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Patriotic Millionaires Unmasked

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Published : November 21st, 2012
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Category : Editorials





Despite the breathless post-election "think pieces" that have drawn sweeping and deeply considered conclusions about the political drift of the country, at its core President Obama's re-election is easy to understand. He essentially promised millions of middle and working class voters that if he were to be re-elected, they would receive benefits paid for by the rich. You don't need to read a Time Magazine cover story to untangle this political strategy. Now that he has been given a second term, Obama needs to deliver the goods by raising taxes on the rich and only the rich. He will be "asking" them to pay their "fair share," (as if "asking" and "fairness" have anything to do with it). In reality the wealthy already pay taxes at a much higher rate than average Americans and in many cases will now have to pay more than half of their income in federal, state, and local taxes.

While most people would assume that the wealthy would chafe at such a heavy burden, some affluent individuals have apparently organized spontaneously to express their willingness to help the country. In interviews and articles, these self described "Patriotic Millionaires" have implored Congress and the President to raise their taxes. They claim they can easily afford to pay a little more to save the nation from fiscal insolvency.

Conservative economists believe that an economy is most vibrant when as much money as possible is left in the private sector where it can be used for business investment and job growth. Left wing economists believe that government spending, which they term "investment," does more good. Through this lens, it's tempting to see the Patriotic Millionaires as well meaning Americans who have simply subscribed to a misguided economic philosophy. However, the reality may be far more sinister.

Daniel Berger, a spokesperson for the group, joined me last week on my radio show. Based on that highly charged and polarized discussion, it would be logical to conclude that the group is simply comprised of Democrat shills masquerading as patriots. Time and again Mr. Berger regurgitated Democratic talking points without the slightest ability to critically analyze his own positions. His goal was to simply create the impression that paying high taxes is patriotic. His hypocrisy was not hard to uncover.

He admitted on the show that he used an accountant to prepare his own taxes primarily to ensure that all the forms were filled out properly. Mr. Berger is a highly successful attorney purportedly earning over one million dollars per year. But apparently even that level of expertise does not qualify him to confidently fill out a 1040. Of course, the real reason he hires an accountant is to minimize his taxes. He, like every other American with an ounce of honesty, wants to make sure that he pays as little tax as the law allows. He hires an accountant to make sure no deductions or loopholes go unexploited. Under normal circumstances, there would be nothing wrong with that. But when you publicly claim that it's your patriotic duty to pay more taxes, it's hypocritical to simultaneous pay an accountant to make sure that you actually pay as little tax as legally permissible!

He revealed to me that it wasn't so much his own taxes that concerned him but other millionaires that he is convinced unfairly pay a lower rate than he does. As a lawyer, his income comes in the form of fees. Therefore he pays most of his federal taxes at the 35% rate (plus Medicare). However he seemed disturbed that other millionaires, who may rely on dividends and capital gains for much of their income, pay only 15%. When I explained that corporate stockholders have already paid a 35% tax on their share of corporate income before they received any personal dividends or capital gains, he claimed that corporate income taxes have no impact on either dividends or share prices. Really?

I suppose being a high powered lawyer and tax-loving patriot doesn't necessarily involve a basic understanding of finance or accounting. A corporation's stock price and its ability to pay dividends are a function of its after-tax earnings. The higher the tax rate, the less the company is worth and the lower the dividend it can pay. So gains and dividends have already been significantly diminished by corporate taxes before the millionaires ever receive them. The shareholder ultimately bears the full burden of these taxes.

In his analysis of these issues, Mr. Berger sounded more like an Occupy Wall Street protester than a patriot or an accomplished lawyer. Given the simplicity of his message and his dogged repetition of talking points, I had to conclude that his group was created by professional political forces as a facet of a much wider presidential campaign.

The elevation of taxpaying into an act of patriotism seems a stretch for most Americans. After all, the original patriots fought a revolution over their desire not to pay what by modern standards amounted to a trivial amount of taxes. To me, a true patriot wants to keep as much of his hard earned money as possible. America is supposed to be, after all, the land of the free. The more taxes we pay,the less freedom we enjoy. Plus, the income that is retained by those who earn it will lead to more wealth creation and, ultimately, to higher living standards for all Americans.

Unaddressed by Mr. Berger is the likelihood that higher tax rates on the rich may actually reduce tax revenue. Higher taxes will mean that the rich have less money to save and invest, a greater incentive to avoid taxes, and a reduced incentive to work or take risk. As a result, growth and job creation will suffer and the government will not only lose tax revenue from the rich, but also from the newly unemployed middle class workers that they no longer employ.

The best thing the government can do for the nation is to slash spending and free up resources for more productive private sector use. Government spending is not "investment" as Mr. Berger suggests but is simply wealth redistribution that creates political rather than economic benefits.

If spending is not reduced, raising taxes on everyone is better than only raising them on the rich. Taxing the middle class is largely a means to substitute public for private consumption. On the other hand, taxing the rich typically converts savings and investment into government spending. Such an exchange actually inflicts more damage. That may be a nearly impossible point to make politically, but sometimes the truth is not pretty. If middle-class voters realize that they will likely have to pay for all the free stuff promised by government, they may decide that they no longer want it.

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show.

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by Peter Schiff, John Browne, and other Euro Pacific commentators delivered to your inbox every Monday!

And be sure to order a copy of Peter Schiff's recently released NY Times Best Seller, The Real Crash: America's Coming Bankruptcy - How to Save Yourself and Your Country.



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Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for nineteen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation's financial newsletters and advisory services. Mr. Schiff holds NASD Series 4,7,24,27,53,55, & 63 licenses.
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Mr. Schiff has graced us with some third rate analysis here as a result of the ideological blinders he has chosen to voluntarily don.

Mr. Obama did not win the election because of what he promised to middle class voters as alleged. Rather, the Republicans lost the election because of the deeply flawed candidate they put forward. Mr. Romney ran a campaign that proudly proclaimed that it was not going to allow fact checkers to interfer with how the campaign was run. And with Mr. Romney at the head of the ticket, the Republicans had for a candidate a man who happily changed his position to please each new crowd that he spoke in front of; a candidate who refused to give speifics on the changes he would implement and a candidate who seemed to know almost as much as a third grader about foreign affairs. And let us not forget that Mr. Romney, who went around baptising dead Jews, could not have been a very desireable choice for the "religious right" or for the Jews in Florida either, for that matter.

But that aside, let us examine what is really at the heart of this article. Mr. Schiff's contentions that lowering the tax rate leads to job creation and that the government only knows how to waste money. If what Mr. Schiff alleged was actually true, the Bush II tax cuts should have led to massive investment and job creation in America. Clearly that did not happen. As for the latter, i would suggest that building the Grand Coulee Dam made it possible for the aircraft industry to exist in Washington state, to say nothing of the myriad other benefits that accrued as a result of that government make-work project.

What Mr. Schiff does not understand because of the ideological blinders he wears is that there are times within the business cycle that it is a good thing for governments to go into defecit. The alternative is that we allow amoral market forces to dictate to us when it is that we should be forced from our homes. Let us face it, corporations do not have human values even though Mr. Romney told us that "Corporations are people my friends." Their only value is the bottom line. Humans have other values and that is why governments do have a role to play.
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Sorry Vox, in your comment you’ve swung too far, now your defending the government. Governments are in no way better than corporations. They are mindless bureaucratic institutions with only one objective, to keep existing no matter what the cost. They waste that which they have been entrusted to them to be good stewards of. Yes they build a dam here and there but they also build hundreds of military bases all over the planet in a rush be become a global empire. Which are there more of, cost more, and gave the lowest return? Military bases only result in military contractors getting richer and countries where the bases are located getting a nice little honorarium. Yet we see more bases than dam’s or other public works projects that offer a real return and can ad to the common good. The only conclusion to draw here is that government can’t be trusted with money, they also can’t keep their greedy ambitions from destroying what should be a free market which would make use of tax cuts and incentives if not manipulated. The point is that the government will run deficits no matter what point of any cycle they are in.

Your comment that building the Grand Coulee Dam made it possible for the aircraft industry to exist in Washington state. You never pointed out that constant lobbying by military contractors was a major factor in getting the dam built. So who benefited? Military contractors can run their operations and funnel money into the back pockets of the crooks in government. The employees are secondary and as soon as automation can replace them they will be gone but the corporations will continue to exist and money will continue to flow into bureaucrats pockets. Government and large corporations are welded together at the hip. What I didn’t hear either candidate address was how they would work to empower small businesses. This is where tax cuts need to go, the real engine driving prosperity in the new world. So it’s not about whether there should be tax cuts or not, it’s about who should get tax cuts.

If you want to draw a conclusion between who provides more job opportunities, good luck. The government is so bloated with redundant positions that it could easily cut half its employees and still function above 80% of what it accomplishes today. Companies, when you think strictly of large corporations, aren’t going to spend a dime hiring people if they don’t see a return no matter what tax cuts exist.

You state “The alternative is that we allow amoral market forces to dictate to us when it is that we should be forced from our homes”. Really? Who is it that empowers these amoral market forces and allows them to run amuck? Are you waiting for government to step in and stop these forces? Neither corporations nor government, regardless of which party is in power, have any human values. If not for the fact that elected officials face regular elections and understand that they need to at least do a minimum to appease the public there would be far less in the way of federal services than there are today.
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Thanks for your response Verboten. Much of what you have stated i would readily agree with. However, i think you have mischaracterised my position somewhat. i did not make the case for governments inserting themselves into the business cycle at any time other than when the economy is tanking and i certainly did not advocate that governments spend our tax dollars to beef up the military. i merely stated that there are times when the government intervening in the buisness cycle is appropriate and that their doing so does not always result in malinvestment, as Conservatives would have us believe.

However, you were sadly mistaken to state that governments do not have human values. If not governments, then who do you think passes laws against such things as murder and theft? And if the government was truely amoral, then they would, just like their corporate counterparts, not give two hoots about anything other than their own bottom line. But we do not expect our governments to show a profit, nor should we. We expect them to stand up for the values we care most about. That is why things such as abortion, gay rights, access to contraception and legalizing marijuana were major issues in the last election.
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Sorry Vox, in your comment you’ve swung too far, now your defending the government. Governments are in no way better than corporations. They are mindless bureaucratic institutions with only one objective, to keep existing no matter what the cost. They wa  Read more
Verboten - 11/21/2012 at 2:32 PM GMT
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