Are You Paying Your Fair Share?
Income inequality. It’s the buzzword of choice on today’s compensation battlefield. The rich get all the tax breaks and the poor and middle class get the shaft. Warren Buffet’s secretary pays a higher tax rate then he does. We heard that almost daily during the last presidential campaign. "Oh the angst and outrage that such unfairness exists in the freest most prosperous country on earth. Whatever shall we do?"
What is Your Fair Share?
The United States has a “progressive” income tax. That simply means, the more you make the more you pay. So how can billionaire Warren Buffet possibly pay a lower tax rate than his secretary? The quick answer is — where does the income come from? In the secretary’s case, it comes from her “salary,” which is taxed 100% as taxable income. In Buffet’s case the income comes from “dividends” paid by companies in which he is a stockholder. Dividend income is taxed at 15%. Why? To encourage people who have a lot, or a little money, to invest it to stimulate the economy. Buffet puts his money to work and the average Joe on the street does not. If average Joe would put 10% of every check in savings and invest it, he or she could be getting the same tax breaks as Warren Buffet in a short period of time.
Forced savings might be too strong a term. Businesses that provide benefits to their employees might have profit sharing plans, 401(k) plans, or some kind of Individual Retirement Account (IRA). Most employees sign up for these benefits because it’s taken out before taxes, saving them money, with a minor effect on their take home pay. When they retire, and take the money, it will be taxed at the current tax rates when they start using it.
The deductions for these retirement plans are usually matched, up to a point, by the employer. So if the employee puts in 3% of their gross pay and the employer matches that, the employee has just made an immediate 100% return on their investment. Where else can you get a return like that? Sounds pretty fair to me.
What About Fairness?
Joe makes more than I do because he’s been with the company longer. How come he gets to take 3% on his higher income in retirement? How is that fair to me? I don’t make as much as Joe does, but I perform the same work. Shouldn’t I get the same dollar amount allocated to my plan as Joe does?
In this example it would seem there is some confusion about the difference between fairness and equality. It’s clear that everyone who is eligible would be included in the plan — that would be equal. But not all are vested at the same level. When we talk about fair share, the exact definition of the term fair gets a little fuzzy depending on your level of benefit.
Some Final Thoughts
Income inequality and fair share have almost become synonymous terms in today’s more liberal vocabulary. Many groups vilify the rich because of their success. Why should they be enjoying the good life while others are not doing so well? And since the rich don’t seem to want to voluntarily share their good fortune, it’s up to the good old benevolent government to force the rich to pay their fair share for the good of all.
There’s only one problem with that thinking. Where is it written what YOUR fair share of that re-allocation of wealth will be — and that you’ll actually get it? Uncle Sam pulls 40% off the rich guy; how much of that do you end up with? How are you going to feel if your neighbor gets a little more? What if you make too much to qualify for a program that would really help you? Perhaps you should quit your job. Or, have a couple more kids.
It all looks so good, and so wonderful on paper. The rich get their comeuppance and the 40-year old poverty problem is solved. But then human’s are brought in and everything turns to … I think you know what it turns to. You don’t have to go much further than hurricanes Katrina and Sandy to see what a wonderful job our government does in allocating help when it’s citizens are in need. How do your immediate needs stack up to those needy folks? If you are counting on government to administer your fair share in the years ahead then I just have four words for you. Good Luck With That.
Tom Egelhoff is an Amazon best selling author of three small business books. His 400+ page web site www.smalltownmarketing.com is one of the oldest continuous sites on the internet. He has been featured on MSNBC’s “Your Business” and quoted in business publications in China, Turkey, India and the UK. He hosts “Open for Business” each week, 11-2 PM Mountain Time on http://kmmsam.com