Real American dream: easy cash falls in lap with a teeny tax bite
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My bachelor uncle died last year at 97. When we sold his house in Queens, the one he bought in the 1940s with his long-since-departed siblings, my two sisters, brother and I came into a little money.
It wasn't so much that anybody had to pay an estate tax. That kicks in only after $5 million, and my uncle was an airport customs agent who lived in Archie Bunker's old neighborhood, Flushing. Still, New York City real estate being what it is, the sale did leave my siblings and I with a considerable amount of sitonyourbutt money. Even split four ways, it's more sitonyourbutt money than I'd ever seen.
The rest of the world calls this "passive income,'' but I prefer my term. For me, "sitonyourbutt money'' better captures the sense of luck and ease one acquires almost immediately after falling into some. The nation's tax laws are set up so that once you have some, it's fairly easy to make more of it, because the government won't tax you as hard as it does when you are working for a wage.
PG STORE
That point is much in the news lately, almost as if we're noticing it for the first time. Though I barely have a toe in the sea of sitonyourbutt money sloshing around the world, I already have used it to pay down our mortgage, buy stocks and mutual funds, shelter more in retirement accounts and keep the rest in safe but wimpy savings accounts.
Almost whatever I choose, I won't be taxed as hard as I will on my paycheck (which my family still needs). That's because none of it will be touched by the most regressive tax in the land, the payroll tax for Social Security and Medicare, which starts with the very first dollar of pay and is capped at a salary of $106,800.
Combine that cap with the capital gains tax, just 15 percent on profits from most stock sales and dividends, and it's no wonder much of the middle class winds up paying taxes at a higher rate than millionaires. Everyone's talking lately about Mitt Romney's effective federal tax rate of 13.9 percent, but The New York Times reported a more telling stat: Mr. Romney and his wife paid just one-tenth of 1 percent of their income in payroll taxes.
That's all perfectly legal. We have a Congress of rich people whose campaigns are backed by even richer people, so it's no surprise our tax laws esteem sitonyourbutt money. I'm also mindful that savings and investment need to be encouraged; I still side with the ant in the ol' ant-and-the-grasshopper argument and don't want to go too far in the other direction. But with Newt Gingrich now suggesting we should eliminate capital gains and estate taxes entirely, it's pretty clear supply-side mythology knows no limit.
Even Ronald Reagan would look like a liberal these days. When President Reagan pushed the Tax Reform Act of 1986 through a divided Congress, he agreed to raise the capital gains tax rate from 20 to 28 percent. Bruce Bartlett, a former domestic policy adviser in the Reagan White House, recently told NPR that Reagan did that "because he agreed with the Democrats that capital gains and ordinary income ought to be taxed at the same rate.''
We've slipped badly in the past quarter-century. Our tax system is out of whack and federal debt is soaring. We need a long conversation about tax fairness as part of a long-term answer to bringing down that debt.
Meantime, I intend to nurture some new dreams that came with my inheritance. Like my uncle, who threw around nickels like they were manhole covers, I'm a frugal guy. Now, with tax laws providing the wind for my sails, wise investments may one day have me joining the 1 percent.
I am speaking, of course, of those storied 1 percent who can afford to park Downtown all week without thinking twice about it. Hey, with enough sitonyourbutt money, anyone can dream big.
First Published January 29, 2012 12:00 am
