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What taxation is ‘fair’?

August 29, 2012
Messenger News

To the editor:

Currently much political noise is being generated about "fair taxes," especially when wealthier taxpayers report income tax rates lower than paid by many in the "working class." But the wealthier will derive a greater portion of their income from corporate dividends and from capital gains, mandated by Congress to be taxed 15 percent of each. The two are very different.

Corporate income taxes are currently 35 percent of the annual profits. A portion of the remainder may be passed on, as dividends, to the owners of the corporation, the stockholders, who are then charged an additional 15 percent on their personal tax return. Thus the recipient of dividends pays up to a total of 50 percent on his share of his corporation's profits although only 15 percent appears on his tax returns.

Capital gain can be described as the increase in dollar value of an investment over the time that it is held. Conceded to average annually about 2.75 percent, compounded, inflation bleeds the value of all investments over time. Is inflation real? We paid just under $2,700 for a new Chevrolet Impala in 1965. If that investment had been made in stocks whose value had increased at the rate of inflation they would yield more than $20,000 (the Chevrolet today) and we'd owe 15 percent on our "profit" although there was no gain in wealth. Investments which grow at a rate less than inflation guarantee a loss in wealth, plus likely capital gains taxes. Fixed investments, such as bank CDs, suffer the same losses plus income tax on the interest.

The U.S. Congress has reportedly considered correcting capital gains for the effects of inflation, but public clamor for change has not been adequate. The "gains" in capital gains clearly go to the taxing governments.

Our governments require our taxes to perform the diverse functions we need. We will likely never agree whether each of us (59 percent of U.S. citizens?) is paying his fair share. A wag once described a fair tax as one paid on your behalf by someone else - if they pay enough.

I believe that all Americans should be willing, and proud, to pay something as taxes for the services and protections we expect, and receive, from our governments.

Floyd Herum

Fort Dodge



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