It is going to be fascinating to watch lower-income Americans yelp as they begin to shoulder a far larger share of the national tax burden in future, whether through direct or indirect tax assessments.
According to the Internal Revenue Service, in 2004 (the last year for which such figures are available), one per cent of Americans paid 37 per cent of the national income tax burden, five per cent of Americans paid 57 per cent of the national income tax burden, and twenty-five per cent of Americans paid 85 per cent of the national income tax burden.
America’s top income groups, since early 2008, have been rapidly shifting assets to insurance investments (insurance investments are nontaxable at federal, state and local levels), shifting assets to tax-exempt bonds and tax-exempt funds, establishing and funding trusts, and creating various corporations, including real estate corporations, in which owners may benefit from aggressive depreciation schedules, match cash flow with expenses, and tightly control capital distributions.
My father is an attorney who does a fair amount of estate and trust work, and my mother is a CPA. Both noticed a dramatic pickup in business by March 1 of this year, as clients—business clients and individual clients—began to move their assets from capital-producing but taxable investments into tax-exempt, tax-sheltered and tax-favored investments, all with the view of shielding assets from higher tax rates or from taxation altogether.
By June 1, this trend had become an avalanche. Both of my parents have been swamped with work since the beginning of the summer, and their work burdens have only increased, week by week, ever since. They will be working day and night between now and December 31.
This shift of assets is entirely predictable: the investor classes realized that they were about to be hosed and they took preventative action, as they always do. The net result is that higher-income demographic groups will be paying a far lower portion of aggregated income taxes in future, forcing governments to look elsewhere to make up tax revenue shortfalls. Governments—federal, state and local—will be forced to look to the lower middle classes, which have been more or less exempt from income taxation for years.
This is pure Economics 101. Imposition of higher taxes always results in lower tax receipts. The effect will be more pronounced than usual in 2009, however, because the investor classes had plenty of advance notice and plenty of time to take preventative action—and they did so, in spades, in large part because they were hocked off by the populist rhetoric coming from the Presidential campaign.
In 2008, every attorney and every accountant in America is raking it in, while their clients are removing billions upon billions of dollars of assets from the reach of the tax tables. Tax receipts in the first quarter of 2009 will plummet, perhaps as much as fifty per cent, sending all governments into crisis.
In 2004, according to the same IRS figures, the bottom fifty per cent of taxpayers paid only three per cent of all federal income taxes, and the bottom seventy-five per cent of taxpayers paid only fifteen per cent of all federal income taxes.
The free ride for these groups is now over, because governments will have no choice but to begin taxing these groups much more heavily because there will be no other groups to go after in order to squeeze more revenue from the populace.
Americans making less than $75,000 will become tax targets, pure and simple, taxed directly and indirectly in ways they never imagined. It will be interesting to watch the actions of this group, because this is the same demographic group that voted Democrat in 2008 and because this is the same demographic group that will suffer massive job losses over the next several years.
Corporations and businesses will begin laying off millions and millions of workers next year. Companies are building up inventories right now and accelerating business activity into 2008 for tax reasons, all sound preparations for cutting costs and reducing taxes in 2009. The inevitable result will be massive job losses. Most of those job losses will be permanent.
It is ironic, yet somehow fitting, that populists will be the ones who will do the suffering in the next few years.
What is it about wives of Democrat Presidents not being able to pass their bar exams?
Clinton’s wife failed the District Of Columbia bar exam on her first try, and never risked a second attempt.
Obama’s wife failed the Illinois bar exam on her first try, but managed to pass on the second attempt.
The District Of Columbia has one of the three most competitive bar exams in the country (the other two are California and New York), so perhaps Clinton’s wife should not feel too embarrassed at flunking the D.C. bar exam.
However, Illinois has one of the very easiest bar exams in the country to pass. People can literally walk in off the street and pass the Illinois bar exam.
A fresh law school graduate who flunks the Illinois bar exam has to be very, very stupid indeed. Such a person must be exceedingly humiliated.
Up to now, the most prominent person who never succeeded in passing the Illinois bar exam was journalist and gadfly Studs Terkel, whose bar failures colored the remainder of his life. Terkel forever after suffered from a terminal case of sour grapes, perhaps the world’s worst case ever. Terkel spent the rest of his days writing very bad books in which he railed relentlessly against the successful.
Anyone who has ever tried to read a few pages from one of Terkel’s books—which are unsophisticated beyond belief—can immediately comprehend why Terkel, master of the painfully obvious, could never pass the bar exam.
It is again ironic, and yet again somehow fitting, that the insufferably populist Terkel died a few days ago, only days before he might have lived to witness a populist win the White House.
The best joke I heard during the Presidential election was from Andrew’s father: “The only way for the Republican Party to gain Jewish votes is to advocate Palestinian rights.”
The best cartoon I saw about the outcome of the election: