numbskulduggery

Effective tax rates and the corporate income tax, or how to keep someone else from saying what they mean by not meaning what you say

There was a time, it was oh I don’t know, the day before Mitt Romney released his taxes, when an effective tax rate was simply the total tax that a person or household paid on income. 

In my case, for example, my effective tax rate included not only the tax I paid to the IRS, but also the tax I paid to the state and city. For a person like me, this meant that my effective tax rate in really good years was about 35%, and that it fell to around 15% when I could only afford to eat ramen.

Those were the days!

It turns out we’ve all been wrong about the meaning of an effective tax rate all these years. If you are really rich then your effective tax rate includes another kind of taxes as well — corporate income taxes.

You may not have heard this before, and the numbers are kind of tricky, so bear with me while I explain the new math. We’ll have to start by getting the lay of the land.

To begin with, really rich people aren’t paid salaries in money like you and me. Instead, really rich people are paid fancy pieces of paper that are much more precious than money because those fancy pieces of paper increase in value over time and sometimes shoot out cash like an ATM even after the really rich person has stopped doing any work at all.

Plus also, owing to the fancyness of the pieces of paper and maybe just a touch of influence peddling, the never-ending stream of cash that the extremely wealthy person no longer has to work for is only taxed at about a fifteen percent rate.

Here is where things get murky. You see, really rich people aren’t just given fancy pieces of paper that continuously increase in value and shoot out cash for nothing. They get those fancy pieces of paper in exchange for doing the sorts of things that make other extremely rich people’s fancy pieces of paper grow in value and spit out ever larger piles of cash. And the sort of thing you do to make that happen is run a corporation. I know it sounds hard, but at the end of the day all it requires is going to the right schools and making it through lunch. 

Or maybe it’s terribly difficult. Honestly I don’t know. The important point is that however tough it is to wrest profit from the blood soaked fingers of third world children, the government has in its grand majesty seen fit to impose a tax on the activity. This is called the corporate income tax and if corporations did their taxes with the sophistication of penniless losers like me, then those corporations would pay somewhere between 30 and 35% of their profits in tax.

Now, back to the fancy pieces of paper. One of the things that makes those pieces of paper fancy is that their value is sorta-kinda related to how big corporate profits are, and the rate at which those pieces of paper spit out cash also bears a kinda-sorta relationship to profits. Nobody can say exactly what those relationships are, but we do know that whatever the market decides the answers are will be right in the long run, plus also right in the short run given appropriate discounting for future uncertainty, because markets are efficient.

In contrast, the pieces of paper that not really rich people are paid in — money — are only related to profits in that if a really rich person can make more profits by not paying that paper then bye bye birdie.  Because of this (the polite way to say it is that wages are paid before profits), the corporate income tax is irrelevant to the tax burden of wage earners, but it really matters to really rich people.

Obviously, things are more complicated than this. The key to it all is that the fancy pieces of paper that really rich people are paid in have very special properties. If you were to take a look at one, and this may be tough to do if you are not a really rich person yourself since these pieces of paper tend to be held in lockboxes, what you will notice is that each of those fancy pieces of paper is inscribed — I have been told in that the inscription is in gold — with the name of the corporation that issued it.

This inscription has a number of qualities which would appear magical to anyone not familiar with modern technologies of finance and political economy. It is the inscription which entitles the holder of these very fancy pieces of paper to stand in line at the rich guy ATM when dividends are paid, and it is in virtue of this inscription that these pieces of paper are traded in the market and tend to become more valuable year after year.

Most surprisingly, and one imagines painfully for those unfortunate men and women of leisure who are burdened with an overabundance of these fancy pieces of paper, the inscription creates such a close bond between the corporation named and the holder of the piece of paper that the full bite of any taxes paid by the corporation are felt by the holder of the piece of paper.

It’s true! 

This is what used to be called ‘double taxation’ and it is the spectre of double taxation which has haunted the lives of plutocrats since the dawn of the sixteenth amendment, burdened as those plutocrats are by a capital gains tax rate that approaches the vig on a really first rate credit card well in reach of the average middle class family if they would only show a little bit of discipline.

Owing to this close bond which, again, does not hold between the corporation and those actually employed by it, the effective tax rate of anyone who holds a fancy piece of paper includes in it the taxes paid by the corporation named on that fancy piece of paper. So it is written, so let it be done. The capital gains rate falleth, but double taxation hath already taken the rich man’s dope stupid gold away.

And so you see even though Mitt Romney paid less that 15% taxes on the money that spawned like tribbles from his very fancy pieces of paper, the corporations named on those fancy pieces of paper might each have paid as much as 35% taxes on their profits. Thus Mitt Romney, who one might even say is the same person as those corporations named on his fancy pieces of paper, pays taxes at as much as a 50% rate, as far as he knows. 

This is, as we now say, his effective tax rate.

Some would suggest that this new meaning for effective tax rate, coming into vogue as it has just after Romney’s apparently low tax rate came to national attention, has been introduced in a cynical effort to obscure the issue at hand. Others, and whether they are stupid or dishonest is not for me to say, would argue instead that this enrichment of the concept of an effective tax rate adds balance and fairness to the national debate.

Whatever. The point is something about his taxes is the point. You know what I mean. Eastasia has always pegged its currency to Oceana’s dollar, and my eyes glaze over when I try to remember why we used to care.

A million could do it

A problem with a list of great organizers is that is the bench is so deep that there is no good place to stop. It has me wondering how big the committee might be.

But seriously, who owns the list? If the answer is nobody, we have only ourselves to blame. Get one million on the committee and the turf is manageable. Are there 100,000 organizers? 10,000? I don’t know. My bet would be on the low end, but the point is that you’d expect organizers to get it together to make a list.

Can you imagine it? One million organizers knocking on 120 million doors and putting together one million meetings. That’s how we get to democracy.