Friday, December 21, 2007

No Taxes on Tips versus Taxes on Hedge Fund Managers

The tavern is back in business, with a new owner but the previous diverse customer mix. A recent topic of discussion was how money talks more than the people do. The following sequence of events is a perfect example.

Ron Paul entered HR 3664, the “No Taxes on Tips” Bill. His rational for the bill was as follows:

“It is an outrage that waiters, waitresses, and other service-sector employees have to pay taxes on the tips they earn. The IRS makes an estimate of how much service-sector workers will make in tips, and taxes them on it even if the taxpayer did not actually earn as much as the IRS' estimate!

Tips provide a substantial portion of the income of many service-sector employees, many of whom are young people just trying to make a few extra dollars to get through school, or single parents often balancing two jobs while trying to make enough to raise a family. This tax amounts to nothing more than the federal government punishing these employees for working hard and doing their jobs well.

I have introduced H.R. 3664 in Congress to end this problem. The Tax Free Tips Act of 2007 will exempt tips from federal income and payroll taxes. Ending taxes on tips will give workers an immediate pay raise, letting them keep more money to put toward things like a house or car payment, their retirement, or their own and/or their children's education.

When you give someone a tip, you should not have to simultaneously tip the federal government.”

A tip is pure free enterprise where the server provides a service and the recipient determines the price based upon satisfaction. It is not salary. This effort by Ron Paul to correct an unjust error received exactly zero coverage in the media. It is almost certain that no action will be taken by congress.

Now look at government money-guided treatment. It was provided to managers of hedge funds who are exploiting a loophole in the tax code that allows them to pay a 15% capital gains tax rate on their million dollar plus annual incomes. They should be paying the top 35% ordinary income tax rate. The fund managers get no sympathy from tax scholars, who point out that the current tax system inexplicably singles out fund managers for favorable treatment to the disadvantage of other workers and investment firms.

An attempt to fix this multi-billion dollar theft released a torrent of lobbying and misleading information from the financial community. President Bush himself has sanctimoniously come out against “raising taxes on hard working Americans.” There is now resistance from both parties to any change, including Senate Finance Committee Democrats John Kerry of Massachusetts and Charles Schumer of New York. Nothing has happened.

Government for the people? Now where should we go to get one of those? What do you say, Congressman?