For a similar piece with a different focus from last month, see my post On Corporate Taxation.
Decoding Buffett
The 2012 election season officially began at the White House this morning, where President Obama began stumping for his $3.6 trillion deficit reduction plan, of which, nearly $1.5 trillion consists of new taxes. In his War on Wealth, Obama has found an unlikely ally: America’s richest venture capitalist, Warren Buffett.
In a New York Times piece last month, Warren Buffett requested, ”Stop coddling the super-rich,” and called for “shared sacrifice.” Additionally, he argued his federal tax bill last year was not enough:
“Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.”
Buffett went on to imply this tax advantage is due to the capital gains tax rate, in paragraphs 7 and 8 of his Opinion Editorial. This is incorrect. Buffett is paying a 15% carried interest tax on his investment income, which has already been taxed once, at a 35% rate. He then takes that money and squirrels it away in the Buffett Foundation. Furthermore, Buffett never sells stock, therefore avoiding the capital gains tax altogether. He is paying a 35% tax on income on only $300,000 a year, the salary he pays himself from his investment earnings. If Buffett wants to pay more in taxes, he should do so now. Why wait until he dies to contribute 55% of his wealth to the feds (compliment of the Death Tax, 2011)?
Instead of paying more to the federal government, Buffett contributes freely to charities, an act he should be praised for. Ask yourself: why would he contribute to charities, as opposed to the federal government? Perhaps he knows the federal government spends other people’s money much less efficiently than a charity does.
President Obama was quick to use Buffett’s understanding of the federal tax system – and his proposal – as his own. Before his Martha’s Vineyard trip, Obama cited Buffett’s Op Ed, telling Minnesotans:
“Warren Buffet pays a lower tax rate than anybody in his office, including his secretary. He figured out, from his tax bill, that he paid about 17 percent. The reason is, most of his wealth comes from capital gains. You don’t get those tax breaks. You’re paying more than that. I may be wrong, but I think you’re a little less wealthy than Warren Buffett. That’s just a guess.”
The President, like Buffett himself, is wrong: Buffett’s earnings are from carried interest. Details, I know, but important. Nevertheless, after three years as President, Obama turns to the broken tax code, albeit not in an objective manner. Obama’s Jobs Act/Deficit Plan is laden with benefits for cronies in both unions and business alike, the true personification of Milton Friedman’s warning: ”Hell hath no fury like a bureaucrat scorned.”
Decoding Obama
Using Buffett as the proverbial “bad cop,” President Obama this morning proposed the “Buffett Rule.” This proposal is not intended to grow the economy by bringing the middle class tax rates down to Buffett’s, but to raise taxes on those who make over $1 million, targeting a meager 0.3% of the population.
I’ll quote the President directly in what, I think, is the most important aspect of his proposal:
“It comes down to this: We have to prioritize. Both parties agree that we need to reduce the deficit by the same amount — by $4 trillion. So what choices are we going to make to reach that goal? Either we ask the wealthiest Americans to pay their fair share in taxes, or we’re going to have to ask seniors to pay more for Medicare. We can’t afford to do both.
“Either we gut education and medical research, or we’ve got to reform the tax code so that the most profitable corporations have to give up tax loopholes that other companies don’t get. We can’t afford to do both.
“This is not class warfare. It’s math. (Laughter.) The money is going to have to come from someplace. And if we’re not willing to ask those who’ve done extraordinarily well to help America close the deficit and we are trying to reach that same target of $4 trillion, then the logic, the math says everybody else has to do a whole lot more: We’ve got to put the entire burden on the middle class and the poor.”
Problem is, there’s not $4 trillion available from those that earn more than $1 million a year. There’s not even $1.5 billion he’s asking for; not even close. As I’ve pointed out in 2 of my last 3 posts, heavier taxation on this 0.3% of the population will not fill the deficit hole.
I’ll spell it out again: According to IRS figures, a 45% rate on incomes of more than $1 million would generate $31 billion, while an even more progressive tax, with rates of 50%, 60%, 70% on incomes of $500,000, $5 million, $10 million respectively would generate an added $133 billion. That is roughly 10% of the current annual budget deficit. That, I would submit, is math. We know taxing businesses will weaken the economy; as Winston Churchill said, “For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” A higher income tax will not solve our fiscal problems, either.
But that’s not what this is about. What seems to be a fiscal issue is indeed about politics, or more specifically, rooted in power, and control. Call it what you want to: this obsession with money, this focus on the supposed greed of others, is based on a combination of greed and jealousy that defines the Left. I’d call it class warfare.
We are being divided, using a crayon box of names to call each others (and ourselves) politically. It’s really much simpler than that. Robert Heinlein, author of Starship Troopers, wrote in 1973:
“Political tags — such as royalist, communist, democrat, populist, fascist, liberal, conservative, and so forth — are never basic criteria. The human race divides politically into those who want people to be controlled and those who have no such desire. The former are idealists acting from highest motives for the greatest good of the greatest number. The latter are surly curmudgeons, suspicious and lacking in altruism. But they are more comfortable neighbors than the other sort.”
Make no mistake: With his deficit reduction plan, Obama aims not to balance the budget or reduce the deficit, but to punish his enemies with controls, and to reward his buddies, whether they are at AFL-CIO and the Teamsters Union, or at General Electric and the now-bankrupt Solyndra solar company. We are, as a nation, learning the hard way that government does not create wealth, prosperity, jobs, or even progress, at the dismay of so-called Progressives. With these failures, we move closer to debunking Keynesian economics once and for all.
Still, however, the Jacobins are at the door. Class warfare is being stoked to keep these sentiments alive, to divide us, to punish some and to reward few. Obama has moved to the front of this parade, lambasting millionaires, billionaires, and corporate jet owners alike, all research-tested buzz words. Left alone, the Left will win the sentiments of the ignorant; only reason can save us from ourselves.
“Through wisdom a house is built, and by understanding it is established: And by knowledge shall the chambers be filled with all precious and pleasant riches.”
~ Proverbs 24:4
