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It's not just luck

July 27, 2010

Christopher Bergin at Tax.com:

When talking about the rich, Treasury Secretary Geithner and President Obama refer to them as "fortunate," insinuating -- if not just stating it outright -- that the rich are lucky. That's why they're rich. This is a point of view I 'd expect from a couple of liberal arts college professors, not from those in charge.

I'm all for a progressive income tax system. And I'm all for a strong estate tax for the idle rich. But the people I know who are well-off work hard for their money. They worked hard in school and worked hard in business. They took risks, which weren't backed by government safety nets. They created things. And, as they rose, they learned that there are some in this country who like to demonize success -- even fear it.

There's a saying that I'm fond of: Trying to blow out somebody's candle won't make yours burn any brighter. I'm fully aware of the growing gap in this country between the haves and the have-nots. But building class warfare by arguing that the land of opportunity has changed into the land of the fortunate few is not the answer. The tone at the top matters.

My client base is made up of of people that are "rich" by Geithner standards. They are small business operators who have achieved a little success in their S corporations and partnerships, generating enough taxable income to put themselves in the top tax bracket. They have had some luck, or at least not catastrophic bad luck, but as a rule they also work very hard. Many have taken huge chances, and some lost almost everything before finally achieving some success.

For these clients, the 1040 is also the business return, because the business income passes through to their schedule E via a K-1. Many of these people only take enough cash out of their businesses to pay their taxes, plowing their remaining cash into growth and debt reduction. When taxes on "the rich" increase next year, it's not a matter of getting by with a smaller yacht for these clients. It's a matter of sending money to the government that would otherwise pay down debt or grow the business. It's sad that somebody with as much power as Tim Geithner has a world view that seems to come out of a comic book.