11-07-06, 9:54 am

I once read a translation of Karl Marx's Communist Manifesto.  The only thing radical that I could see in it, other than his call for workers of the World to Unite, was his proposal to transfer wealth by means of a graduated income tax.

Franklin D. Roosevelt (FDR) took that idea from Marx and used it as a method to transfer wealth from the few extremely wealthy folks of the day and the Government spent it building roads, bridges, sidewalks, etc., transferring much of the wealth to ordinary people so that they would have money to spend.  The rest is History. 

He brought the country out of the Great Depression telling folks that government spending was like priming a pump.

Back then most everybody was familiar with the old pitcher pumps.  We had to pour water into the top of the pump so that it would generate enough suction to bring water up from down in the ground.

One of my clients came into my office a few weeks ago to have his tax return prepared.  Before he left, he remarked, 'I favor the 'flat tax,' but I don't guess that you do because it would hurt your business.  The flat tax would be so much simpler.'

Flat tax simply means that high income taxpayers would pay less while lower income taxpayers would pay more.  There would be some exemptions, and some tax free income levels, as there are now.  But basically everything would be pretty much the same.

Of course the tax rates are rather flat now, as they were under Ronald Reagan and George Bush the First.  And the tax calculations are pretty simple as well.  If we don't understand the Tax Rate Schedules, IRS has even calculated the tax for us and put it into tables so we don't have to calculate the tax. 

We just figure out our taxable income; look under that amount in the tax tables; and presto, there is the amount of our tax. 

Under the flat tax we would still have to calculate the taxable income. 

And during the Reagan (and Bush) years, when we had (and have) very flat tax rates, I still prepared (and prepare) lots of income tax returns for large numbers of folks.

The rates were so flat when Ronald Reagan was in office that they actually bent over backwards into a hump.  Those who earned from $75,000 to $125,000 actually paid a higher tax rate than those who earned more than $125,000 a year--just the reverse of Marx' graduated tax rates where the tax rates rise as the income rises.

George Bush, the First, realized that it wasn't fair to tax the middle class with rates higher than the tax rates for folks earning more than $125,000 a year.  After vowing: 'Read my lips; no new taxes,' he raised a furore by signing a bill that flattened out the hump by lowering the tax rates for those who earned from $75,000 a year to $125,000 a year and raising the tax rates for those who earned more than $125,00 a year.  Whoa, he raised taxes for the wrong income level, which caused all the fuss.

Had Bush the First raised the taxes for the middle class and lower income workers, nobody would have said a thing.

The rates were so flat under Reagan, that a writer for Mother Jones Magazine complained that a schoolteacher, who had won some sort of award for being a good teacher, paid taxes at the same tax rate as did Ross Perot, who she said made a million dollars a year.   

Her business editor sent it back to her, saying:

'Ross Perot makes more like a million dollars a day than a million dollars a year.'

It was reported in the newspapers back then that Ross was worth three and a half billion dollars.  The stock market has earned, since before the Great Depression, through the Great Depression, through the many wars and recessions and until this day, more than 10 percent a year, each year, on average.  Small company stocks have earned more like 12-1/2 percent a year during the same period. 

But let's say that Ross only earned eight percent on his money-although it is hard to see how he could have accumulated that much wealth if he was only earning eight percent on his investments.  But if so, and if the newspapers of the day reported his net worth correctly, that would give him income of $252 million dollars a year. 

That's not quite a million dollars a day, but it's pretty close.  Ross is just a small fry.  Lots of people have more money that Ross does; Donald Trump and Bill Gates come to mind.

When there are very many people making that kind of incomes, if the government doesn't tax and spend it (those darned tax and spend Democrats); it (the wealth) just accumulates, continuously earning more, until much of the excess money is sucked out of the economy.

True, these tax breaks go to the people who hire workers.  But they don't hire workers just because they got a tax cut.  They hire workers when the economy picks up and people start spending money again.



--Bill Fulcher is an enrolled agent with a tax practice in Brownsville, Texas, and can be reached at (956) 541-4874 or by E-mail at bill@billfulcher.com.  Check out his Web Site at www.billfulcher.com