Recently the Democratic Party ads have been harping on the fact that Romney has not paid taxes or paid few taxes for the past few years. While it is a perfectly legitimate argument and probably a good marketing move from the Democrats, I feel it is dumb in a literal sense. Let's dig a bit deeper shall we?
The US tax code is one of the most complex ones one can imagine. It has 71,684 pages. I found an interesting article on how many hours it would take a hypothetical business to file taxes in different countries. US ranks 66th in complexity. So why the complexity? I am no expert on taxes. But in a capitalist economy, most of the industries are supposed to be driven by the private sector. So one of the most potent levers that the government can pull to influence behavior within a sector is tax breaks. So commoners like you and me would get a break if we buy a hybrid instead of a gas guzzler. Business owners would be rewarded for innovation in the new energy initiatives. Sometimes one gets a tax refund to spend more and boost the economy. As much of this makes sense, one has to be aware that for every 10 people who are worthy of or have the right credentials for such an incentive, there is one person who would be using this break as a loophole to cut his or her taxes. It is completely unavoidable. And in most cases it would be someone who has the means to hire a top notch tax attorney to do so.
In business school, I did a course in corporate finance. One of the important aspects it dealt with choices that would minimize the tax paid by the firm. Sounds intuitive right. Well why would anyone pay the government more money than they should. There is a whole industry that feeds off of this function. The sexy term being Tax planning. And this is true not only in the US but all over the world. Accenture moved it's headquarters from Cayman Islands to Ireland not because it is a better place for talent but because Obama cracked down on Cayman as a tax haven.
The other side of the argument does not hold water either. Would someone not work hard enough if the government taxed say 20% instead of 15% of your income? As long as the income from this tax builds infrastructure and supports a stable business environment, it should not be a deterrent. At the end if an entrepreneur wants to sell his goods or services, he would want the roads to be fixed on time, his school district to be good and his customers to have the economic well being to afford his offerings. The behavior would change if this rate goes to an absurd number like 40%. So what does it boil down to?
Should people who earn more provide for someone who does not? Flipping it around, would the top 1% hurt themselves in the long run by not paying for lower income groups which in turn hurts the economy and society in general. It depends on what we are talking about. For Education - Yes and this system is already in place when you look at how scholarships in higher education work, Healthcare - Can of worms....don't know. Auto industry, Financial Services, the list goes on. All in all move beyond the rhetoric on either side and have an honest conversation with what you believe in to get the answer to those questions.
The US tax code is one of the most complex ones one can imagine. It has 71,684 pages. I found an interesting article on how many hours it would take a hypothetical business to file taxes in different countries. US ranks 66th in complexity. So why the complexity? I am no expert on taxes. But in a capitalist economy, most of the industries are supposed to be driven by the private sector. So one of the most potent levers that the government can pull to influence behavior within a sector is tax breaks. So commoners like you and me would get a break if we buy a hybrid instead of a gas guzzler. Business owners would be rewarded for innovation in the new energy initiatives. Sometimes one gets a tax refund to spend more and boost the economy. As much of this makes sense, one has to be aware that for every 10 people who are worthy of or have the right credentials for such an incentive, there is one person who would be using this break as a loophole to cut his or her taxes. It is completely unavoidable. And in most cases it would be someone who has the means to hire a top notch tax attorney to do so.
In business school, I did a course in corporate finance. One of the important aspects it dealt with choices that would minimize the tax paid by the firm. Sounds intuitive right. Well why would anyone pay the government more money than they should. There is a whole industry that feeds off of this function. The sexy term being Tax planning. And this is true not only in the US but all over the world. Accenture moved it's headquarters from Cayman Islands to Ireland not because it is a better place for talent but because Obama cracked down on Cayman as a tax haven.
The other side of the argument does not hold water either. Would someone not work hard enough if the government taxed say 20% instead of 15% of your income? As long as the income from this tax builds infrastructure and supports a stable business environment, it should not be a deterrent. At the end if an entrepreneur wants to sell his goods or services, he would want the roads to be fixed on time, his school district to be good and his customers to have the economic well being to afford his offerings. The behavior would change if this rate goes to an absurd number like 40%. So what does it boil down to?
Should people who earn more provide for someone who does not? Flipping it around, would the top 1% hurt themselves in the long run by not paying for lower income groups which in turn hurts the economy and society in general. It depends on what we are talking about. For Education - Yes and this system is already in place when you look at how scholarships in higher education work, Healthcare - Can of worms....don't know. Auto industry, Financial Services, the list goes on. All in all move beyond the rhetoric on either side and have an honest conversation with what you believe in to get the answer to those questions.
