I was reading a book on finance today, The One-Page Financial Plan by Carl Richards (http://www.behaviorgap.com/). In it he says, we are all in this together. Then goes on and explains how we all work together and it got me thinking.

There are some really vocal people arguing for things that just fly in the face of “being all in it together.” Things such as not having a universal healthcare system, walking around carrying semi-automatic weapons, and not taxing the extremely wealthy at higher rates than the rest of us.

I’m just going to talk about taxes and why it makes sense to tax extreme wealth differently from the rest of the folk earning a living. Keep in mind, this is not what Richards was talking about, but it’s what got me thinking. I have shared his link because his books and articles are terrific and a source of much of my learning these past few years. I think you might enjoy them too. Enough of the disclaimer, onto my discussion.

There is just so much wealth available at any given moment. The PowerBall is nearing a billion dollars. The reason it is that high because people put their money into it. Therefore, the money put into PowerBall is not available for other uses. Like Latte’s at Starbucks. Therefore, the person or persons winning the PowerBall must, for society’s sake, pay a lot of taxes. Those taxes balance back things so our society as a whole can work.

What I mean is, when we buy a latte at Starbucks, or a sandwich at a local deli, we are providing our earnings to others so they can have earnings. All that money gets taxed. Some sales taxes, some income taxes, SS, unemployment, and on and on. However, when we put it into the PowerBall, it just vanishes for the moment. Until it is won by the person or people who win the prize. Thus we must tax that at a higher rate as it’s hidden so much other value added uses it might have had. Hope that makes sense.

Now, with great wealth, “income” is defined as when it is realized. What that means is if you have stock and it grows in value, your income doesn’t happen until you sell it. Which is what happens when you take retirement funds from your 401K. The other thing that happens at the moment of inheritance, is unrealized gains in stocks, reset to current value. So that Apple stock Steve Jobs left to his family didn’t gain $2.5 billion dollars in value, rather it gained $0 in value. They got $2,500,000,000 tax free.

So, the very wealthy must be taxed at a higher rate, or we will never tax them at all. Another example of this is Larry Ellison, the CEO of Oracle. He wanted to build a house, you know a starter-billionaire type of 40,000 square feet or so. To do so, he needed about $100,000,000. Rather than sell stock, in which he would have to had paid taxes, he got a loan against his stock. Thus he got $100 million dollars to use tax free.

It’s nice to be wealthy, tax laws don’t apply. If they did, the rates would be:

Tax Calculations in 2015:

Tax Rate Taxable Income
10.0% $0 to $18,450
15.0% $18,451 to $74,900
25.0% $74,901 to $151,200
28.0% $151,201 to $230,450
33.0% $230,451 to $411,500
35.0% $411,501 to $464,850
39.6% $464,851 or more

That means, someone who has income of $100,000,000 would pay about $39,600,000 in taxes. Holy Cats that’s a lot of money! However, they also have $60,300,000 after taxes (SS, Medicare,state, etc.) That works out to be approximately $115 a minute, every hour, every day of the year. These are the people arguing against the $15 minimum wage, which would mean a person would make $120 for an 8 hour day. They take $115 a minute round the clock, but $120 a day is too much for a hard working person.

Think when it’s time to vote. This stuff counts.