top income earners
President Barack Obama made his pitch yesterday to jack up tax rates on high-income earners and bring a host of new fees that will reach across income groups — offering $3 in tax hikes for every $1 in spending cuts:
Drawing clear battle lines for next year’s elections, a combative President Barack Obama on Monday demanded that the richest Americans pay higher taxes to help cut soaring U.S. deficits by more than $3 trillion. He promised to veto any effort by congressional Republicans to cut Medicare benefits for the elderly without raising taxes as well.
“This is not class warfare. It’s math,” Obama declared, anticipating Republican criticism, which was quick in coming.
The president’s proposal, which he challenged Congress to approve, would predominantly hit upper-income taxpayers and would also target tax loopholes and subsidies used by many larger corporations. It would spare retirees from any changes in Social Security, and it would direct most of the cuts in Medicare spending to health care providers, not beneficiaries.
Benefit programs wouldn’t be unscathed. Obama’s plan would reduce spending for those, including Medicare and Medicaid, by $580 billion. But with Republicans calling for massive cuts in entitlement programs, Obama said he would veto any legislation that cut Medicare benefits without raising new revenue.
While President Barack Obama has named a key part of his job destruction plan after him, Warren Buffett hasn’t exactly endorsed the proposal to tax higher income earners:
Investment guru Warren Buffett set off a political firestorm Friday with a series of interviews in which he appeared to distance himself from the tax policy proposal President Obama introduced under the billionaire’s name.
Buffett, making similar remarks in all three interviews, said he is happy with the use of his name on the legislation, but added he doesn’t know all of the details included in the proposal, and the only plan he advocated was a higher tax rate on people who “make money with money only.”
He noted he was describing a very limited number of wealthy Americans who earn the majority of their income through capital gains, which is taxed at a 15 percent rate.
“What I’m talking about would not apply to someone that made $5 million a year as a baseball player or $10 million a year on media,” Buffett said on Fox Business Network. “It would apply only to probably 50,000 people out of 309 million who have huge incomes, pay very low taxes. There should be a policy that applies to people with money who earn lots of money and pay very low rates. If they earn it by normal jobs what I say would not hit them at all.”
The billionaire businessman caused confusion with his remarks, and it was compounded by the fact that there have been no specific details from the administration regarding what additional taxes on millionaires would entail.
If you have any liberal friends on Facebook or Twitter, then you have no doubt seen them post or make reference to Elizabeth Warren’s rant about the rich and how they were fortunate enough to make their wealth because of government:
There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.
This is textbook demagoguery. I don’t know many people that argue against basic functions of government, such as roads, schools, police, etc; which by the way are usually, or nearly exclusively, paid for through local taxes. Russ Roberts, an economist at George Mason University and one of the brains behind the Hayek/Keynes music videos, explains the problem with government isn’t the basic services it provides, it’s that the government has grown too large and is doing harm to the economy:
New York City Mayor Michael Bloomberg knocked President Barack Obama’s proposal to increase taxes on the rich, noting that there has been some dishonesty in the rhetoric used by the White House and Warren Buffett (emphasis mine):
Mayor Michael Bloomberg dismissed President Obama’s proposal to raise taxes on people who make more than a million dollars a year.
“The Buffett thing is just theatrics. If Warren Buffett made his money from ordinary income rather than capital gains, his tax rate would be a lot higher than his secretary’s,” he said.
“I think it’s not fair to say that wealthy people don’t pay their fair share. They pay a much higher percentage of their income, they have a higher rate than people who make less,” Bloomberg added.
That is one of the great myths about higher income earners like Buffett. They don’t make their money the “normal” way. Earnings from investments are double-taxed already, once from the corporate income tax and gain from the capital gains tax; not to mention they wouldn’t bring in much revenue. And again, I’ll point to the great post by Megan McArdle, who noted that Obama’s tax hike proposal wouldn’t hit Buffett (emphasis mine):
While the so-called “Buffett Rule” is the talk of the week, Megan McArdle notes that the White House isn’t pushing a policy that would impose more taxes on Warren Buffett, a guy that could send a gift to the government if he feels he isn’t paying enough: (emphasis mine):
[I]n the White House document that I read, I saw no proposal to set some sort of AMT on millionaires. Instead, it claims to do this, while rehashing a bunch of things that the administration has long proposed: allowing the Bush tax cuts to expire for those making more than $250,000; changing the treatment of carried interest income accrued from capital gains; and altering the treatment of deductions for very high earners. If all of these things were passed, guess who would still pay a lower effective tax rate than his secretary? Hint: his initials are WB, and he lives in Omaha, Nebraska.
If a “Buffett Rule” is such a great idea, how come the administration doesn’t actually propose enacting one?
Presumably for some of the following reasons: it would add complexity to the tax code; it might not be possible to do in a way that would stand up even in our very IRS-friendly tax courts; it would have upsetting effects on the market for various forms of capital, particularly municipal bonds; it might well involve taking away deductions that less well-heeled voters currently enjoy, and they’d freak out. Note that I do not include “Republican obstructionism” on this list, because the existing proposals won’t pass the house; there’s no reason not to include a real hard “Buffett Rule” if they think such a thing is even vaguely workable. From the fact that they didn’t, I infer that they thought the idea maybe had some problems.
President Barack Obama’s proposed tax hikes have, thankfully, been a flop on the Hill as Republicans and some Democrats aren’t too anxious to raise taxes during tough economic times; a position the president himself once held.
But with the rhetoric coming from the left that is clearly hoping to revive the populist sentiment to put Obama in the White House comes a dose of reality. Despite the ramblings of Obama and his ally Warren Buffett, millionaires do indeed pay more in taxes than the middle class, according to an Associated Press fact check:
On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.
The 10% of households with the highest incomes pay more than half of all federal taxes. They pay more than 70% of federal income taxes, according to the Congressional Budget Office.
There may be individual millionaires who pay taxes at rates lower than middle-income workers. In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. But that’s less than 1% of the nearly 237,000 returns with incomes above $1 million.
This year, households making more than $1 million will pay an average 29.1% of their income in federal taxes, including income taxes, payroll taxes and other taxes, according to the Tax Policy Center, a Washington think tank.
Households making between $50,000 and $75,000 will pay an average of 15% of their income in federal taxes.
According to a new report from the National Federation for Independent Business, small businesses owners’ confidence in the economy has dropped:
Confidence among U.S. small businesses dropped to a 13-month low in August as fewer companies projected better economic conditions and improving sales, a private survey found.
The National Federation of Independent Business’s optimism index decreased to 88.1, the weakest reading since July 2010 and the sixth-consecutive decline, from 89.9 in July. The number of small-business owners saying they expected the economy will improve six months from now fell to the lowest level since 1980.
“Hope for improvement in the economy faded even further through the month,” William Dunkelberg, the group’s chief economist, said in a statement accompanying the index report. “With such a dim outlook, owners are not going to do a lot of hiring or expanding.”
Small-business owners have grown less confident that conditions will improve as stagnant job growth weighs on consumer sentiment. Households “uncertain about the future” won’t “engage in the spending that would help lead us out of the recession,” Dunkelberg said.
Six of the index’s 10 components decreased. The gauge of expectations for better business conditions six months from now led the decline, falling 11 points to a net minus 26 percent in August. The drop brought business assessment of the economy to the lowest level since the second quarter of 1980, when the measure fell to minus 37, according to Dunkelberg.