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Fletcher: Can't blame them for the tax laws

January 24, 2012
The Alpena News

In 1935 in an opinion while he was a judge on the U.S. Court of Appeals, Judge Learned Hand said: "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the Treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the court's have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

Well then, what's the ruckus about Warren Buffet and Mitt Romney paying 17 and 15 percent of their income when I'm paying about twice as much. It all has to do with "arranging affairs ..." There is no mystery here so don't get your knickers all in a knot. Wages and salaries are taxed at a 35 percent rate and dividend and some other types of "unearned income" are taxed at a 15 percent rate.

Buffet always makes a big deal of paying himself $100,000 each year. All the remainder of his income is in the form of "unearned income." To be sure, Buffet earns some hundreds of thousands in directorships like Coca-Cola, but the vast bulk of his income is "unearned." It's the same for Romney. Since Romney evidently pays a little less percentage in tax than Buffet, we can assume that a greater portion of his income is "unearned."

"Unearned" is money made on owning investments and these two guys have done admirably in choosing what to purchase in order to prosper. These guys are doing exactly what you and I will do in preparation for Tax Day.

We will take every deduction possible and pay as little as possible to Uncle Sam. The vast majority of us will operate within the tax law as have Buffet and Romney.

Let's take a look at the immutable law of economics - savings equals investment. Since governmental expenditures are all cash outflow there is no investment from an economic sense possible from government. All the talk about "investments for the future" by politicians is balderdash from an economic standpoint.

A lesser rate on unearned income helps folks who don't work, such as retirees. It also helps folks who live by trading in the investment community like Romney and Buffet. On the one side there are millions of retirees who are helped with day to day living by paying less tax and on the other side there are a few thousand like Romney and Buffet.

Shake down a few thousand wealthy investors and then you do the explaining to Grandma why you want to tax her retirement dividends at a higher rate.

If we are to have the three legs of the economic stool, Labor-Raw Materials-Capital, all level, we must tax wisely. We need capital to create jobs and if we tax the fruits of capital we push resources elsewhere for a better return and get fewer jobs.

With the Social Security tax 2 percent decrease for workers, we stimulate workers but not the companies which hire the workers. There is no advantage for the companies, nor incentives to hire more employees as there is no savings for the companies. With food and fuel inflation around 7 percent, working folks likely will spend the extra on supper and the family clunkers. We won't get more jobs from this tax decrease, but we will place Social Security closer to the edge of insolvency.

Once again with the 100 percent bonus depreciation which companies got for 2011 and 50 percent bonus depreciation for 2012 on new equipment purchased, don't look there for the creation of many new jobs this year.

At our local utility we invest millions of dollars in new equipment annually. We have to. You are using more electricity with new computers and new appliances and it's implicit in your thinking that we will be there to supply your needs. The bonus depreciation means our cash flow will be increased providently just as we are reconductoring transmission lines to handle your increasing usage and replacing the 55-year-old substation at Lafarge to make sure a major employer has enough energy and reliability.

As a consequence of the bonus depreciation we won't pay any income taxes for two years. We will use the money for system improvement. The fly in the ointment is that we will select the lowest bid on the equipment and likely a foreign company might win the bid. Our existing work crews probably will install the equipment. No new positions will be created.

If you wish to have jobs, then you must make it attractive for the private sector businesses to expand. Transfer payments to working individuals by cutting their contribution to Social Security won't cause help for the unemployed. A job is what helps the unemployed most. In order to stimulate the supply for new jobs the government must cut tax expenses for the private sector creators of jobs. Small business creates the most jobs and the definition of small business is an employer with fewer than 500 employees. Small business is what we have in northern Michigan.

The important thing in America is if we get the unemployed working again our country will start to grow.

Don't sweat the petty stuff. The business of America is business because that is the economic engine which powers our prosperity. If Mitt and Warren and Occupy and Grandma are the real targets for you then you need to get out more.

The target is in Washington and it's called "deficit."



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