The Fallacy of Taxing the Rich

As Facebook goes public, Eduardo Saverin, a co-founder, has renounced his citizenship and will live in Singapore. He will avoid $67M in U.S. taxes since Singapore does not tax capital gains. Sen, Chuck Schumer (D,NY) is trying to force him to pay U.S. taxes. The State of New York is suing Derek Jeter because he has claimed Florida as his state of residence while playing for the New York Yankee baseball team. Florida has no state income tax, and other taxes are lower than New York.

These examples show the flaw in the “tax the rich” mantra. The rich can buy a first-class airline ticket to anywhere in the world and run their businesses by Internet while they have lawyers handle interactions with the government. Warren Buffet's wealth is mostly in Berkshire-Hathaway stock. Any time he needs some pocket money, he can sell a share of BRK.A for $120,850. He will pay 15% on the capital gain (selling price – cost basis). Since Berkshire-Hathaway has paid income taxes at 30%, the cash that Buffet receives has been taxed at 30%+15%=45%. This is probably more than the tax rate paid by his secretary. In his speeches Obama has claimed that Buffet pays a lower tax rate than his secretary, but then later claims that he pays less in taxes than his secretary – an obvious lie, but good for dramatic effect.

The same tax avoidance process occurs at the state level. California has a huge deficit, encourages abortions and allows sodomy. Texas has much better finances, has implemented tort reform and has much more conservative social laws. Americans living in California (or NY, IL, etc) can move to Texas. Many physicians have moved to Texas because of no state income tax and lower malpractice insurance costs. The practice of moving from one state to another even has its own phrase, “voting with your feet.” Folks in the CSRA do this to a lesser extent when Georgians fill their gas tanks in South Carolina.

This all may sound un-patriotic to some, but I took an oath to support and defend the Constitution against all enemies foreign and domestic. The Constitution is the Law. If our Federal Government ceases to follow immigration and defense of marriage laws and continues to enact un-Constitutional laws (like NIRA, 1933 and PPACA, 2009), then it has exposed itself as a domestic enemy. I would list Social Security, a forced ponzi scheme, and Medicare, but these have been popular although un-Constitutional.

Many big-government politicians talk about the United States as a democracy. It is not. It is a constitutional republic where our representatives are democratically elected. Since 47% of our “population” pay no income taxes, and 70% receive a payment from taxpayers, we are well on our way to “democracy fails when people realize they can write checks to themselves.”