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What is the Proper “Fair Share”?

By: alanjoelny (Diary)  |  December 18th, 2012 at 09:29 AM  | 

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Here’s a true story to ponder.

A gentleman, one of my clients, recently sold his entire business that he founded. Having worked at it and worked hard for it his entire life (he is in his late 70′s), the company sold for around $600 million dollars. This is a classic example of the American Dream.

From the sale of the company, his cut was around $65 million (pre-taxes). The sale took place recently. I advised my client that he should arrange the close of his business before the end of 2012 because of the likelihood of the change of tax rates. If he was able to close by the end of December, his share of taxes was calculated to be around $18 million, or just under 28%. This would mean his net earnings were $47 million total.

But Obama is saying that amount is not enough, to a man whose company has created thousands of jobs for this country. Jobs for people who have paid income taxes to the government for all those years.

The gentleman found out that, due to the numerous amounts of paperwork and regulations regarding the sale of his company, he will not be able to close on his company until April 2013. And Obama’s tax proposals say that successful taxpayers have to pay more, which means that my client would now be expected to pay 36% in taxes. Therefore, out of the $65 million from the sale, the gentleman’s net is now $41 million, while the government will get $24 million. Why that extra $6 million to them? For what?

Some people will say that $41 million is enough. Is it? Who decides? Is it really fair that the government should have that 36% instead of 27.7% for someone else’s life work because of an arbitrary date? Regulations? Massive deficits? And is it “fair” to the gentleman that the government can’t control its spending, or that he can’t close in 2012?

Why does the government get to arbitrarily decide what is someone else’s “fair share” for work that they did? How do you quantify the fair share of something — in this case, a successful company — that someone nurtured for their own entire life? As I have argued before, those who are prosperous should be given the same liberty to manage their success as any other citizen, not additional tax penalties based on whimsy and “need”. How can we honestly and morally take extra money from those taxpayers who have been able to create wealth and employment successfully and give it to the government and politicians who manage to continuously and egregiously squander income?

crossposted at alanjoelny.com

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COMMENTS

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  • Repair_Man_Jack

    Fair Share is whatever is needed to fund the Visigoth Holiday. The concept is a lie. People should get what they earn and what they deserve. Fair (defined as people getting either what they want or they need) is immaterial.

    • http://www.alanjoelny.com alanjoelny

      Yes, that is why “fair share” is in quotes. It is continuously used by the Obama Administration to level the playing field and has seeped into our lingo much more readily than I like.

  • norris

    Thirty five years ago I changed jobs and rolled my retirement account into an IRA .This week I cashed it in the taxes equaled half of my thirty five year profit . I wish I would have just paid down my mortgage or bought gold and silver .

    • zollistar

      You make a provocative investment observation, Norris. Very provocative….

  • Tbone

    The Government shouldn’t get any of it. That equity was all created with after tax dollars.

  • Sir Aaron

    This is a rhetorical question, right? Because a progressive would say “all of it.”

  • freemanja1991

    Fair share is everyone pays at least a Dollar for the privilege of being an American.

    • eburkedisciple

      Oh no, those who don’t pay any taxes don’t get to vote on how those taxes are spent.

  • keithe

    Is it fair that it is 27.7% to begin with, as opposed to 36% or 14% or any other random percentage? Fairness is an unuseful metric for tax policy. You could argue that the only “fair” thing would be to set someone’s tax rate to reflect the value-added attributable to conducting business or working in the US (as opposed to somewhere else). I’m not talking about value-added by government (because I don’t think the government adds value, it only subtracts it). I mean the value-added to all of our endeavors simply by virtue of being in the US.
    It is probably an impossible calculation to make, but my gut is that every American income earner benefits in roughly equal proportion from just living and working here. Our businesses have historically generated a great degree of wealth because of the size of the market, our natural resources, our political stability, the security provided by our military and geographic isolation, our rail, air, and auto infrastructure, etc. But the assembly line worker is making $15/hr not $1.50 or 15 cents an hour for all the same reasons.
    The left’s “fairness” argument focuses on “disparity.” Their argument is, “I should have more than I do not because of anything I’ve done, but because I found out that someone else has more than I do, even though they are doing something completely different.” A better measure of prosperity and “fairness” would be a comparison between Americans and similarly situated individuals in countries that lack the aforementioned assets of the US. Or even Americans living in earlier times. Most Americans have a standard of living that would be deemed downright luxurious even by middle class Americans just 50 years ago. Yet it is suggested that somehow lower income earners are “sliding backward” just because someone else is making more. Our focus should be on growing the economy so that all of us can enjoy a better standard of living, rather than enriching some at the cost of others.

    • http://www.alanjoelny.com alanjoelny

      Agreed.
      That is why the term, the concept of “fair share” is so terrible and arbitrary. “Enriching some at the cost of others” is what Bastiat called “legal plunder”. We should be growing the economy and focusing on upward mobility. Anything else is
      reminiscent of what Lady Thatcher said regarding income inequality: “The honorable gentleman is saying that he would rather that the poor were
      poorer, provided that the rich were less rich. That way one will never create the wealth for better social services, as we have. What a policy. Yes, he would rather have the poor poorer, provided that the rich were less rich. That is the Liberal policy”. Indeed. http://www.alanjoelny.com/measuring-income-inequality-it-doesnt-add-up-2/

      • spinoneone

        The only “fair” tax is a flat tax. One could also argue for a value added tax in lieu of any income tax at all. Of course, the libs would squeal to high heaven about how “regressive” either tax would be. But, either or both taxes would be “equal.”

  • Jim_Riggs

    Why isn’t he paying the capital gains rate?

  • gmat

    I always felt like 10% to the fed was fair. I don’t remember where I got that idea, probably from my dad. I have always structured my financial stuff to meet that goal. Sometimes I hit it, sometimes I pay more, but it’s a target.

    • Finrod

      I like to point to the end of the book of Genesis, when Joseph was the #2 in Egypt, to say that the government should never need more than 20 percent. In fact, if you look at the federal government’s tax take as a percentage of GDP, it’s only exceeded 20 percent twice since 1945: in 1945 (immediately after the war) and in 1999 (height of the dot-com boom).

  • commonsenseobserver

    No one should have to pay more than a quarter of their income to the federal government.

  • Finrod

    Whenever I hear liberals blather about ‘fair share’, I always think of the movie Labyrinth:

    Sarah:
    That’s not fair!

    Jareth:
    You say that so often, I wonder what your basis for comparison is?

  • http://travismonitor.blogspot.com Freedoms Truth

    Good article, but why cant you arrange it to get taxed at the 15% long-term gains rate?

    Fairness and taxes go together like salami and hang-gliding. Pretending that the force of Govt taking money from anyone who earne it has any element of ‘fair’ in it is foolish.

    “Fair” has been used as a cover to perpetuate the redistributionist plunder of the most productive. That is UNjust and UNfair.