Brief Blog: April 13, 2010 – Thank a wealthy person

A few years back I completed an internship for a very successful wealth manager at a large financial institution.  He never said how much money he earned but did mention that he paid about $700,000 in taxes the previous year.

Now that’s a check that Uncle Sam doesn’t want to get lost in the mail.  Around April 15 of every year, we see updated reports on the tax burden distribution.  As it currently stands, the bottom 50 percent of income earners in the U.S. pay about 3 percent of the nation’s federal tax revenues.  The top 10 percent pay 68 percent and, most impressive, the top 1 percent of income earners pays about 37 percent of the nation’s tax burden.

Additionally, the Tax Foundation reported last month that in 2008 a record number of filers, 36.3 percent, got back every dollar withheld from their paychecks, and often more.  The report also notes that the number of such “non-payers” has increased by 59 percent between 2000 and 2008.

Given my former boss’s IRS tab, I’m pretty certain that he belongs to the “top 1 percent club” and is among those negatively affected by the expiration of the Bush tax cuts at the end of this year.  If Congress and President Obama do nothing, then those earning at least $250,000 per year will see higher taxes beginning January 1, 2011.

True, the U.S. is in a major financial hole and the Congressional Budget Office forecasts are bleak.  How bad is it?  The U.S. is expected to rack up $1 trillion deficits each year over the next decade.

The knee-jerk reaction by Congress is to soak the rich with more taxes.  After all, the wealthy constitute a very small number of voters.  As long as most people pay little to no taxes, all should remain fine on Election Day.

Congressional Campaign Committee Chairman Chris Van Hollen (D-MD) suggested that doing away with the Bush tax cuts for the wealthy would add $850 billion in revenue over the next 10 years.  But at what point does punishing the success of the most productive begin to topple the economy?

Looking back, my former boss’s success paid dividends all around.  His practice employed two junior partners, two administrative assistants and an army of paid interns.  It’s a similar story for all the jobs I have had.  All of my paychecks have been signed by successful businessmen.

Rather than extract more money from the private sector, Congress and the White House should focus more on cutting their budget instead.  As a bonus, extending the Bush tax cuts could be a much-needed bipartisan victory for President Obama.  For example, Sen. Jon Kyl (R-AZ) and Rep. Harry Mitchell (D-AZ) have both called for the Administration to leave the tax cuts alone.

But until that happens, at least thank a wealthy person this April 15.