Talking about Taxes

The tax cut is probably the biggest domestic news story right now. The coverage and punditry surrounding it strike me as shallow and frequently disingenuous. Here are some reasons why.

1. The Democrats go on and on about "tax cuts for the rich," and no one calls them on it. "Rich" is a matter of wealth, the taxes we are talking about are on income. It is easy to have a high income with low net worth (think of a 35 year-old surgeon) or a high net worth with low income (retiree with a paid up mortgage in Palo Alto).

2. A tax cut is for people who pay taxes. Giving a "rebate" to people who do not pay income taxes is a transfer payment (i.e. welfare).

3. When i do financial analysis, the tax rate is included. The bottom line is income (or return) after-taxes. A change in that rate impacts the bottom line. In some cases, a change in tax rate can switch a project or investment from "no-go" to "go."

When you think of the millions of potential investments and projects that are evaluated by big and small businesses each year, even a small increase in after-tax returns can generate thousands of new "go" decisions.

Yet the press (which is filled with innumerates) treats the incentive element of tax cuts as though it is just Republican spin.

4. Big philosophical question-- what does citizenship mean in a democracy where the majority of eligible voters pay less than 5% of the income taxes. On spending issues, it is no longer a matter of "we should do this" but rather "they should pay for that."