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Paul Ryan's Tax Plan Endangers Capitalism

Correction: The original version of this article erroneously suggested that stock grants are untaxed -- however, stock grants are taxed as ordinary income at the time they are vested (or, in some special cases, at the time they are granted). The offending example has been removed.

NEW YORK ( TheStreet) -- Most Americans would agree that imposing a 100% tax rate on our richest citizens is a radical idea that would threaten the very viability of our market economy. Don't be fooled into thinking a 0% tax rate is any less dangerous.

Under Paul Ryan's proposed tax plan, any American with enough money to live off of his or her investments will have the option to pay no income tax. That's because dividends, interest and capital gains would not be taxed. Estate taxes would also be eliminated, allowing wealthy families to avoid the income tax in perpetuity.

This may sound like "living the dream," but the vast majority of Americans won't be fortunate enough to participate, even if they're keeping their nose to the grindstone. Meanwhile, Ryan's plan increases the national debt for roughly the next three decades, according to a "rosy" analysis.

Students of history may recall that an increasing national debt combined with a regressive tax system are two of the catalysts that spurred the French Revolution -- a period of terrible violence that unwound centuries of social order in a matter of years.

Forget the 99%, It's the 9% Who Matter

Let's imagine that Paul Ryan's tax plan was in place in 2010. Mitt Romney would have paid $177,650 in tax on $21,661,344 in income, according to The Atlantic, while possessing a $200,000,000 nest egg (This amounts to a 0.82% tax rate resulting from Romney's author and speaking fees.)

Now imagine a first-year heart surgeon with no assets, saddled with $600,000 in medical school debt. The doctor would also pay $177,650 in tax, but on $710,600 in income -- the same amount in taxes even though the doctor made 96% less than Romney (and has a negative net worth).

Roger Arnold once explained the 1-9-90 concept as follows, "revolution never comes from the bottom up or the top down. Revolution comes from the 9% becoming disillusioned with the top 1% and identifying more closely with the bottom 90%."

With whom do you suppose this imaginary doctor would identify? Is it not a scary concept that an educated, hard-working surgeon may feel economically punished by his or her ambition?

Why Not Simpson-Bowles?

Paul Ryan voted against the Simpson-Bowles plan. Under this proposal all sources of income would be taxed equally -- dividends, capital gains and wages -- at three respective rates: 12%, 22% and 28%.

In a perfect world, the taxes that you pay would be as rewarding as making a charitable gift (another form of transfer payment). The reward, of course, is that society can grow richer as a whole -- or so argued our Founding Fathers. Remember, our founders did not rebel over taxes, rather, their lack of representation.

Final Thought

Ronald Reagan once said, "Freedom is never more than one generation away from extinction. We didn't pass it on to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children and our children's children what it was once like in the United States where men were free."

I believe the capitalistic system -- specifically, the idea of a meritocracy -- must also be fought for with every passing generation. The barbarians are always at the gate, and they often fall within both political parties. As such, none of this article should be interpreted as some tacit agreement with President Obama's proposed budget. It's not.

But if you're a Republican and voting for a Romney-Ryan ticket based on any proposal that you haven't read or truly considered, that's like investing on behalf of your kids' and grandkids' future without reading or understanding the prospectus.

-- Written by John DeFeo in New York


Who Do You Side With?: provides a nuanced questionnaire to help you find the presidential candidate who you agree with most. Learn more here.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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