Reality check on the "Buffett Rule"

[Long Run]

Obama trots out the same old tired line that supposedly came from Warren Buffett:

"Now, you can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes?" Mr. Obama told the Congress. "Most Americans would call that common sense."

The idea was named after billionaire Warren Buffett after he pointed out that he pays a lower tax rate than his secretary because the capital gains tax on investment income is 15 percent, far less than the highest tax bracket of 35 percent. Buffett's secretary, Debbie Bosanek, was among First Lady Michelle Obama's guests for the State of the Union speech.

First, it is completely inaccurate to talk about "taxes" rather than tax rates since a billionaire could pay a 1% rate and still pay ungodly amounts more than his secretary.

Second, people don't seem to get the difference between an overall rate of tax and the marginal rate of tax. The 35% rate is fictional for nearly all taxpayer (even many wealthy taxpayers). I would be completely shocked if the secretary paid anything close to an overall rate of 15% on her total income. I doubt few of us on this board ever have. In fact, as repeatedly pointed out by many on this board, half the wage earners in this country don't pay any federal income taxes at all. Their marginal rate may be 15%, but their overall rate (after deductions and exemptions) is 0%. The real tax workers pay is for Social Security and Medicare -- this is usually more than the general federal income tax; but to determine the real rate of that tax would require offsetting the earned benefits that workers supposedly earn by paying those taxes (again the part of the equation that most people want to ignore).

Third, even if increasing tax rates on the wealthy increases actual tax receipts*, and even if there is a substantial increase in the amount of taxes paid from the rich, it won't come close to solving any budget problems. Even our local newspaper's liberal editorial board understands that. So, trying to sell making the rich pay more taxes will solve budget problems is factually inaccurate.

It is fine if people want to argue that wealthy people should pay even more taxes than they already do (good luck making the case and coming up with a policy actually results in more taxes). Just don't lie about the numbers.

*It is not obvious that tax rate increases result in increased taxes on the wealthy. If income tax rates are increased, wealthy people just divert their income to other years or other jurisdictions or nontaxable forms of income. If dividend tax rates increase, then companies will pay less dividends, and stockholders will get more return in capital gains. If capital gains rates increase, there will be fewer capital transactions, and capital will flow to countries with lower rates. In short, it can be very difficult, especially in difficult economic times, to devise an increase in tax rates on wealthy people that will result in more taxes received. On the other hand, it is easy to raise the actual taxes paid by regular workers by adjusting the rates.

[Grim Reaper]

Third, even if increasing tax rates on the wealthy increases actual tax receipts*, and even if there is a substantial increase in the amount of taxes paid from the rich, it won't come close to solving any budget problems. Even our local newspaper's liberal editorial board understands that. So, trying to sell making the rich pay more taxes will solve budget problems is factually inaccurate.

But it will create more money to help with the budget problems. Nobody has ever seriously suggested that taxing the rich would be a magic bullet that would instantly make our debt go away.

[Sue U]

*It is not obvious that tax rate increases result in increased taxes on the wealthy. If income tax rates are increased, wealthy people just divert their income to other years or other jurisdictions or nontaxable forms of income. If dividend tax rates increase, then companies will pay less dividends, and stockholders will get more return in capital gains. If capital gains rates increase, there will be fewer capital transactions, and capital will flow to countries with lower rates. In short, it can be very difficult, especially in difficult economic times, to devise an increase in tax rates on wealthy people that will result in more taxes received. On the other hand, it is easy to raise the actual taxes paid by regular workers by adjusting the rates.

It is a difficult problem, inevitably fraught with unintended consequences, but just because it is difficult doesn't mean it shouldn't be attempted. TEFRA (1982) and the follow-up Tax Reform Act of 1986 implemented some rather sweeping changes and effectively raised revenue. Clearly, adjustment of marginal rates alone is insufficient to address the issues of tax fairness, let alone increasing revenue. There are numerous changes that cumulatively could have broadly beneficial effects, but the sheer demagoguery surrounding anything that smacks of "raising taxes" makes it unlikely that anything could be accomplished without some extraordinary effort.

[dgs49]

Our Beloved President is obviously trying to make the case with the American people that if The Rich were paying their "fair share" everything would be hunky-dory, and all of their wasteful programs could be paid for without any "real people" having to pitch in.

This is precisely the type of nonsense that would have Dems wailing about "Liar, liar, pants on fire," if a Republican were making a similar case to justify, say, declaring war on Malta.

[Liberty1]

BO rolling our Buffet's secretary in the FL box is a new low, now we can't stop propoaganda and class swarfare even for the SOTU. What a far cry from the days when that honor was reserved for living heros. Now it's reserved for fake victims.

And what a poor little secretary she is.

http://www.forbes.com/sites/paulroderic ... 00000year/

The IRS publishes detailed tax tables by income level. The latest results are for 2009. They show that taxpayers earning an adjusted gross income between $100,000 and $200,000 pay an average rate of twelve percent. This is below Buffet’s rate; so she must earn more than that. Taxpayers earning adjusted gross incomes of $200,000 to $500,000, pay an average tax rate of nineteen percent. Therefore Buffet must pay Debbie Bosanke a salary above two hundred thousand.

http://www.thesmokinggun.com/buster/war ... mes-654812

Despite a heavy tax burden, Warren Buffett’s secretary last year was able to purchase a second home in Arizona, a residence complete with a swimming pool and a “professional PGA putting green,” according to real estate records.

Debra Bosanek, 55, and her husband Gerald bought the 2100-square-foot home in Surprise, a city outside Phoenix. The Bosaneks paid $144,000 for the four-bedroom, two-and-a-half bath property (the purchase was financed, in part, by a $115,200 mortgage).

The class warfare hypocrisy is staggering.

[Grim Reaper]

And how does that invalidate anything that was said? In fact, nothing was ever said about how "poor" this secretary was, just how much more she paid in taxes as a percentage compared to Mr. Buffett. The whole point being how much smaller of a percentage that he has to pay back to the government solely because of how much more money he makes.

This is just a pointless attack against the secretary as if it somehow disproves Mr. Buffett's point. He's not arguing that she needs to pay less. He's arguing that he should be paying more.

[rubato]

From 1987 to 1997 capital gains were taxed as regular income and the top marginal rates were higher than now from 1993 to 2001 (when Bush started borrowing to give money to the rich). We turned a deficit into a surplus and employment increased by 11.5 million.

Higher taxes on the rich are a great deal of the solution to deficits.

Our net federal tax rate (total federal taxes paid vs taxable income) was 22.8% last year.

My economic group should pay more.


yrs,
rubato

[Liberty1]

He's arguing that he should be paying more.

He's free to do that. If he needds to clear his conscience, what's stopping him.

My economic group should pay more.

Well you just go for it then.

[dgs49]

"Higher taxes on the rich are a great deal of the solution to deficits."

Frankly, I doubt it.

(a) The numbers simply don't support that conclusion. Even if we went back to marginal tax rates in the 90% tax range, with an overriding 50% cap (the highest rate structure imaginable), there are simply not enough high-earners to make a serious dent in a 1.5 Trillion dollar deficit.

(b) Democrats always use a "static" model and they are always proven wrong. People - especially small business owners and the truly wealthy - CHANGE THEIR BEHAVIOR when they have the impression that they are being taken advantage of. They can shift their investments to tax-free investments, defer their income, hold on to appreciated assets, hide their income (better). This principle has been demonstrated on several occasions when increases in tax rates provided either no or substantially less new revenue than projected, and when decreases in rates resulted in increased revenues.

(c) It is a twisted concept of "fairness" indeed that concludes that someone paying millions of dollars a year in income taxes is not paying "enough," or that the top few percent, already paying many times more than everyone else, ought to be paying more.

The Dems just don't get it. The problem is not a shortage of revenue, but an overage of spending. And this year's political campaign will show Dems doing their damndest to keep people ignorant about where the problem lies.

[Liberty1]

There is one steadfast rule the Dems always fail to realize (except when they are dealing in their favorite social engineering topics).

When you tax something, there is always less of it.

When you tax income, there is less incentive to earn and therefore there is less income.

[Gob]

There is one steadfast rule the Dems always fail to realize (except when they are dealing in their favorite social engineering topics).

When you tax something, there is always less of it.

When you tax income, there is less incentive to earn and therefore there is less income.

Utter utter bollocks.

[Scooter]

You state that as fact and have no way of proving it to be true. I could just as easily say, that if I am taxed more I am going to work more and generate more income in order to keep up my lifestyle.

[Guinevere]

Oh please -- show me one person who has said to their employer, "since the government is going to take 25% of my $4000 raise, you should just keep it."

Bullshit. The only people who even come close to thinking that way are those who don't understand the difference between marginal tax rates and average tax rates and who fear -- without basis -- that a raise which pushes them into a higher bracket will end up reducing their total income as compared to before the raise.

[Grim Reaper]

(a) The numbers simply don't support that conclusion. Even if we went back to marginal tax rates in the 90% tax range, with an overriding 50% cap (the highest rate structure imaginable), there are simply not enough high-earners to make a serious dent in a 1.5 Trillion dollar deficit.

Ah, right. The good old "it won't magically fix the problem instantly, so we shouldn't even think about doing it" argument.

Of course the Republican plan is to shrink spending while also shrinking income, leaving us with a debt that can never be repaid.

[rubato]

There is one steadfast rule the Dems always fail to realize (except when they are dealing in their favorite social engineering topics).

When you tax something, there is always less of it.

When you tax income, there is less incentive to earn and therefore there is less income.

Clinton proved that this was false. Empirically.

He raised the marginal rates on the top 20% and they worked even harder and -lo!- made even more money after taxes than they did before.

You really need to connect with reality before you talk pure absolute screaming fucking crap.

OK?



yrs,
rubato

[rubato]

He's arguing that he should be paying more.

He's free to do that. If he needds to clear his conscience, what's stopping him.

My economic group should pay more.

Well you just go for it then.

Why do you care? You can just fill out the short form?




yrs,
rubato

[dgs49]

Gobster & Guin,

The issue here is not about wage earners. One would never know it from reading the newspapers, but most of the top earners in the U.S. are business owners and investors. There are a smattering of corporate execs and contract-athletes in the mix, but the vast majority of the top earners have a great deal of control over how much taxable income they recognize from year to year. And it is those people whose behavior will change if the tax structure changes significantly.

Most Americans would be satisfied if a few of the more arcane exemptions, credits, and deductions were removed from the tax code, and there is plenty of new revenue to be derived from initiatives like that.

In recent years, we have even seen an uptick in wealthy people leaving the country for tax reasons (a small but noticeable number of people). And why do you suppose so many top athletes and entertainers have decided to live in states with no state income taxes (like Florida)? Top earners WILL adapt to new circumstances, one way or another.

NOBODY (other than Ron Paul) is even hoping for any drastic cuts in spending - we would be satisfied for now to simply return to the insane levels that were present before Barry took over.

But the Democrats, for purely political reasons, are going to be selling the idea for the next 9 months that The Rich aren't paying their fair share, and if they were, everything would be fine. Which is bullshit.

[Grim Reaper]

In recent years, with lower taxes than ever before, why would they bother leaving the country? Why didn't they leave back during the Clinton years when taxes were actually higher?

Hmm. It's almost like your "they'll leave if taxes go up" argument is utter nonsense.

[dgs49]

The number leaving is miniscule (about 1000 per year). The point is that the people at the top of the scale have that option, just as they move their state of residence to avoid state taxes.

[Liberty1]

And it's no so much that they'll move, it's they have enough money, they'll just stop any new ventures.