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Edward Phillips

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Screwed by the Skew
By Edward Phillips
Wednesday, April 15, 2015

Rated "G" by the Author.

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[image: Ray Dalio]

Screwed by the Skew

I just returned from the post office where I dropped off an envelope containing my automatic extension of time for filing my income tax return for 2014. I’ve always been a last minute kind of guy, so this was a normal trip for me. My application for an extension did not relieve me of my obligation to estimate my tax nor for including a check for the full amount. I merely had to empty my checking account, my savings account, and draw down my remaining line of credit in order to find the amount needed. Suffice to say, I am broke on my ass.

So what’s my beef? Well, on my way back home, I thought about Ray Dalio. Who is he, you may ask, and what has he got to do with my boring tale of having to pay my income tax?

Ray is at the other end of the income scale. He’s a hedge fund manager who is paid in millions of dollars…per hour! A few years ago his annual income totaled $4 billion. On a 2,000 hour work year, that comes to $2 million per hour! He paid only 15 percent of that total in income taxes. He did not break the law. He complied with it.

What? Huh? (You must be asking these interrogatories if only rhetorically). Yes, hedge fund managers get really good treatment from Congress. Their income is considered “carried interest,” which is typically 15 to 20 percent of the total amount of the fund they manage. It is a fee charged for the presumed risk of investing other people’s money when you have a few bucks at risk yourself, at least that is the reason given for the ultra low taxation on their income. (If you are not amused by the absurdity of that logic, rest assured, neither is the rest of the sane world). There is no evidence that Ray’s efforts or others like him have any beneficial effect on the economy or jobs. In fact, they reduce both. In essence what they do is pass huge sums of money back and forth, such that they make a profit from others who are not quite as adept as they are with their computer models and with their programmed timing devices. So they suck a lot of money out of the economy which helps them but harms all the rest of us even more. Still, that is not the whole story.

Today, the House will vote on whether to eliminate the estate tax. This tax is imposed with inconsistency on estates valued at more than $5 million. It is a tax on net worth which today in the aggregate for all Americans stands at approximately $100 trillion. That is not a typo. The tax, however, applies only to large estates such as Ray Dalio’s when his time is up. (Forbes puts his net worth at $15.4 billion). It is not a tax on the dead, but on their heirs who had nothing whatever to do with wealth accumulation. Thus it is probably the fairest tax of all, while currently also being the lowest tax rate of all. In so far as I know only members of the Republican Party want to eliminate this tax. But there are some wealthy Democrats who may also vote to eliminate it. We’ll see who the shafters are very soon. We already know who the shaftees are.

Still, what has any of this got to do with my having to pay my income tax? Nothing, but I first needed to draw a distinction between those of us at the low end of the wealth and income curves and those at the top. Now here comes my zinger:

Two months ago the Veterans Administration awarded me a 10 percent disability for a service connected injury. I won’t go into details about the physical issue, but the monetary award is at least interesting when laid alongside that of the heirs of billionaires. The VA award amounted to $133 per month, but…it was conditioned on my giving up $123 per month from my military retirement check. Without resorting to my calculator, I quickly determined that they were granting me a pay hike of 10 bucks per month. That’s approximately the amount of the tip I leave at the Olive Garden, that I will no longer be able to afford for the rest of 2015 after depositing my check in the mail for taxes this morning. I doubt if Ray Dalio or anyone near the top of the income totem pole has to deal with issues as vexing as that.

But don’t feel sorry for me. I have known the agony of dining with Generals, the pleasure of dining with Ambassadors, and the high honor of dining with several extremely attractive and articulate Ladies. When life is good I at least know how to milk it for all it’s worth. I doubt if Ray or any of his cronies could stay up with me when wining and dining for pleasure or fun, big bucks to the contrary notwithstanding.

My Point: Close to $90 trillion of the wealth referred to above resides with the wealthiest 10 percent of Americans. The number one causal factor behind that grossly unequal skew is the inheritance laws that allow for the transfer in immense amounts of wealth from us to them and from one generation of recipients to the next. If the latest gambit by Congress succeeds, then they will have locked into law the biggest wealth transfer mechanism in America that makes the rich richer, and from which we may never recover. I call it “choosing your parents wisely.” Please give me credit for that small bit of sarcastic wit if you choose to use it. My ego needs the boost from time to time.

The U.S. Treasury will also realize a shortfall (increase in the deficit) as a result of eliminating the estate tax. But I am willing to help soften the shortfall. I am now drafting a letter to the VA in which I am thanking them for their wonderful act in acknowledging that I am a disabled veteran who served his country in time of need. But, shucks, that was all in my contract. So I will let them keep their generosity. America needs that 10 dollars more than I do. Besides, I can’t stand the idea of the servers at the Olive Garden calling me a cheapskate when next I grace their stage with my lady on my arm and romance in my heart. It all has to do with cosmic equilibration, or balancing the scales of eternal justice.

    

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Reviewed by Ronald Hull 4/16/2015
Another great article. It's time for the voters to get it. We must remember that sales tax and the lottery are also taxes that hurt the lowest wage earners as well. But you're right. Inheriting wealth is something that is hurting all of us and the wealthy don't seem to know or care.

Ron
Reviewed by Lark Pogue 4/15/2015
Another great one, Ed. I'll have to try and see how this comes out, as I doubt it will lead the news reports.
Reviewed by Jane Noponen Perinacci 4/15/2015
I've been a server for many years. I'd give you a wink.

Love ya!

Jane


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