A Tax Quiz In Honor of April 15

by Craig Cantoni

In honor of April 15, here is my first annual multiple-choice quiz on the tax code.  

The quiz is simple.  After reading the descriptions of the three real-life Scottsdale residents below, decide which resident is treated unfairly and immorally by the tax code.

Person A is 55 years old.  He is in the upper 25 percent of Americans in income, a select group that pays 83.5 percent of all federal income tax, due to the progressive nature of the tax code.  He is in that group because he earned over $100,000 in taxable investment income last year on his investment portfolio of $3 million.

How did he accumulate a portfolio of that size?  By living below his means and saving money all his life, starting with his first job as a janitor at the age of 14.  His working-class parents taught him to always put at least 15 percent of his wages in the bank, where compound interest would work its magic.

City, state and federal taxes consume 50 percent of Person A's income. Unless he pays thousands to an estate lawyer to put his assets in trust, most of his life's savings will be confiscated by the government in estate taxes when he dies instead of going to his rightful heirs.  

Person A's frugality continues today.  For example, he drives a 16-year-old car with a manual transmission and cloth seats.   

His savings, along with the savings of others like him, are circulated throughout the economy and invested in businesses and technology to create jobs and fuel economic growth.  His taxes, along with the taxes of others like him, are redistributed to other people.

Person B is the same age as Person A and earns about the same salary. He is in a lower tax bracket than Person A, because he has always lived beyond his means and has little investment income and paltry retirement savings.  He has huge credit card debts and drives a $40,000 Chevy Tahoe SUV loaded with gadgets.  Worried about not having enough money for retirement, he favors lowering the Social Security retirement age and adding prescription drugs to Medicare.  

Person C is an unemployed and unwed mother of two children. She receives a variety of government handouts and lives in a three-bedroom house in south Scottsdale at taxpayer expense -- or to be more precise, at the expense of taxpayers like Person A.  The house is nicer than the residences that Person A had for the first 30 years of his life.    

The father of Person C's children lives with her in violation of HUD rules.  He works in construction when the mood strikes him.  He drives a $30,000 Chevy Avalanche and spends most of his disposable income on cigarettes, fast-food, sports bars and casinos.  He is in the bottom 50 percent of wage earners, a group that pays only four percent of federal income tax.

So which of the three is treated unfairly and immorally by the tax code?  Before answering, here is a hint:  Liberal politicians and reporters stereotype Person A as a greedy fat cat who should pay more taxes.  Conversely, they say that Person B and Person C should get more entitlements.  

As with most public policy questions, the correct answer to the quiz is the opposite of what liberal politicians and reporters say.  The correct answer is A.
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Mr. Cantoni is an author, public speaker and consultant.  He can be reached by e-mail at ccan2@aol.com

Last update: 4/9/2002; 5:58:06 PM.