When the government raises rates, wealthy investors often find ways to get around those hikes, and money is sometimes diverted into projects that serve only to lower one's tax bill and do no one any good, says Fragrasso. In the early 1980s, for instance, wealthy investors poured money into tax-advantaged limited partnerships, many of which provided little benefit to society, he says. In the southwest, for instance, acres and acres of office buildings were built because people wanted to take advantage of the tax benefits, and it took ten years to soak up all the supply.
"They weren't built on viability. They were bought by wealthy individuals looking to redirect tax dollars. That's not good for the economy," Fragasso says. "No responsible person rejects the obligation to pay taxes. It's the arbitrary decision-making that seems to go behind some of the tax code and seems to go way beyond funding the legitimate forms of government."
It's counterproductive for the government to tax people earning more than $250,000, says Thomas Belesis, CEO of John Thomas Financial, a broker-dealer in Manhattan. He says if he paid less taxes, it would give him an incentive to go out and invest more in his business, and that, in turn, would help the economy and spur job growth.
"This is the United States. People who make money should pay taxes. But it should be reasonable. There should be a fairer, simpler tax code for everyone, whether you're making $250,000 and over, or under," he says. Income taxes, for instance, shouldn't be higher than 10% to 15%, and capital gains should not exceed 5%, he says.
"All taxes are too high. Even at 15%, capital gains feels too high," he says, noting that changing the tax landscape so often is almost as bad as having rates too high. "Instead of making decisions to move forward with something, because you know the tax situation, a lot of people are hesitating if not stepping back."
Richard Carey, president of Stone Legends, an architectural stone supplier in Dallas, says he could actually create jobs if the government didn't make it so costly for him to hire people. Carey, whose stone company is labor intensive, says his compliance issues have increased, and his unemployment insurance bill has doubled, now that the government allows people to collect unemployment longer. Employees are privy to so many entitlements-potentially more after health care reforms are adopted-it's difficult to pay for people without passing those costs onto the consumer, which he can't do if he wants to remain competitive, he says.
"Unemployment insurance, health care insurance, regulatory compliance issues that you must send in, and it escalates the more employees you have. Why are they doing this? A person capable of employing 250 people, and he's being penalized for hiring them," he says. "I can create jobs, but I'm being penalized. So where's my incentive to help the economy?"
Winthrop Baum, a commercial real estate executive in New York, says the government is going about it all wrong. If it truly wants to create jobs, extending unemployment is not the way to do it. Using tax policy to incentivize people to invest in the economy would be more productive, he says. If it reduced the depreciation rates of certain assets, people would be more motivated to invest in those assets, and that, in turn, could spur economic growth.
"If you really want to see a spike in commercial development, reduce the depreciation rate. That would make it more attractive to go out and buy," Baum says, noting that the current rate at which commercial real estate depreciates is 29.5 years.
To revitalize the economy, the government needs to motivate the people who have the means and the wherewithal to make things happen, and not just those with money, Baum says. It needs to motivate people who have expertise and experience.
"We all want the country to succeed. We believe that we work for our personal benefit and, in return, that personal benefit assists so many other people," he says. "But when you look at how the money we entrust to the government through taxes is spent, you really have to question whether we're entrusting the right people."