The Buffett Rule Is Bogus
Gary Gerard,
dumbhoosier.com
President Obama is traveling around
the country touting the merits of what he calls the “Buffett Rule.”
That’s a tax deal where the government would dramatically raise
taxes on successful Americans and investors. It is one of the most
ridiculously disingenuous proposals I have ever heard.
I get politics. I understand the populist appeal of saying things
like: “This is not about a few people doing well. It’s about giving
everybody a chance to do well. That’s what the American dream’s
about. ...
“You can still make it if you try. ...
“You might have heard of this, but Warren Buffett is paying a
lower tax rate than his secretary. Now that’s wrong. That’s not
fair. And so, we gotta choose which direction we want this country
to go in.
“Do we keep giving those tax breaks to folks like me who don’t need
’em? Or give ’em to Warren Buffett who definitely doesn’t need ’em?
Or Bill Gates? He’s already said, ‘I don’t need ’em.’
“Or do we want to keep investing in things that keep our economy
growing and keep us secure? That’s the choice.”
So that’s the message.
The proposal is that anyone making more than $1 million a year must
pay at least 30 percent in income tax.
OK, so let’s start with some nuts and bolts. First of all, the
majority of people who make more than $1 million already pay more
than 30 percent in income taxes. See, people like George Clooney or
Alex Rodriguez or the CEOs of big companies make most of their money
from a paycheck. That’s earned income and it’s taxed at a rate of 36
percent.
Then there are people like Warren Buffett and Mitt Romney, who make
most of their money via investments. Most of that income is in the
form of dividends and capital gains, which is taxed at a rate of 15
percent. So yes, those folks are taxed at a lower rate.
And it sounds oh so proper to tax those people so we can keep
“investing in things that keep our economy growing and keep us
secure.”
The problem with all this high-minded, haughty nonsense is outlined
in a recent analysis by the congressional Joint Committee on
Taxation and pointed out in a Heritage Foundation article.
The Buffett Rule, it seems, would raise a mere $47 billion over 10
years. Now, while that’s no small amount of money, it pales in
comparison to President Obama’s own budget proposals, which call for
adding $6.7 trillion to the national debt during the same time
period.
To put that in perspective, let’s say you have a credit card with a
balance of $6,700. You’d be making a $64 payment. And remember,
these congressional analyses are generally wildly optimistic, so the
picture probably is even more bleak than that.
So – at best – the Buffett rule would cover about one-half of 1
percent of the president’s spending proposals.
But the nonsense that is the Buffett Rule goes far beyond its meager
worth.
Let’s get back to dividends and capital gains. Where do you suppose
this capital comes from? Thin air. There’s a reason income from
investments are taxed at a lower rate than earned income. It’s
because the money invested already has been taxed – sometimes
several times at rates up to the top marginal rate of 36 percent.
The Heritage Foundation notes that once invested, it generates
income that is taxed at the corporate level at a 35 percent rate.
Then it’s taxed again at an individual rate of 15 percent on
dividends and capital gains. How many times and at what rate must
that income be taxed before it’s enough for President Obama?
Of course, when the president goes on one of his populist rants, he
conveniently – and disingenuously – forgets to mention all but the
last, 15 percent, individual rate.
The president also makes it sound like rich people don’t pay enough
taxes.
But Heritage Foundation’s Curtis Dubay writes the following: The
top 1 percent of income earners — those earning more than $380,000
in 2008 — paid more than 38 percent of all federal income taxes
while earning 20 percent of all income. Meanwhile, those in the
top 10 percent ($114,000 and above) earned 45 percent of income
and paid 70 percent of all taxes. By comparison, the bottom 50
percent of income earners — those earning less than $33,000 —
earned 13 percent of all income and paid less than 3 percent of
federal income taxes.
And in addition to the aforementioned meager financial gain
the Buffett Rule would provide to the U.S. Treasury, it could have a
chilling effect on investment and local governments all across the
land.
Jack Ablin, chief investment officer at BMO-Harris Private Bank,
told NPR many wealthy investors would rethink what they do with
their money. “If you tax millionaires that are investing in, for
example, municipal bonds, and they’re enjoying the tax benefit of
that interest, you could see a whole rash of investors moving away
from buying bonds of our state and local governments,” Ablin says.
On top of that, people who make money by buying and selling assets
would suddenly be paying a lot higher taxes overnight.
Will McBride, an economist with the Tax Foundation, told NPR people
would rush to sell off assets right before the law takes effect. “If
this tax were to go into effect Jan. 1 of next year,” McBride says,
“the stock market in December would not look pretty.”
McBride also said over the long term the Buffett Rule would damage
the economy because people would have less incentive to invest,
harming small startups. “You don’t want to heavily tax investment,
because you’re taxing the thing that creates long-term economic
growth,” he says.
But what does he know.
You know, I absolutely agree that this country needs tax reform. The
tax code needs to be simplified and made more fair. So why not do
that? Why not propose meaningful tax reform?
Because the Buffett Rule is polling more than 60 percent right now
and it’s an election year, that’s why. The president is a smart guy.
He knows all this stuff. He also knows that the Buffett Rule, which,
essentially raises the capital gains tax rate from 15 percent to 30
percent, doesn’t have a chance of passing either house of Congress.
But as long as he can paint those who oppose it as anti-middle
class, he’s happy.
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