My Tax Rate Is Lower Than Mitt Romney’s

With the all the media fuss over Mitt Romney’s tax rate, it’s a good thing I’m not running for President.  Not that I’m interested in the job, or any other elective office.  (But if you know of a postage stamp-sized country with a mild climate where I can serve as Most Exalted High Potentate and Dearest Leader, send your nominations to me along with the names of a dozen retired SEALS looking for some action.)

Now I can understand the media’s interest in candidates’ tax rates because the media loves anything that suggests scandal or outrage.  But I do not understand why any manly, Republican one percenter wannabe would be concerned that Romney’s tax rate of 15% is more than half that of Warren Buffet’s secretary.  Much of Romney’s income is from capital gains while Warren Buffet’s secretary’s income is from…well, work.  And isn’t work what you do only when you’ve run out of other options?

Even a caveman knows that a low tax rate on capital gains is part of the Republican holy grail.  It is their sacrosanct belief, if not empirically demonstrable, that a low capital gains tax is an essential component of the “trickle down” economic paradigm: the more money the one percenters have, the more trickles down to the 99 percenters.  (Similarly, if you are not good during the year, Santa will not be visiting you at the end of the year.)

So how is it that a working class hero like me, whose income includes no capital gains, has a tax rate of 7.5%?  That’s half of Romney’s!

Well boys and girls, while I view the trickle down paradigm as the economic equivalent of Santa Claus, no one can deny that the tax code has more holes than Swiss cheese.  And I’ve availed myself of a few of those holes (which girlie economists call “tax expenditures” but which normal folks call “incentives”) to shield a significant amount of income.  In this millennium, it’s not how many pounds you can bench press that makes you a manly man, it’s how much income you can avoid paying taxes on.

Perhaps the biggest hole I’m pouring money through is a deferred compensation account.  Each month, I defer 20% of my gross salary into an account made up of five (currently) mutual funds I’ve selected and have complete control over.  At any time, I can sell some portion of it and invest the proceeds into another fund or direct future income into a new fund.

Technically, however, I never received this money, so it disappears from the “taxable income” box of my W-2.  That’s better than David Copperfield because what he does is an illusion but the disappearing income is real.  When I retire and begin withdrawing from the account, I will pay taxes on that income but by then I’ll be in a lower tax bracket.  (Don’t confuse tax bracket and tax rate or you’ll have to write “potentate” 100 times.)

About another five percent of my gross income escapes taxes because it is for “medical” expenses. This includes my insurance premiums and all my co-payments for drugs, doctors, etc.

I make those co-payments with a debit card preloaded each year with a certain amount which is deducted in equal installments over the year from each paycheck.  If I don’t use the amount I set aside, I lose the balance but I’m good at projecting those health expenses.  (Last year, I had eleven dollars left but I used that up during the three month grace period that extends through the first quarter of the new year.)

So at the end of the year, a good 25% of my income has disappeared for tax purposes.  Besides an IRA, I don’t have any deductions other than the standard deduction and personal exemptions.  But that still results in my paying only 7.5% of our “real” income to the gooberment.

Without the deferred compensation and medical accounts, my tax rate might probably be as bad as Warren Buffet’s secretary.  Too bad Susie has no way to shield her retirement income or maybe I could drive that tax rate down even more.

Do I think this is fair?  Does anyone think the tax code is “fair?”  It is what it is.

I’ll leave it to the historians (like Newt Gingrich) to pontificate how a very simple tax code grew into a convoluted monstrosity that, like the Energizer bunny, goes on and on and on.

That’s my cue for me to segue into my philosophy about the income tax. It should be nothing more than a method to raise revenue.  No one should receive special consideration.

The income tax began that way.  But then it mutated into a cancer because the usual suspects (which means everyone but anarchists) decided to use the tax code for all sorts of “engineering:” economic engineering, social engineering, etc.

The tax code has become the preferred way for special interests to encourage or discourage whatever they want to through the power of gooberment.  Let’s encourage home ownership by allowing a deduction for mortgage interest.  Let’s encourage charity by giving a tax deduction for it.  And on and on and on.  I’m sick of all the do gooding and moralizing in the tax code!

I want to see a flat rate tax with no deductions for anything and which makes no distinction between types of income.  Only when two folks with the same income pay the same tax will there be true tax equity because all deductions are nothing more than subjective value pronouncements no different from “I like garlic fries.”

But a flat rate tax with no deductions is too straightforward…


9 responses to “My Tax Rate Is Lower Than Mitt Romney’s

  1. Haiti? But sorry, I don’t know any retired SEALS, and anyway, I didn’t think they had names. I love your definition of “work”.
    The whole Romney thing pisses me off, but not at Romney. What he pays is scrupulously legal. It’s the legality of it that bothers me. It seems ignorant to me to blame Romney. The whole notion of taxing capital gains at a lower rate is in itself “engineering”. It’s based on the idea, as you say, the trickle-down theory. We must not “punish” the “job creators”. What job creators? If you allow people to keep more of their money, they just keep more of the money. And I can’t find a problem with that, unless you deify them.
    I heard on the news that Gingrich pays about 31% and Obama pays about 33%. Because they “work”, although you would have to have a very broad definition of that term to apply it to Gingrich.
    Speaking of the 99%, I recently computed that I am the 56%, so I am highly irate at the 44%. I believe I will Occupy something.
    Also, I wish you hadn’t mentioned taxes. It reminds me that I have to finish mine. Now I’ll be pretty interested to do so, so that I can compute my tax rate. Because I have no idea what it is.

    • Haiti is too large and too prone to earthquakes, hurricanes, etc. for me to become MEHPDL!

      As for the flat tax, it is true that the poor always pay a higher percentage of their income for everything, such as groceries, etc.

  2. Also, I meant to mention, I have a problem with the flat tax concept. It’s like sales tax. In real dollars, it “unfairly” penalizes poorer people, who have less money left, and less buying power with those dollars. But then you would have to define what you mean by “fair”. But real dollars and percentages are two different animals. Fun With Statistics.

  3. This was a good read for me Anarchist. All I’ve ever done is fill out the form 1040ez and pay what they tell me. I’ll have to learn from the master before you run off and take over your island.

    • Don’t give the gooberment a penny more than you absolutely have to Nick!

      And when I become MEHPDL, you can be a Minister of your choice!

      Good to see you blogging again, even if under unfortunate circumstances. I’m not surprised about the initial handling; reminds me of the DWB incident I experienced back in 1970.

  4. ” I defer 20% of my gross salary into an account made up of five (currently) mutual funds I’ve selected and have complete control over. At any time, I can sell some portion of it and invest the proceeds into another fund or direct future income into a new fund.”

    mmmmmmm you are kinda missing the point here I think. You have absolutely zero control over what the funds do with your money when you invest, You are gambling that they will make money and improve the value to the share holders. You are investing in the corporate world and growing the economy or you are losing your shirt. If the former, you re the missing link that you refer to as Santa Clause cause you are helping to trickle down and grow jobs. You and Mitt are like Batman and Robin the dynamic duo of wall street:). BTW those corporations that you invest in pay taxes on your money until it is your turn. But don’t feel bad neither Jefferson nor Madison understood capitalism either.

    • Historically, the stock market is a good investment. Yes, my account lost 40% of its value during the financial meltdown but by buying big time when the market hit 7500,I rode it back up.

      What are you doing…investing in a CD at maybe 1%? Every one of my mutual funds is doing better than 1%. The worst 2012 YTD return is a bit over 4% and the best is a bit over 6%. My IRA “vice” fund’s 2011 return was a bit over 10%. (you can verify that easily with Google.)

  5. “What are you doing…investing in a CD at maybe 1%? ”

    Of course not I did what you did, got burned the same way and came back the same way. I guess my point is that is is not rocket science, millions of other Americans are doing the same thing. I just find it amusing that you take such pride in working a system that you have given up on philosophically. It seems you are only a partial anarchist, when Capitalism works for you personally then it’s ok. Seems more meaningful to espouse anarchism if you would just throw the bomb.

  6. > millions of other Americans are doing the same thing

    But I also understand that a lot of folks panicked and sold and others never got back in because they were too afraid so they’re the ones buying the 1% CDs.

    > working a system that you have given up on philosophically

    Maybe that’s my REAL ideology…working the system! Because regardless of my “theoretical” beliefs, I’m gonna play the cards I can play in the game I can play. Until a new game comes along….

    > just throw the bomb

    Now PT, I am not a simpleton. A bomb will accomplish little. Give the usual suspects an excuse to curb freedoms in the name of “law and order.” The true long term strategy is to demoralize the masses.

    This is a war of hearts. Fortunately, to win such a war, one does not need facts. The hearts doesn’t hear facts too well. It listens best to emotions. And so with millions unemployed, there is a golden opportunity. I do believe we will see a huge paradigm shift for the millions who will NEVER get back to where they were.

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