Warren and Obama Are Dummies

Hopefully you've heard of some of the news recently regarding Obama and his recent proposals. I'm not even sure how else to label them. Economic? Reform? Jobs things? Not sure. Anyway, much publicity has been directed towards Warren Buffets comment about how the rich need to shoulder more of the burden for government revenues, i.e. taxes, but his own situation is very unique indeed. The most controversial comment that Buffet made recently was about how he pays less taxes than does his secretary.

Thanks goodness for these guys and their dumb comments, right? Because of them, a lot of people have been fact-checking recently because it just doesn't seem to make sense. How can one of the richest people in the world be getting away with paying less than someone who maybe doesn't even make .01% of what we makes in a year? It's jarring to think, so as a result, a lot of people followed up on it.

This story from MSNBC gives a good overview. The truth is the wealthy bear most of the burden. From that article:

The 10 percent of households with the highest incomes pay more than half of all federal taxes. They pay more than 70 percent of federal income taxes, according to the Congressional Budget Office.

Economist Larry Kudlow elaborates further saying that the top 1% pay 40% of all the taxes, and 50% of income tax filers don't pay any taxes at all.  He also says in this post:

No one even knows what the targeted group is going to be. A New York Times story suggests that the Buffet tax will hit three-tenths of 1 percent of taxpayers, which could be 450,000 people out of 144 million tax returns.

A Wall Street Journal story suggests the Buffet tax would have hit just 22,000 people in 2009, those households making more than $1 million annually and paying less than 15 percent of income in federal income taxes. According to the Tax Policy Center, doubling the tax burden of those 22,000 would raise just $19 billion a year. How silly is this?

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And Paul Ryan makes another key point: Tax investment more, and you’ll get less of it. If these kinds of tax hikes are ever passed, the economy will be doomed to stagnation over the long-run. Penalizing incentives will do that. And lower growth means higher deficits.

Why in the world doesn’t President Obama follow the overwhelming consensus for fundamental tax reform to lower marginal rates and broaden the income base? Economists of all stripes agree on this.

At the end of the day, it sure looks like our president wants to raise taxes on wealthy Americans and large corporations in order to spend more and enlarge the size and scope of government. From the standpoint of jobs, growth, and prosperity, it just won’t work.

And I thought this blogpost was especially insightful from Mark Perry over at Carpe Diem. He cites a couple of WSJ articles that I can no longer find. But here are some excerpts from the post:

(WSJ: Millionaires Go Missing)"Those with $10 million or more in reported income fell to 8,274 in 2009 from 18,394 in 2007, a 55% drop. As a result, their tax payments tanked by 51% (see chart, from $110.8 billion in 2007 to only $53.7 billion in 2009). These disappearing millionaires go a long way toward explaining why federal tax revenues have sunk to 15% of GDP in recent years. The loss of millionaires accounts for at least $130 billion of the higher federal budget deficit in 2009."

(Perry) Even taking every last penny from every individual making more than $10 million per year would only reduce the nation's deficit by 12 percent and the debt by 2 percent.  There's simply not enough wealth in the community of the rich to erase this country's problems by waving some magic tax wand."

Bottom Line: As the WSJ points out, "If Warren Buffett wants to reduce the deficit, he should encourage policies to create more millionaires, not campaign to tax them more." 

And here's another post where Perry relates a Canadien perspective on the Buffet case. His point is mainly that Buffet pays too little in taxes, not because he's so rich, but because the US tax system is so poor.

The Obama plan to simply increase personal income tax rates on the rich and hike capital gains and dividend taxes will hurt rather than help growth. Higher personal tax rates will reduce the incentive to invest by entrepreneurs, who are most responsible for growth.  Capital gains and dividends (subject to federal-state personal tax rate of 20%) are currently highly taxed at more than 50% once taking into account the 39% corporate income tax rate that reduces the amount of profits distributed to shareholders or reinvested by the company. More double taxation of dividends and capital gains hurts the economy.

Already the highest-income taxpayers — about 5% of taxpayers — pay almost 60% of U.S. income taxes. The bottom half of the population pays only 3%. So any tax increase imposed on high-income earners should be in areas where some, like Warren Buffett, are paying far less than other wealthy individuals. Warren Buffett’s 17% tax rate results only because he gets a large number of breaks that other wealthier Americans, like doctors, cannot use.

Which gets to the main point. The United States needs major tax reform, rather than playing at the edges to make the system more progressive than it is already. U.S. income taxes are complex, inefficient and highly unfair. The statutory rates, once taking into account federal and state income and payroll taxes, are already high, even with the Bush tax cuts.  The problem is that too many targeted preferences reduce the amount of taxes paid, undermining economic growth.

The list of special preferences in the United States is mindboggling and could fill a book on how not to run a tax system. A major tax reform that lowers rather than increases personal and corporate tax rates and eliminates a number of special preferences would make the tax system more efficient and fair, and it would grow revenue over time by growing the economy.

Anyway, if you didn't watch it last week, watch this video now. It does a really good job encapsulating what needs to happen with tax reform and why.