Letters to the Editor

Tax rise cuts investor activity

Re Doug Ross letter, "End policies that aid only the rich," Sept. 9:

Allegations of greed (aka the less-pejorative ambition, productivity, business savvy) and resentment against those with more than ourselves should not drive tax policy. What else is there to say? Why is this so hard to understand? Too many factors account for an accumulation of wealth to allow greed and envy to drive this confiscatory mentality.

My father's example encouraged a life of discipline and moderation. I drive used cars, had legitimate children, didn't smoke, drink or do drugs. I worked 45-hour weeks for the man plus 5 to 10 for myself, had one wife, tithed to my church and contributed to other charitable organizations. A dozen other productive habits have left me with some wealth, and the time-consuming and energy-sapping responsibilities that go with it. Others have chosen different lives.

Wealth transfer by any means subsidizes lower productivity. Why are there "entitlements" for those who chose to drop out of school? Staying home to raise children is an admirable choice, but it is their choice and their financial consequence. Why penalize me to the benefit of someone who made bad choices or chooses a more leisurely life?

Millionaires are increasingly referred to as the "investor class." The investor class includes teachers, firemen, police, corporate employees, union members and anyone seeking financial independence who has an interest in a pension, 401(k), Roth or funded retirement plan. The tax on their asset trades goes up when the rate goes up.

That tax rate determines the value of these traded assets. I have a triplex that is totally depreciated out. A sale will produce about $100,000 in profit or $85,000 after the capital gains tax. I earn about $8,500 a year or 10 percent on an $85,000 asset. If the government increases the tax to 35 percent, the asset value drops to $65,000. I still earn $8,500 a year but my rate of return goes up to 13 percent on what is now a $65,000 asset. Potential buyers won't offer me $100,000 because the higher capital gains rate decreases the net profit they can realize. So, the government arbitrarily increases my taxes $20,000 and devalues the property $10,000 to $15,000. Today I'm worth $85,000, tomorrow maybe $55,000. Multiply that by my six buildings and this couple, who makes well under $250,000 a year, has had $180,000 deducted from its retirement savings accumulated over 35 years. Rather than continuing to spend freely, I must now save $15,000 a year to replace that wealth to retire at 65. Multiply that by all asset trading across the country and you have killed economic activity and growth.

That is just plain wrong. The 1986 tax law that raised capital gains devastated the housing market broke the savings and loans and hurt the economy for years. The Bush tax cuts addressed that stupidity and reversed the damage.

I may consider selling an investment earning 10 percent and reinvesting the proceeds. At 13 percent I may not find a better investment. As the rate of return increases with the capital gains tax, the rate of "asset trading" (aka investing, making money, and risking financial loss) diminishes. Tax revenues will likely diminish as investors sit on known investments.

Frankly, I love millionaires and the investment class. They buy expensive cars and boats that I cannot afford and sell them to me for pennies on the dollar. They buy oceanfront houses that I cannot afford and rent them to me for something I can afford. They build restaurants overlooking the river and other scenic vistas where I can enjoy evenings with my wife and friends. Good grief, where would Myrtle Beach be if a few folks hadn't risked it all to build beer distributorships, motels, condos and golf courses? Some became wealthy as a result, some went broke.

But then again, Mr. Ross, maybe you are right. Everyone says we should return to a simpler life. Shall we move to a third-world country or just stick it to the rich and wait a few years?

The writer lives in Myrtle Beach.