Feb 12th, 2012 | By | Category: Social Security & Medicare

Some Incongruities in the Argument

Some incongruities are showing up in the arguments we hear daily about dismantling Social Security and Medicare.  The argument is for tossing out the Social Security program as we know it, at some defined point in the future, and let future senior citizens fend for themselves with private investing. The same for Medicare; it is argued that seniors should be free to choose their own array of medical services, within the boundaries of what they can afford.

These arguments are based on the theory that government services and protection should be lessened, made as minimal as possible.  But the theory base is different for wealthy Americans. The richest of the rich thrive because their wealth is taxed at unbelievably low rates. Long term capital gains tax in particular remains at zero for those in tax brackets up to 25% ; it kicks in at that point and remains at only 15% through the 35% tax bracket. Here is a link to a table that explains the rates.

We Americans have somehow developed the notion that invested wealth should be taxed at very low rates and earned income should be taxed at higher rates. What’s that all about??

Underlying Assumptions

The notion about keeping long term capital gains tax low is based on the assumption that invested funds are working for many companies, large and small, who need the investments to grow their businesses. Wealthy people have to be enticed to invest their money in non-family ventures, so laws have been created by the federal government to protect wealthy Americans through low capital gains taxes in order for them to invest their wealth.  The expectation is that everyone benefits in this kind of system, including non-wealthy Americans who find employment in the companies the wealthy invest in.

But wait.  We’ve just had four years of a really bad economy in which millions of people lost their jobs and their homes.  The GDP for the past ten years averaged only 1.9%.  The economy was stagnated.  And wealthy Americans continued to enjoy the unbelievably low tax rate on capital gains, money they had invested in the economy, when average Americans were losing their jobs and their homes. The low tax rate didn’t change, even when the economy tanked.

So the reality is that, in good economic times, wealthy Americans are taxed at lower rates in order to foster new business development and jobs for average Americans, and they are taxed at lower rates when the economy is bad and jobs are lost for average Americans because…   because…

Here’s the punch:  If senior citizens are expected to accept the dismantling of the earned benefit program we know as Social Security, and the Medicare program that provides health care to millions of us, because some suggest we can’t afford these programs, then the same should be said about capital gains taxes for wealthy Americans.  If we’re not going to expect the federal government to protect senior citizens, then we should treat the wealthy with the same expectation Stop protecting wealthy Americans through low capital gains tax; taxes need to be raised on unearned income.  The foundation on which it is built is faulty and besides, we can’t afford the protection.

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