortion, fraud, and abuse of official power.

This horrifying example of government abuse is a good example of why I’m a libertarian. Yes, I get upset about bloated and counterproductive government spending. And I also get irked by our punitive and destructive class-warfare tax system.

But what gets me most upset is unfair tyranny against powerless people. If your stomach can stand it, here are some more examples.

Every one of the government officials involved in these episodes should be fired. And they should consider themselves lucky that tar and feathers are no longer a method of dealing with despicable bureaucrats.

P.S. The Zero Hedge website is also the source of the extremely funny and clever ethnic analysis of Europe.

P.P.S. While I utterly despise bureaucrats who engage in thuggish behavior, I’m not a big fan of bureaucrats in general.

P.P.P.S. The government’s grotesque treatment of Mr. Wajsfelner is part of the overall attack on tax competition. Heaven forbid people have the freedom to benefit from better tax policy in other jurisdictions!

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