Thursday, January 14, 2010

The Bank Tax Joke

The most important thing you need to know about taxes is that there are government revenue payers and government revenue takers. All the rest is a shell game.

For example, an employee in the White House may earn $100,000 but be "taxed" $30,000. Thus, net he is a taker of money from the tax pool. A private physician who earns $100,000 but is taxed $30,000 is a net payer into the tax pool.

When it comes to taxes, this is the most important factor to look at.

In order to know which side of the tax pool a person is on, you need to know what they pay in and what they take out, everything else is fluff. Friends of government always end up as tax takers, the rest of us are tax payers.

So where does Obama's new bank tax plan put Goldman Sachs in the tax payer/tax taker plan? Right where they have always been net takers from the tax pool.

President Obama's plan calls for taxing big banks $90 billion over 10 years. That's $9 billion per year. Let's say that 25% that will be charged to Goldman (It really won't be anywhere near that high). Under this model, Goldman will pay into the tax pool $2.25 billion.

What did Goldman take from the tax pool this year? It is a little difficult to tell since the Federal Reserve and the Treasury will not provide all the numbers, but we do know that from the edge of collapse, Goldman is now able to pay out somewhere over $20 billion in bonuses and will report on top of that $10 billion in net income (including net of other taxes). Most of this in one way or another can likely be traced back to the government bailout of Goldman through AIG, through purchases by the government of securities with questionable value , and with very favorable pricing given to Goldman by the Fed in its day to day trading. Thus, the net take by Goldman from the tax payer pool has to be considered plus $30 billion.

Bottom line: Goldman pays an additional tax of $2.25 billion and takes out of the pool $30 billion. If I had no morals, I could do that trade every year.

President Obama's claim that "We are going to get our money back" is absurd. In the years to come, Goldman and other members of the Wall Street crony elite will find other ways to get their hands on money in the tax payer pool. Net, net any tax of Goldman, and the like, is for show. The people who are really net tax payers are you and me.

This does not mean that taxes should be higher on Goldman and other banks. It means government shouldn't have the kind of power that allows them to cut deals that give government money to these crooks in the first palce. "Taxing" these jokers after they have already robbed the public is like taxing a bank robber after he has robbed a bank and leaving it at that.

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