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Posts For: September 18, 2011

A Tax on Excess Wealth Creation

“Obama Tax Plan Would Ask More of Millionaires,” reads the headline of the lead story in today’s New York Times. Nice touch that “ask” part, as if paying taxes were voluntary.

President Obama wants to invoke the “Buffett Rule,” named for multibillionaire Warren Buffett, who complains that his tax bill is too low because his effective rate is less than his secretary’s. Buffett wrote in the Times last month,

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“Obama Tax Plan Would Ask More of Millionaires,” reads the headline of the lead story in today’s New York Times. Nice touch that “ask” part, as if paying taxes were voluntary.

President Obama wants to invoke the “Buffett Rule,” named for multibillionaire Warren Buffett, who complains that his tax bill is too low because his effective rate is less than his secretary’s. Buffett wrote in the Times last month,

. . . for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

According to today’s news story, Obama wants to require that everyone with an income of over $1 million pay the same effective tax rate (the percentage of taxable income paid in taxes) as “middle-income taxpayers.” He calls it a matter of “fairness.”

Well, let’s take the fairness lipstick off this pig. It has nothing to do with fairness, it has everything to do with class warfare, for this would be nothing more nor less than a whacking great tax increase on capital gains and dividends on those who earn more than $1 million a year. In other words, they would be penalized for their success at creating wealth.

People with seven- and eight-figure incomes from wages already pay 35 percent on most of that income, the highest marginal rate. It is dividends and capital gains (taxed at 15 percent) that bring down their effective tax rate. But dividends are paid out of corporate profits that have already been taxed at 35 percent (ignoring various tax fiddles that bring down corporate income tax rates to an average of 25.4 percent). So dividend income is actually taxed at 50 percent already.  A large portion of capital gains, likewise, derives from retained corporate income that has already been taxed.

So President Obama’s latest tax proposal is just a disguised attempt to raise the dividend and capital gains taxes on those with incomes of more than $1 million to about 70 percent from the current 50 percent. The result, of course, will be a rush to avoid these taxes, using exactly the same method that Warren Buffett uses to avoid paying them: they’ll shelter their wealth under a corporate umbrella.

Warren Buffett’s Berkshire Hathaway Corporation paid $5.6 billion in corporate taxes last year on income of $19 billion, a 29 percent rate. (By the way, its tax form ran to 14,097 pages; just imagine what its tax compliance costs must have been.) Warren Buffett owns about 30 percent of Berkshire Hathaway, so he, in a very real sense, paid not just the $6 million in federal taxes he claimed in his Times article, but $1.68 billion more in the form of corporate taxes. But Berkshire Hathaway pays no dividend and I doubt that Buffett has sold any of his stock in the company. Thus he has no capital gains to report from his Berkshire Hathaway holdings.

So while he paid, roughly, the same effective tax rate as his secretary if you count his share of the corporate taxes paid (and you should), he would not owe much more under President Obama’s stick-it-to-the rich plan. Most of his billionaire friends wouldn’t either.  Those most affected would be the upper middle class, as usual, who don’t control the corporations they invest in.

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The UN Disaster is Obama’s Fault

For many liberal pundits, the blame for the circus that will unfold this week at the UN with the start of a debate over Palestinian statehood is to be assigned to Israeli Prime Minister Netanyahu whom they wrongly claim has obstructed peace talks. Others are inclined, with more justice, to put the onus for the problem on Palestinian Authority leader Mahmoud Abbas whose pursuit of UN recognition of statehood without first making peace with Israel is seen as both futile and counter-productive to the end that he claims to seek.

But the lion’s share of the blame ought to fall on President Obama. Though peace talks were stalled when he took office in January 2009, the deterioration of a relatively stable standoff into the volatile situation that exists today is due in no small measure to the blunders that the president’s team has committed over the past 32 months. Though friends of Israel will rightly give Obama credit for sticking to his word and vetoing the Palestinian resolution — a stand that will be undertaken as much if not more in defense of U.S. interests than those of the Jewish state — the diplomatic disaster that is about to be played out is the fruit of his own misjudgments.

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For many liberal pundits, the blame for the circus that will unfold this week at the UN with the start of a debate over Palestinian statehood is to be assigned to Israeli Prime Minister Netanyahu whom they wrongly claim has obstructed peace talks. Others are inclined, with more justice, to put the onus for the problem on Palestinian Authority leader Mahmoud Abbas whose pursuit of UN recognition of statehood without first making peace with Israel is seen as both futile and counter-productive to the end that he claims to seek.

But the lion’s share of the blame ought to fall on President Obama. Though peace talks were stalled when he took office in January 2009, the deterioration of a relatively stable standoff into the volatile situation that exists today is due in no small measure to the blunders that the president’s team has committed over the past 32 months. Though friends of Israel will rightly give Obama credit for sticking to his word and vetoing the Palestinian resolution — a stand that will be undertaken as much if not more in defense of U.S. interests than those of the Jewish state — the diplomatic disaster that is about to be played out is the fruit of his own misjudgments.

It was three years ago in the fall of 2008 when then Israeli Prime Minister Ehud Olmert offered Abbas a Palestinian state in almost all of the West Bank, Gaza and a share of Jerusalem. Though the Palestinians had spent much of the previous months dickering with the Israelis over the terms of a peace agreement, in the end Abbas refused to sign much in the same way his predecessor Yasir Arafat had also declined to make peace after he had received such offers in 2000 and 2001. By the end of that year with a new American president about to take office, it was clear that the state of Palestinian politics was such that no PA leader could afford to make peace with Israel, no matter what the terms or where its borders would be drawn. Even if they were inclined to make peace, with Gaza in the hands of Hamas, Fatah leaders like Abbas couldn’t survive an accord.

That should have signaled the new American president that prioritizing the Middle East peace process would do more harm than good. But Obama was convinced the problem had more to do with his predecessor’s closeness with Israel than the realities of Palestinian politics. So instead of watching and waiting for the Palestinians to come to their senses, Obama plunged ahead with a new strategy that distanced the United States from Israel in a futile effort to entice its foes to come back to the negotiations that they had abandoned months earlier.

The result of this tactical switch was the opposite of what Obama intended. The president’s decision to ask Israel to make unilateral concessions to bribe Abbas to talk as well as his inexplicable decision to pick fights with the newly elected Netanyahu over the status of Jerusalem only persuaded the Palestinians that they need only sit back and watch while America battered its Jewish ally. Rather than working on the Palestinians to take yes for an answer and accept a state that would recognize the legitimacy of the Jewish state next door and conclusively end the conflict, Obama’s actions encouraged Abbas to believe that he did not have to make concessions. Every demand from Obama on Israel was taken up by the Palestinians and put forward as a non-negotiable condition for the resumption of talks. Yet even when the Israelis gave in on some points and accepted a settlement freeze, the Palestinians still refused to negotiate.

Previously the Palestinians understood that any progress toward their stated goal of a state must come through the aid of the United States. Yet ironically it was Obama’s ham-handed efforts to signal that America was demanding such an outcome without forcing the Palestinians to compromise that convinced Abbas that he could only profit by abandoning the U.S.-sponsored peace process. Obama’s determination to distance himself from Israel upset the precarious balance that made an accord at least a theoretical possibility. Though the Palestinians claim they are going to the UN because the peace process failed the truth is what they are doing is an effort to evade negotiations. Obama’s weakening of Israel had the effect of undermining America’s own diplomatic standing leaving the Palestinians thinking they could ignore Washington’s interests. Their UN gambit is a crude maneuver aimed at clipping America’s influence in the region.

The debate in the UN this fall is just one more chapter in the ongoing war against Israel. The Palestinians will not get a state from this show and it may well be that Abbas and the PA will lose more from the resulting tumult than anyone else including Netanyahu. But it must also be understood as a profound defeat for American diplomacy that was only made possible by the hubris of Barack Obama.

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