As a punch-drunk America staggers towards a massive Washington tax left hook on January 1, Washington Democrats and their media chorus are framing it in the ol’ class warfare language of keeping tax cuts for the wealthy. But the premise is misleading. After all, “the wealthy” are people – entrepreneurs, innovators, job creators.
Here’s a better question: Is it better, for example, that entrepreneur Mike Ilitch keep his millions in Detroit – or ship them to Washington?
Remove the media class caricature and put a human face on America’s wealthy, and the choice is a no-brainer. The $10 million-a-year that Ilitch could keep from the Bush tax cuts, according to a back-of-the-envelope assessment of Ilitch’s tax bill by experts, would be a huge boon to Detroit from one of its savviest investors. Sending his hard-earned dollars to D.C., on the other hand, would guarantee its disappearance down a rat-hole of bureaucracy, administrative paperwork, politically-correct-experimental-green-projects, pork and so on.
“Who could do more with $10 million-a-year for the city of Detroit – Ilitch or the feds?” asks one financial expert drafted by The Michigan View.com to assess Ilitch’s tax exposure.
Ilitch, and “the wealthy” like him in Michigan – DeVos, Meijer, Penske, Gilbert, Taubman, Brown, and so on – are human job engines. They are economic multipliers – investors capable of mobilizing not just their own millions but inspiring investment from others in more businesses, communities and cities. Ilitch, for example, is currently pursuing a multi-million dollar strategy for downtown Detroit that would further define its core city as a destination for sports and entertainment and multiply opportunities for restaurants and small retail. Every dollar that he spends in Detroit means jobs and development.
As a privately-held company, we do not know Ilitch Holdings’ tax liability, or how much they have saved from the Bush tax cuts. But we do know that in 2010 Mike Ilitch is #238 on America’s wealthiest list with a net worth of some $1.7 billion. The Michigan View.com asked local financial experts – top area accountants and a money manager – to conservatively estimate what Ilitch would have to cough up to the feds if tax cuts were to expire on Americans making more than $250,000 a year.
Iltich’s holdings are vast – from sports teams to real estate to restaurants – but we asked our gurus to make very general, rule-of-thumb estimates of his potential income. They settled on three pillars: income earnings, capital gains, and real estate capital gains. To make our estimate as simple as possible, we reduced it to two: income and capital gains, both of which will be subject to Obama’s New Year tax hike.
Estimating a ten percent profit, Ilitch’s taxable income would be $170 million in his 35 percent top bracket – or $59 million. If the Bush tax cuts expire, Ilitch’s tax rate would increase by 4.6 percent to 39.6 percent or an increased tax bill of $8.3 million.
Capital gains? Conservatively estimating 30 percent of his wealth is in paper ($510 million), our experts estimated a 5 percent capital gains profit or a $3.8 million tax bill. An expiration of Bush capital gains cuts would raise the rate from 15 to 20 percent for a net gain for the feds of another $1.3 million All told an increased IRS tab for one of Detroit’s most productive citizens of about $10 million-a-year. Or a staggering $50 million over five years. Send it to Washington and it would go through the sausage mill: appropriations, benefits, federal union rules, redistribution to states, administrative costs. . . .
Or Mr. Ilitch would keep his tax cut, and the $10 million to $50 million might never leave Detroit, one of America’s poorest cities, a city in need of millions in investment from entrepreneurs like Ilitch who are eager to do just that, creating jobs, local tax revenue, and quality of life.
“I’d much rather Ilitch spend his money supporting the Tigers’ pitching staff than masking unsustainable federal spending,” muses James Hohman, an economist with The Mackinac Center.
Tax cuts for the wealthy sounds better all the time.