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Your Take: Buffett Tax

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Earlier this week, President Obama floated the idea of a Buffett Tax. While there were little details on the actual implementation, the idea was that high income earners like Warren Beffett would not pay less than your average middle class family. Despite the lack of details, pundits complained or lauded the idea because that’s what pundits do. So why shouldn’t we join in?

I see two big points of discussion with the Buffett Tax:

  1. Should we be changing our tax code in such a surgical way that higher income earners are taxed more, regardless of where that income comes from?
  2. Will this help?

The first discussion point is where we find people labeling the idea “class warfare.” The rich and the poor are battling it out with the government siding with the poor, redistributing wealth in a way that flows from the wealthy to the less wealthy. In that respect, it is class warfare because you are increases taxes on the wealthy. The label is appropriate, but the vitriol behind it is misplaced. It was class warfare whenever the Bush tax cuts were implemented because the cuts reduced everyone’s taxes but it drastically cut taxes on the wealthy! When you only look at the delta, one class is losing. If you look at the system as a whole, which you can do if you compare today’s rates with historical tax rates, we’re still really low.

The second point of whether this will help – it’ll help reduce the deficit but it won’t improve the economy. This seems like one big game of “whac a mole.” Our economy, along with a lot of other countries’ economies, are weak and we’re struggling to find a solution midst a constant political battle. This is just one pitched battle, of many, about the deficit when we should really be focusing on the economy. I am always stunned that the same folks complaining about the economy were pushing for an extension of the Bush era tax cuts, tax cuts that everyone knows costs a lot of money (but that everyone benefits from, so let’s ignore that!). Now that we’re talking about increasing taxes (“raising revenue”), the goal posts are moved so that the argument against it is about job creation and the economy. Talk about job creation and boosting the economy and the argument against it moves to the deficit. So which is the real problem? I don’t think it’s the deficit.

What do you think?

{ 49 comments, please add your thoughts now! }

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49 Responses to “Your Take: Buffett Tax”

  1. The premise for the Buffett tax is demonstrably false (see Numerous other bloggers and journalists such as the AP have also debunked it. It won’t provide much if any relief for the deficit. It will just give politicians more money to fritter away and redistribute to their cronies and favorite constituencies.

  2. Tyler says:

    I don’t think we can guarantee raising tax rates will lessen the deficit. With the current administration in office (or the previous one, for that matter), we will probably just spend those increased revenues and not put a dime of it towards deficit reduction.

  3. Glenn Lasher says:

    I don’t know if it is helpful to have income classified by type. I’m thinking that the simplest way to manage taxation would be to treat any delta in net worth the same way as any earned income.

    I think the millionaire’s tax is too surgical. It effectively becomes a new Alternative Minimum Tax, and, unless the threshold is adjusted constantly, it will eventually bite the middle class, which would be counterproductive. On the other hand, if the threshold is adjusted constantly, it will instead become political.

    No, I say take all the politics out of it. Income is income, period.

    • cubiclegeoff says:

      My understanding is that it would be a replacement for the AMT and be indexed to inflation to eliminate that issue with the AMT.

    • uclalien says:

      I respectfully disagree. Not all income is created equally. Buffet’s investment income has already been taxed once before he ever sees a dime. The fact that investment income is taxed twice is the argument for a lower capital gains tax.

    • DonC says:

      Not all income is the same. when you work for someone, there is no risk. You put your time in, you get paid. Period. When you invest, you risk the chance of getting your money back with the hope that you earn more money. That’s risky and people need to have an incentive to put thier money at risk – hence the lower tax rates. otherwise no one would invest.

      • cubiclegeoff says:

        I disagree. People with the money to invest will invest as long as the possible return is higher than they can make elsewhere, including taxes. And there is always some investment out there that will make money.

  4. RT says:

    The problem here is not class warfare…it is an extreme inefficiency in the tax code that favors certain professions over others.

    For instance what sense does it make that Hedge Fund Managers are taxed at 15%(carried interest) as opposed to normal income tax rates. Does anyone honestly believe that their income is not “earned”? Are they not sitting in an office working for that money day in and out.

    So the tax code favors that profession over others.

  5. Neil says:

    I know that as a self-employed contractor in California I’m paying over 40% in taxes on a salary under 150k a year. I’d love to be paying what either Buffet or middle class families are paying (as a percentage).

  6. Aaron says:

    This is just playing to the crowd. It makes no logical sense other than the psychological impact to the 99% of voters that we are finally sticking it to the ‘rich’. The problem, aside from the messed up tax code and stupid number of deductions, is the flat rate tax for long term capitol gains. Capitol gains (perhaps excluding real estate) should fall in the same category as earned income with a possible difference for retirees. I didn’t fully think it through but I think it is pretty sound. But the bottom line is that the Buffet Tax is just glad handling.

    • DonC says:

      investment gains and wages are not the same. there is no guarantee that your investment may make money. I may even lose money, you may lose all of your money. when you go to work, do you worry that instead of earning $500 for the day, your employer will not only pay you , but take money out of you bank account? No. wages will always earn you money. Investments call lose all of their value. If there is no incentive to invest, people would risk their money. Then the economy would never grow.

      • Aaron says:

        Perhaps I didn’t explain properly. Capitol gains should follow the same tax rates as earned income, not be rolled into it. I get that they are different but if I earn $100K a year from my investments then I should pay more than 20% in taxes. I disagree that the economy would never grow. I would invest even with a higher capitol gains because it is better than the alternative, which is not investing.

  7. Wilma says:

    Unless they start getting serious about money management, it doesn’t matter how much money comes into the coffers. The frills need to be cut.

    • Ryan says:

      Define frills. The government needs to re-appropriate its spending at least. Or this economy will go nowhere. Cutting spending altogether won’t boost the economy.

      • uclalien says:

        Sounds like short-run thinking to a long-run problem. The Keynsian belief that spending for the sake of spending has been debunked time and time again, yet people still stick to it. No matter how our tax dollars get “re-appropriated,” it’s highly likely that those tax dollars will be spent inefficiently.

        On a related note, the New York Post recently published an article outlining an audit of the Department of Justice. The audit found extreme amounts of waste. Here’s the article:

        • cubiclegeoff says:

          These are indeed wasteful and should be dealt with, but they are not even noticeable in the federal budget. As has been mentioned all over, most of the budget is for things that can’t be changed, and making changes in what can will have an impact, but not much of one.

  8. Tyler says:

    There’s a lot of odd logic in the first few comments here. Even if they do expand spending, I very much doubt that generating more revenues would make the deficit worse.

    You can’t cut a deficit just by cutting spending. You also have to increase revenues, and I think closing tax loopholes for the very wealthy is an excellent way of going about it.

    • uclalien says:

      Actually, you can cut a deficit just by cutting spending. Inflation adjusted federal tax revenues are roughly the same today as they were near the peak of the tech bubble. The problem is that inflation adjusted federal spending has increased by nearly 90% over that time period.

      • cubiclegeoff says:

        Minor changes can occur to the deficit with the cutting of spending that can be spent (discretionary spending). Real cuts would need to be made in programs that no one wants to touch.

    • uclalien says:

      I should add that I’m not against closing loopholes if that is in fact what we’re talking about. An honest discussion of loopholes vs. legitimate write-offs is a good place to start. Many people appear to believe that any write-off a “rich” person has is no different than a loophole.

  9. LL says:

    Jim, you make a few assumptions in this article. “the government siding with the poor, redistributing wealth in a way that flows from the wealthy to the less wealthy.” It could also be said that other government policies side with the wealthy and allow more money to flow to the wealthy. After all, many politicians are wealthy, their friends and political donors are wealthy, so it stands to reason that they would set up frameworks that benefit the wealthy. And the wealthiest have gotten a LOT wealthier the last few decades, according to distribution of assets and income.

    Another assumption is that the Bush tax cuts – “drastic cuts for the wealthy…that everyone benefits from”. I don’t agree that cutting taxes for the wealthy necessarily benefits everyone. I haven’t seen a lot of data that supports the theory that more jobs are created when the wealthy pay lower taxes.

    I believe the path to a strong economy is mostly through universal access to quality education. Infrastructure is important as well, roads, hospitals, police, fire & rescue, a solid banking system, a stable government.

    Both the economy and the deficit are real problems. Each can drag the other down.

    I think that income from capital gains or earnings should be taxed at the same rate. I also support a simpler tax code. I support repealing the Bush tax cuts for the highest incomes. In fact, I wouldn’t mind if my own middle class taxes were a small percentage higher.

    What does bother me is that I don’t think we get a very good value for our tax money. Government has become inefficient, and I think that’s what bothers a lot of people. People don’t want to send more of their income to education, as an example, if the quality of education isn’t going to improve as a result.

    I commend you for posting this article. I think it’s important that people have honest discussions about government, and what they really want from their government. The news and pundits sensationalize everything to the point of absurdity.

  10. vik says:

    Buffett Tax won’t help economy but it’s a good start for a long path of real tax code reform. Where else is better to start than taxing the rich a little more.

    • Shckr7 says:

      Maybe it’s just me, but starting tax reform with another provisional clause, does not seem like a great place to start reform. at this point let’s start with something far more straight forward and gets rid of 90% (if not 100%) of deductions. Anyhow, just my feelings on tax reform. Putting in another clause doesn’t seem like reform – seems more like what caused the tax code to be the way it presently is.

  11. Bey says:

    Missed the mark by a mile, vik, the best outcome would be to reduce spending and reform taxes so that we’re all paying a more fair share — which doesn’t necessarily mean a greater share. To turn your argument around, some would say that a good place to start would be to collect something from the nearly half of us who don’t pay an income tax. That’s no more workable (or fair) and it wouldn’t reduce the deficit either. We shouldn’t be punishing success in this country, and Mr. Buffet should donate more of his billions to our government if he feels so shamed by his supposedly meager contribution.

    • uclalien says:

      You hint at it, but I’m surprised that no one has mentioned Buffet’s blatant hypocrisy. He says he’s willing to pay more taxes. And despite being given the freedom and means to do so, Buffet chooses to do exactly the opposite. Instead of writing a check to the government, he chose to hand over nearly half his fortune (more than $30 billion) to the Bill & Melinda Gates Foundation. And it isn’t like Buffet is handing over a lump sum. He’s handing it over incrementally to achieve the greatest tax benefit.

      Actions speak louder than words. Buffet obviously believes that Bill Gates will be a better custodian of his money than the government.

      • dave says:

        Buffet you should be fighting against taxes instead you betray your own

        • NateUVM says:

          Perish the thought that someone think of the good of the many over his own self interests, huh?

      • jxz says:

        I don’t think you understood what Buffet was saying. He said that it is unfair that his federal tax rate (15%) is lower than that of his secretary (20%), a wage-earner. He didn’t say whether the government ought to collect more or less tax dollars.

        And about giving to the Gates Foundation, the foundation does a lot more than what the Federal Government does, which is to help the poor in third-world countries. It’s his choice to give a shit about those starving, under-educated population outside US, where even the poorest rarely starve to death. Making that an example of hypocrisy is really a shame.

    • Ryan says:

      How is it a success if it’s not generating anything useful? Jobs obviously arent being created by the rich even at these low tax rates.

      • Bey says:

        Wow. Just . . . wow. My endeavors need to provide something useful to you in order to be defined as success? My definition of success is working hard to provide a comfortable life for my family. I am under no obligation to provide jobs or anything else to you or our society in order to be defined as successful. And I resent being punished for making more money by having to pay a higher percentage in income taxes. Income tax rates should be as blind to my income as the sales tax, property tax, and excise taxes I pay are.

        • NateUVM says:

          Ummm… I beleive the point here was that the GOP tends to think that tax cuts (or maintaining their historically low rates) for the wealthy would spur job growth because they have more money to spend (i.e. hire more employees, buy more services, etc…). Your denial of this effect on your spending/saving merely serves to prove, once again, that the simple-minded theory of trickle-down economics simply does not work.

          As such, the thought of keeping these tax rates low should not be considered a viable approach to spur job growth.

          Thank you for your valuable perspective on the matter.

    • harry says:

      Why would he donate money to the government? The inefficient government will not make the best use of his money. The Gates foundation will do a much better job of helping the poor than the government ever could.

    • cubiclegeoff says:

      We shouldn’t punish success, but I think more people need to understand that success doesn’t come through one’s own effort alone. The necessary infrastructure that allows for that success has generally been paid for by everyone and past generations.

      Also, you can’t blame Buffett for paying what is legally required for taxes. Nor is he a hypocrite for donating most of his fortune. By donating his money, he can determine how it is spent. As he already thinks the government favors the wealthy, he has chosen to not support this by paying more taxes, and instead gives his money to a group that spends it’s money on the less fortunate and those he feels need the support and help.

  12. Mike says:

    Interesting to think that this Buffet tax is called class warfare. The only one that will benefit here is the gov’t. Once the lobbyists (union & corporate) get their slice of the pie there wont be any left for the rest of us. The poor and middle class get to have the scraps on the table.

  13. Joe Vancil says:

    The problem with any surgical raise of taxes is that ultimately, it will come down to lower levels. (I’m just pulling out numbers here, so bear with me; I don’t know the real rates, but I just want you to understand the princple.) Let’s say there are 4 rates – 30%, 25%, 20%, and 0%. We raise the 30% to 35%. We’re still short money – perhaps because of the change in classes, perhaps because of increased spending – but we need more revenue. Who do you increase? 35% to 40%, or everyone up 2%, to 37%, 27%, 22%, and 0? The problem is that regardless, when you raise one person’s rate, you’re ultimately raising everyone’s rate.

    My suggestion is different. I propose we set the rates, but eliminate the deductions and credits. Warren Buffett then pays the rate for his bracket, which is higher in his bracket than in his secretary’s. All income is taxed as exactly that – income.

    Estate tax works the same way. Assets are only taxed in terms of their gain relative to their purchase price; however, the inheritor decides whether he wants to pay the tax immediately, and change his basis to the current one, or keep his basis the same, paying no tax now, but paying the tax at the time he disposes of that asset in the future – at the future’s rate.

    So – Warren Buffet makes $10M in investment income – he owes taxes on that $10M. He buys a stock, say for $1 million dollars. His basis is $1M. The stock appreciates to $4M. He pays taxes on the dividends, but not on the stock. He dies. He’s got a son, and the son inherits the stock. The son can either pay tax on $3M ($4M value – $1M basis) and have a stock at a $4M basis, or he can pay no tax, and the stock stays at a $1M basis. It grows to $5M, and he decides to sell. He pays taxes on $4M ($5M value – $1M basis) if he didn’t pay the tax earlier, or he pays taxes on $1M ($5M value – $4M basis) if he paid the tax earlier. And, viola, no more “class warfare.”

    Class warfare is simply the government attempting to control your behavior by setting you against your fellow citizen because you’re not willing to realize that THEY’RE the ones making and enforcing the rules – not your fellow citizen.

    Some will say, “You’re proposing everybody pay the same rate.” I’m saying that while a flat rate would be probably most fair, I’m willing to entertain a slightly increasing rate – but only if future increases have to be done UNIFORMLY, and BY A VOTE OF THE PEOPLE, not of Congress.

    And I believe if I proposed my system, most folks would go for it. Why? Because ANYONE can recognize “FAIR” when they see it, and everyone will most likely agree this is more fair than anything the government will propose.

    And why do you think that is? Because I wouldn’t be exempt from my system.

    • NateUVM says:

      Folks, we don’t live in a democracy. We live in a republic. We chose the people that will make these decisions for us. Civics 101.

      I do NOT want the general population making decisions regarding a) Civil Rights or b) matters of finance. In the case of the former, they are always behind the curve of what is “right,” and in the case of the latter, they are not educated enough to make an informed decision.

      Does that mean that those that have been elected have that expertise? Probably not. But then, the blame for that falls back on the general population that I don’t trust to make these decisions in the first place.

      Half the people in the world are below average.

  14. Anonymous says:

    a flat tax of 10 to 12 % on everyone no matter where your money comes, no deductions, no loopholes, no different tax rates, and remove the ceiling on soc.sec. why should someone making 75,00$ per yr pay soc.sec. on 100% of their pay while a person making 150,000$ per yr pay soc.sec. on only a portion of income. its a tax , not an investment.

    • NateUVM says:

      First of all, higher wage earners pay SS on less of their income because they are going to see less of a benefit, proportional to their income, as lower income earners will.

      Second, a flat tax is patently unfair. 12% of someone’s income that is making only $15k a year is much, MUCH more valuable to that person than the 12% is to someone making $200k. This is especially true if you are talking about a system without any income deduction off the top.

  15. freeby50 says:

    “Once the lobbyists (union & corporate) get their slice of the pie…”

    Union lobbying isn’t significant compared to the vast amounts spent by business interests.

    Lobbying dollars are about 2% trade union and 88% corporate and 12% special/other.

    The healthcare industry spent 10 times as much as organized labor. The US Chamber of Commers (the business group) spent 3 times as much money lobbying as trade unions.

    The dairy industry spends more on lobbying than building trades unions.
    Realtors spend more lobbying than public sector unions.

    • Mike says:

      I believe the union’s influence in the current administration well documented. Their lobbying efforts clearly worked.

  16. Rosemary Brugman Porter says:

    The massive tax cuts for the wealthy and for big business have not only not created jobs, but trying to live without taxes have put this country so far in the hole we may not be able to crawl out.
    All the bought-and-paid for politicians want to lower taxes even further – but Buffet has it right. If these people love America so much, and sincerely want to keep this nation afloat and maybe still great, they should at least pay their fair share. So far -over the past ten years – they have not. What’s wrong with paying your way for all the things government does best? What’s wrong with restoring the infrastructure thoughout the nation to safe and reliable condition. What’s wrong with keeping our water supply running and safe. Yes! Let’s join the Buffet bandwagon.

  17. WB says:

    Why does raising the taxes on one smaller group of people than putting the unemployed back to work and paying their fair share?
    More tax revenue would be generated by getting people back to work. We need an environment where business owners aren’t punished for success. The more business I do the more employees I need. If you raise taxes on business owners they simply have less money to hire employees with.

  18. Donald says:

    I support the millionaire tax or anything that brings tax rates on the wealthy back to where they were before Bush II. Of course, our government needs to stop wasting money on foreign wars, just as Ron Paul says. I always agree with Ron Paul half the time. (Didn’t Yogi Berra say that?)

  19. daenyll says:

    Letting a limited time cut expire is not the same as raising a tax, I’m all for it. As for this Buffet thing, the tax code itself needs to be totally reviewed and revised, not just surgical strikes that can be argued and adjusted later. And we need some politicians willing to do what will honestly keep things working well, rather than poll watchers trying to cling to their little domain of power and just following the popular trend.

    The public wants everything but seem unwilling to pay for the privileges, and the resulting decay is becoming painfully evident as a whole.

    That said the use of the money we do collect has been greatly watered down and is also in need of review and reorganization. Less bureaucracy to siphon of the meager earnings and more money actually spent on the things that it is needed for (not just what the lobbyists are paying for).

  20. dong says:

    I think Obama has both played a political card AND suggested reasonable reform.

    His proposal is not to just raise taxes on the wealthy, but to look at tax rates of the highest earners as part of greater package of tax reform including eliminating AMT. How likely this would be done in the current political environment is very low however.

    We have a debt problem, and if I had a debt problem I would look at cutting spending AND raising my revenues.

    Also I want to address the point many people mention about how important it is to have lower tax rates for investments. I generally agree with that sentiment, and we should incentivize capital holders to take risk. That said, not investing your money is in itself risky. I think many of us would think it foolish to stash our retirement savings into CDs and such. I’m not sure that we really need to incentivize individuals to invest their money. Right now the gap is nearly 20% between the capital gains rate and the top marginal rate. Raising the rate a little to pay off debt doesn’t seem like such a bad idea. All of that said, the capital gains rate is small potatoes. The real issue is still the top INCOME tax bracket.

    As for the politics, there’s no question there is sense of class warfare to the proposal, but that’s what you get when the income of the top earners have outpaced the bottom 95% by large margin over the last 20 years. Ultimately, for a sustainable society we need to address that. The rich pay a perfectly fair share of taxes. They pay a greater share of taxes than they did 20 years ago, but they earn an even greater share of the national income while income earners below have remained stagnant or declined. I would actually argue that those two things are not unrelated. Companies pay their top people (and not just CEOs) more and more, partially because paying them more is very easy these days. Where in the past with the higher tax brackets, the tax penalty of paying higher incomes served as a natural ceiling. This is especially true in the financial sector. I wonder how many of the very talented, bright, and hard working (and often unhappy) individuals would choose to do something else if not for the income? For many people high income are golden handcuffs that prevent people from really fulfilling their true potential.

  21. Shckr7 says:

    How about, as far as the “Buffet Tax” is concerned, we count dividend income as regular earned income (ie. Same as wages), but we eliminate any taxes on corporations for income that they distribute in the form of dividends. I think a few things would happen:
    1. dividend yields would increase substantially
    2. “the wealthy’s” tax rate would increase to levels that many feel to be more appropriate and “fair”
    3. we eliminate the double taxation on this money

    I am actually very much for an extremely simple tax code, but since the discussion topic is specifically regarding the Buffet Tax, in the perspective of our now broken and wasteful tax system, here is a counter proposal.

    I’m curious what you all think of this. Just something I have been kicking around in my head.

  22. Ben says:

    Why shouldn’t we be raising taxes?, we are at war after all, need a way to pay for that. Support our troops and such.

    If tax cuts were supposed to create jobs, then why is unemployment so high? Why don’t we try raising taxes, and see how that works out.

    Why don’t we tax those who have the money?, if the richest 1% owns over 40% of the wealth in the USA, then they should be paying 40% of the taxes, not less than 20%. The rich demanding lower taxes at a time or war, and recession, and lack of job growth is Treasonous and grossly Unpatriotic.

    • NateUVM says:

      I dunno Ben. Not sure we want to go back to the same type of equation that, minus the two wars, led to a balanced budget and one of the most prosperous times for the Middle Class and, thus, the country as a whole.

  23. Charlie says:

    Government siding with the poor?

    I think those flu shots are starting to catch up with you!

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