A.K.A. What The Romney Taxes Should Tell You about Earning Money
If you have been following the politics of taxation at all of late, you have to have heard about the enormous income and low rate on Mitt Romney’s taxes. Personally I am not that appalled (or surprised even) that Mitt Romney makes a fortune from investment income and does as much as he can to avoid paying taxes on it. That’s what our tax code allows him to do. My attitude has always been, “if ya can’t beat ’em, join ’em!” Does that mean I should go out and invent $42 billion dollars of income (nevermind the wealth needed to earn that kind of money)? Obviously not – you can’t simply create money out of thin air unless you own a printing press run by the Federal Reserve and Treasury. Given you can simply print your own money… what do Romney’s taxes say you CAN do?
Desirable Activities Viewed Through the Eyes of US Tax Code
What Mitt Romney’s tax returns say definitively is that if you want to make a lot of money… and keep the government’s hands off of it, you need to earn as much of your money as you can by investing. We have been talking here ad nauseum about economic inequality in the United States – well it isn’t just about “Joe executive A” earning more than “Joe the Plumber B” – the growth in income inequality (in large part) has its roots in the literal “income inequality” in the eyes of the tax code. You see – the money you and I earn by showing up at our jobs everyday is considered “less desirable” in the eyes of the tax code.
How on Earth can I make such a claim? It’s in the tax rates. Tax rates in some ways can be thought of as a verdict on how government differentiates “desirable” activity from “undesirable” activity. Tax rates as a policy tool can help governments shape citizens’ behavior – by rewarding desirable activity and punishing (or taxing) undesirable activity. So how does the revealing of Mitt Romney’s tax returns impact our knowledge of what our government feels is desirable and undesirable ways to earn money?
How You Should Be Earning Your Money in 2012
If the evidence from the Romney Taxes is any indicator as to what behaviors our government has deemed “desirable” in the eyes of the tax code, then it is clear that the way you should be earning your money in 2012 is by investing. Because investing / capital gains earnings income are taxed at the lowest rates, it is clear that earning income this way is the most desirable in the eyes of the US government tax code. Any guess as to which form of income is considered “least desirable” in terms of the US tax code? You guessed it – working for a living at a job.
Imagine the lifestyle we could all have if none of us had to show up for work and schlep for low wages and pay such high taxes on those earnings. After all, who among us would be foolish enough to work for a living if we could simply “harvest” our desirable investment income and live off that? But then of course who would stock the shelves at the supermarket or pick the fruit off the vines if all of us were “living the good life” off our investment income. Who would cut the timber and make the valves for all that nice plumbing in the mansion?
Making a Living Investing
I have an admission to make: I earn approximately a quarter of my income by investing. I learned long ago the importance of having multiple irons in the fire, and I have certainly NOT been hurt by the changes in the tax code regarding investment income. Options trading in particular has had a tremendous impact on my life and fortunes. Personally I would love to have the passive investment income of Mitt Romney and live life off of a silver platter. Who wouldn’t if given the choice?
On the one hand just because someone has great fortune and lives with a silver spoon in his mouth doesn’t mean we should admire it or encourage it.
On the other hand, we’re fools not to try to emulate him while the tax code favors such “unearned” behavior. I’ll leave you with that.