I Am the 47%

I haven't been on Facebook yet today, but I can only imagine that the subject line of this blog post has become cliched even moments after I thought of it. Alas, there's nothing new under the sun.

And that includes Mitt Romney sticking his foot in it, which seems to be a pretty regular event. The latest kerfuffle is over his comments back at a spring fundraiser with wealthy donors, where he was caught on hidden camera saying:

There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that's an entitlement. And the government should give it to them. And they will vote for this president no matter what…These are people who pay no income tax. 

[M]y job is is not to worry about those people. I'll never convince them they should take personal responsibility and care for their lives.

So let's do a little personal case study of someone who falls in this 47%, voted for Obama and, according to Romney, cannot be convinced to "take personal responsibility."

My 47% Street Cred

To be honest, it would be more appropriate to say "I was the 47%" because in 2011 I actually did pay 1.12% in federal income taxes, on top of the state income taxes (4.37%) and federal payroll taxes. However, for several years before that, I was not paying income taxes:

• 2010: 0.00%
• 2009: -0.85%
• 2008: (can't find, but it was 0% or very near 0%)
• 2007: 10.37%

So, what happened in 2008 that caused my taxes to drop so much? My income from my day job has increased every year. Well, there were actually several different factors that figured into the low tax rate, all of which can be traced back to 2008:

• I got married.
• I became a stepfather.
• I began donating 10% of my income to charity and local churches (and itemizing deductions accordingly).
• I became a landlord. (My wife's previous home became a rental property.)
• I learned about the pro-business tax code and began intensely keeping records and making use of deductions to legitimately reduce my taxable business income from freelance writing.
• My wife returned to college.

Oh, yes, a couple of other things happened in 2008 that should have raised my total income tax:

• I started writing String Theory For Dummies, which resulted in a net income increase, so actually raised my gross business income for 2008 and 2009 both.
• I received an greater-than-10% raise, due to restructuring at work and them realizing that they were seriously underpaying me.

Ah, yes, and I finished my Master's Degree, paid for by reimbursement from my company (so I couldn't deduct any significant amount of it). No real bearing on my tax situation ... although it might have some bearing on that whole "personal responsibility" line.

Who Made Me Dependent Upon the State?

So the driving forces behind my sudden drop in income tax liability were primarily the following (in no particular order, since I don't feel like looking through old tax forms to figure which benefited me most):

• Small business tax deductions and credits
• Married filing jointly status
• Kid-related deductions and credits
• Rental property depreciation deduction
• Itemized deductions: Charitable (and church) donation and mortgage
• Education deductions for my wife

A quick look at this list really makes one wonder which of these deductions Mitt Romney is planning to revoke or reduce in order to wean me off of my "entitlement" mentality.

In fact, aren't these precisely the sorts of things that Republicans typically argue should reduce your tax liability even more? Isn't it really the Republicans who have decreased taxability so severely that it took me 3 years of raises and working on my writing career to work my way up to 1% income tax? Does anyone else recall Mitt Romney re-affirming his right to reduce his tax liability to the legal limits, when it was released that he way paying 15% in taxes?

Note to the IRS:

I said "legal limits."

I am very careful with my deductions and record-keeping.

If a deduction is questionable, I don't take it.

So, really, it would be a waste of time to audit me.

A waste of my time and yours.

Keep up the good work, guys!

According to Mitt Romney, this places me in a very unenviable position. I am now counted among those "who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it."

I will concede that I am probably at the top of the 47% of which Mitt Romney speaks. While he doesn't care about most of them, he maybe cares a little bit about what I think. See, I'm one of these moderates who voted for Obama in 2008 and wishes his policies had done better. And I am giving Mitt Romney the chance to convince me that his policies will do better, so that I can vote for him today.

However, we've seen the results of his policies. His policies removed my tax liability. His policies have, apparently, turned me into a entitlement-seeking person, unable to take care of my own life, let alone the lives of the two children tragically entrusted to my care by the vagaries of fortune and chance! Those poor children! How will they suffer, to be raised by a father with so little self worth?

I dare ask, is there any solution?

Yes, I believe there is ...

I Need to Be Taxed More ... and So Do the 53% Above Me

It's totally absurd, with the amount of income I bring in, that I am paying only 1% income tax. I'm not wealthy, by any stretch of the imagination. (Well, unless you compare me to the 95% or so of the world that makes less income than I do ... in which case I'm doing alright.) I have to crimp and save just like anyone else, and there's never quite enough to do everything I want.

However, I also have two kids. I'm a member of a community and a nation. And we're overspending. To fix that, we need to do what any businessman in that room with Mitt Romney would do if faced with a tough personal or corporate budget. They would figure out how to:

• Increase revenue
• Cut expenses

We've let taxes drop too low and they need to go up a bit on the middle class. Not a lot, but at least a bit. Cap some deductions, such as the charitable deduction. Either an absolute cap or as a percentage of income. There are a lot of options here.

But to set the country on a course to fix the deficit, taxes have got to go up. Mitt Romney has made a pledge not to raise taxes. I'm hoping that he's a good enough businessman to know that he was lying when he made that pledge, because there's no way he can be serious about the deficit while clinging to it.

Of course, there is a third option that the businessmen in that room may be familiar with, especially if Trump was there. It's an option I unfortunately had to exercise in 2006. It's one that isn't fun and, as a patriotic American, it's one I hope we can avoid:

Bankruptcy.

Update:
Sept. 26: I found out about the blog We Are the 47%, which shares open letters (ostensibly to Romney) about individual experiences within the 47%. Here's an overview of some of the people who have stepped forward through that website:

We have letters from a Pulitzer Prize-winner in fiction and a Pulitzer Prize-winning columnist, as well as an 82nd Airborne paratrooper, a recipient of a Purple Heart, the wife of a med student, a special education teacher, a union carpenter... We have letters from those who share Mitt Romney's faith, but disagree with his disregard for the 47 percent; and we have a letter from someone who, like Romney, graduated from Harvard Law School, but, unlike Romney, made the financial sacrifice to work as a public defender ...

Corporations: People, Entities, or a Hybrid of Both?

Many liberals have made a lot out of the Citizens United decision by the Supreme Court, which they describe as saying "corporations are people." However, the Supreme Court ruling doesn't actually use this terminology, even if the spirit of the ruling does imply that .

Still, one of the major elements of the campaign is the degree to which corporations deserve special considerations and what types of considerations those are. While both political sides of the debate tackle this argument with a lot of preconceptions, I think it's possible to really look at the facts behind how corporations are formed to understand the degree to which a corporation, in general, can be viewed as equivalent to an individual.

Mitt Romney's Evolving View of Corporate Personhood

Mitt Romney did use these words on the campaign trail during the Republican primary, when he replied to a critic at an event, "Corporations are people, my friend." He has been very vocal about his strong beliefs regarding the importance of corporate rights. I'm in the process of reading Romney's jobs plan, Believe in America: Mitt Romney's Plan for Jobs and Economic Growth (available on the Kindle). In it, he (or his team, at least) says the following:

The truth is, as Mitt Romney likes to say, "corporations are people." They represent human beings acting cooperatively to be economically productive.

In the e-book, Scott McNealy, the founder and former CEO of Sun Microsystems, writes a piece about tax policy that delves even more deeply into the "corporations are people" narrative.

To the vast majority of Americans who have held real jobs in the real economy, often in corporations, the point made perfect sense. Indeed, it seemed a statement of the obvious. A corporation, after all, is nothing more than people who have joined together to work cooperatively. The word "corporation" itself means "body of people." And in fact, corporations consist of two groups of "people": employees and shareholders. The former work hard to make a profit and earn their salaries and benefits. The latter, now widely dispersed across the economy by means of mutual funds and retirement-plan investment portfolios, provide the capital and can reap the financial benefits while also assuming the financial risk.

However, today I was listening to the radio and heard an intriguing segment about the latest campaign kerfluffle. I've been busy with work (at a corporation) and haven't kept up with the news, so didn't know much about the outsourcing that Obama has been accusing Romney of. Apparently, Bain Capital is accused of outsourcing some jobs, and this seems to be during a nebulous time between 1999 (when Romney stepped aside at Bain to run the Salt Lake City Olympics) and 2002, when he was still listed as CEO, President, and sole owner of Bain Capital, but wasn't actively involved in the day-to-day operations. Apparently, in response, Romney said:

"Well, I was the owner of an entity that is filing that information, but I had no role whatsoever in the management of Bain Capital after February of 1999," he told CNN. "Not that that would have been a problem to have said that I was with the firm beyond that, but I simply wasn't."

Since I had just been reading the jobs plan, the use of the word "entity" struck me as odd. So which is it? Is a corporation a person or some other type of entity?

The Benefits of Incorporating

To really understand this question, we have to consider the reasons why people incorporate their businesses. For example, in addition to my day job, I am self-employed as a freelance writer. I am not incorporated, however, and file taxes on my business as a sole proprietor of a business, The Philosopher's Stone.

As a  sole proprietor, my business is treated as an extension of me as a person. Though I have an Employer Identification Number (EIN) to file payroll taxes (my wife is my salaried employee), I have not been able to us this EIN to gain business credit cards or financing. When I set up my business checking account, I tried to use my EIN and was told that since I wasn't incorporated, I needed to set it up with my Social Security Number. When I fill out W-9 forms, the documentation says that the IRS prefers sole proprietorships to use my Social Security Number instead of my EIN. Since I am not incorporated, the credit cards I use for business expenses are in my own name, not in the name of my business.

When you begin to investigate home-business tax savings, you do find that there are a number of reasons to incorporate.

1. Credit Benefits:The first reason to incorporate, as hinted at above, is that you can now begin establishing lines of credit and bank accounts using your business' EIN instead of your personal Social Security Number. If your personal credit is poor - perhaps due to a failed business or personal bankruptcy in the past - this can be a crucial benefit to gain the necessary financing for your business venture.
   
   
2. Liability Protection:Related to the access to credit, corporations also create a level of liability protection. If a sole proprietorship goes under, all of the debt is in your name, so your creditors are able to come after your individual assets. You could lose not only your business, but also your house, your savings, garnishments against future wages, and so on. When you incorporate, a very powerful legal wall is built between these two entities. This is how people like Donald Trump can have multiple major corporate bankruptcies while maintaining their personal wealth. Even if the corporation is sued for some sort of illegal business activity and loses, the fact that it's a corporation can sometimes still protect the individual from having their personal assets garnished ... or vice versa.
   
   
3. Tax Benefits: And, of course, there are tax benefits to being a corporation. Even as a sole proprietorship, I'm in the advantageous situation where my business income is taxed after expenses, in contrast to my personal income, which is taxed before expenses. Corporations have all sorts of tax loopholes created (we hope) with the genuine desire to enhance the ability of these corporations to grow their business and become economically prosperous, thus generating overall more wealth (and, ultimately, tax revenue).

The exact nature and degree of the benefits change depending upon the type of incorporation, of course, and I'm sure that there are many other benefits beyond these. Still, one glance at these reasons makes it clear that the point of incorporating is to separate the business activity from the individual.

Are Corporations People?

Taking all of this into consideration really calls into question the "corporations are people" narrative, which Romney has chosen to officially embrace on the campaign trail and in his jobs plan. While it is certainly true to say that a corporation involves "human beings acting cooperatively to be economically productive," this description by itself isn't particularly helpful. For example, the mob, street gangs, and a team of bank robbers are all attempting to "act cooperatively to be economically productive" as well! Certainly corporations are something different.

No, saying that a corporation is " nothing more than people who have joined together to work cooperatively" (as Scott McNealy does) is a gross over-simplification. I think of it more like this:

A corporation is a group of people who have jointed together to work cooperatively for economic advantage and have then asked the government for special dispensation to treat their group activity as distinctly (and legally) different from their personal activity.

The whole point of incorporation is that it provides a powerful division between the business and the personal activities. Saying that "corporations are people" requires completely ignoring the legal meaning of a corporation ... and negating the validity of the legal protections that corporation-hood confers.

This is why as soon as Romney was called into question on the activity of his corporation, he fell back on the true definition of a corporation. A corporation was no longer a noble reflection of the people united for economic productivity, but instead just an "entity" that files paperwork. His name happened to be on the line that said he was CEO, but that doesn't mean anything at all.

Money From Virtually Nothin' at All

From college into my mid-twenties, I spent most of my spare time as a staffer on various text-based multi-user online games, most of them set in the World of Darkness roleplaying setting. My emphasis was on the Mage: the Ascension game, though I did have some overlap with Vampire: the Masquerade and Changeling: the Dreaming. My focus was then (as now) on telling a good story, and I was told by many that I was one of the best "storytellers" (as those who "run" these games are called) that they'd dealt with. The games that I was involved with were what were called MUSHes (multi-user shared hallucinations) or MUXes (not really sure what this ever stood for).

In 2003, though, I finally got drawn into the graphics-laden world of Massively Multiplayer Online Roleplaying Game (MMORPG), which include the better known games like Everquest, Ultima Online, Dark Ages of Camelot, World of Warcraft, and the like. The game that finally got its hooks in me was Star Wars: Galaxies, in which you were able to play a character in the Star Wars universe. Starting in the last few weeks of their beta test release, and continuing into the full version of the game, I played for nearly a year and a half as a Mon Calamari character, loyal to the Empire. (As a boy during the Clone Wars, my family's transport had been rescued from destruction by rebels thanks to a young Darth Vader, and Lord Vader forever after had my allegiance. Remember - it's all about telling a good story!)

My character - Evrab Akicky was his name, if I recall correctly - was an artisan (crafter) and merchant. In the course of the game, he obtained the profession titles of Master Artisan, Master Droid Engineer, Master Architect, Master Chef, Master Merchant, and possibly a few other master professions. (They have since, I'm told, revised the Profession system a bit.) Mostly my emphasis was on being a Chef and Merchant, the two Master-level rankings (along with Master Artisan) that I kept throughout my tenure in the game.

I built top-notch mining equipment, with which to extract the needed raw materials for my creations. I would go to a website that featured a list of all of the minerals available on all of the planets, along with their various statistics, then analyze the requirements for my recipes to figure out which places I needed to mine to get the most valuable resources. Then, in game, I would go to that location and try to find the highest concentration of the choicest resources. These resource deposits shifted regularly, so the process required careful attention or the mining machines would be sitting idle, costing me valuable credits and time.

As a Chef, I also needed materials like hide, bone, and meat from animals, which means I needed to commission Rangers to hunt for me (for resources, again, whose quality I obtained from the same website). Eventually, I created another character - a Master Ranger, Master Marksman, Master Rifleman - who could help me obtain these things without having to go through others exclusively. I was known throughout my guild as having some of the best resources around, and I honestly made more off of the trade of raw resources than off of selling my Chef concoctions (although in SWG at the time such food and drink provided powerful "buffs," playing the role that magical potions provide in fantasy-based games, so they were valuable in their own right and I made a pretty penny off of them).

As a Master Merchant, I was specifically designed to get the highest return, able to have many mechanized, customized vendors placed throughout the universe, on various planets. My trade only increased with the "Jump to Lightspeed" expansion, in which I gained the ability to craft customized spaceships.

This all sounds like I never actually played on the game, and that is certainly not true. I helped my guild found an in-game city, crafting many of the municipal buildings myself. In probably one of my proudest gaming moments at Star Wars: Galaxies, I officiated at the online wedding of our two guild leaders, wherein I told a touching homily about two ancient Sith Lords, whose love was torn apart by a deceitful Jedi who sowed distrust between. (Remember, I was an Imperial character.) The moral: be ever mindful of the importance of love, and mutual trust, in holding a relationship together.

My point in all of this is that for nearly a year, I spent about as much time "working" in Star Wars: Galaxies as I did in my day job. (I was single through most of this time, for reasons which should now be obvious.) And it was only toward the end of this time that I became aware that there were markets for selling in-game credits for real-world money. I never got involved in these sorts of transactions, but it did occur to me that it would be possible ... at around the same time I began dating again, and slowly got out of the gaming life, so never personally profited from it.

So when I saw the book Play Money: Or, How I Quit My Day Job and Made Millions Trading Virtual Loot by Julian Dibbell, I was instantly intrigued. At the same time I was playing Star Wars: Galaxies, Dibbell was diving head-long into the Ultima Online loot trade in an effort to make a living at it in real-world dollars. There but for the grace of God go I, and all that. I ended up getting Play Money on audiobook from my local library, and it was excellent!

For those who have familiarity with these worlds - who have once, as I have, been addicted to them - I would really recommend reading Play Money and seeing it through Dibbell's eyes. It's part nostalgia, part reality check, and part economic philosophy lesson. Here's a quote from my Amazon.com review of the book: 

The most intriguing aspect of the book is Dibbell's analysis of what it means to be "real" in an economic sense. Why do things have value? If people work for hours to establish a virtual economy, and that virtual economy has an exchange rate to the real-world economy, then is the virtual economy any less real than the real-world economies? In light of the recent financial crisis, caused in large part by the trading of insubstantial "derivatives" far removed from the tangible home assets that they purport to represent, in some obscure fashion (they actually represent the trust placed in a person to pay the mortgage on a home, not the value of the home itself, after all), Dibbell's questions become even more relevant.  Are the virtual economic decisions made by virtual game designers at a gaming company, in regards to how much money to introduce into the economy for example, substantially different from those made by the Federal Reserve? Isn't the only difference one of scale? There are more people affected by the U.S. economy than by the Ultima Online economy, and that's the only sense in which it is "real."