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Topic: Buffett Rule

Back Taxes and Buffett Rules

Remember the Buffett Rule, which was supposed to usher in an age of tax fairness and solve our debt crisis? (And by that, I mean cover .23 percent of our annual deficit while providing enough loopholes for top earners to dodge the rule altogether?)

Well, in the spirit of equality, here’s a new proposal aimed at federal employees. It’s called the Pay Your Taxes Plan. It’s fairly self-explanatory, and involves federal employees simply paying the $3.4 billion they owe in back taxes (including the $833,970 owed by White House staffers, $9.3 million owed by Treasury employees, and $17 million owed by the Justice Department). And the best part is that it would even raise more than the Buffett Plan’s annual revenue.

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Remember the Buffett Rule, which was supposed to usher in an age of tax fairness and solve our debt crisis? (And by that, I mean cover .23 percent of our annual deficit while providing enough loopholes for top earners to dodge the rule altogether?)

Well, in the spirit of equality, here’s a new proposal aimed at federal employees. It’s called the Pay Your Taxes Plan. It’s fairly self-explanatory, and involves federal employees simply paying the $3.4 billion they owe in back taxes (including the $833,970 owed by White House staffers, $9.3 million owed by Treasury employees, and $17 million owed by the Justice Department). And the best part is that it would even raise more than the Buffett Plan’s annual revenue.

IBD’s Andrew Malcolm reports:

A new report just out from the Internal Revenue Service reveals that 36 of President Obama’s executive office staff owe the country $833,970 in back taxes. These people working for Mr. Fair Share apparently haven’t paid any share, let alone their fair share. …

The report finds that thousands of federal employees owe the country more than $3.4 billion in back taxes. That’s up 3% in the past year.

That scale of delinquency could annoy voters, hard-pressed by their own costs, fears and stubbornly high unemployment despite Joe Biden’s many promises.

The tax offenders include employees of the U.S. Senate who help write the laws imposed on everyone else. They owe $2.1 million. Workers in the House of Representatives owe $8.5 million, Department of Education employees owe $4.3 million and over at Homeland Security, 4,697 workers owe about $37 million. Active duty military members owe more than $100 million.

Seriously, though, stories like these just highlight what a gimmick the Buffett Rule is. It’s purpose isn’t to help solve the debt crisis in any practical sense; it’s to enforce this administration’s idea of fairness on the American public. If the $3 billion estimated annual revenue from the Buffett Rule had any chance of helping close the deficit, that $3.4 billion owed by federal employees would be a much bigger deal than it is.

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Obama Drops His Name Into the Other Presidential Biographies

Many of President Obama’s fervent devotees are young enough not to have much memory of the political world before the arrival of The One. Coincidentally, Obama himself feels the same way—and the White House’s official website reflects that.

The Heritage Foundation’s Rory Cooper tweeted that Obama had casually dropped his own name into Ronald Reagan’s official biography on www.whitehouse.gov, claiming credit for taking up the mantle of Reagan’s tax reform advocacy with his “Buffett Rule” gimmick. My first thought was, he must be joking. But he wasn’t—it turns out Obama has added bullet points bragging about his own accomplishments to the biographical sketches of every single U.S. president since Calvin Coolidge (except, for some reason, Gerald Ford). Here are a few examples:

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Many of President Obama’s fervent devotees are young enough not to have much memory of the political world before the arrival of The One. Coincidentally, Obama himself feels the same way—and the White House’s official website reflects that.

The Heritage Foundation’s Rory Cooper tweeted that Obama had casually dropped his own name into Ronald Reagan’s official biography on www.whitehouse.gov, claiming credit for taking up the mantle of Reagan’s tax reform advocacy with his “Buffett Rule” gimmick. My first thought was, he must be joking. But he wasn’t—it turns out Obama has added bullet points bragging about his own accomplishments to the biographical sketches of every single U.S. president since Calvin Coolidge (except, for some reason, Gerald Ford). Here are a few examples:

  • On Feb. 22, 1924 Calvin Coolidge became the first president to make a public radio address to the American people. President Coolidge later helped create the Federal Radio Commission, which has now evolved to become the Federal Communications Commission (FCC). President Obama became the first president to hold virtual gatherings and town halls using Twitter, Facebook, Google+, LinkedIn, etc.
  • In a 1946 letter to the National Urban League, President Truman wrote that the government has “an obligation to see that the civil rights of every citizen are fully and equally protected.” He ended racial segregation in civil service and the armed forces in 1948. Today the Obama administration continues to strive toward upholding the civil rights of its citizens, repealing Don’t Ask Don’t Tell, allowing people of all sexual orientations to serve openly in our armed forces.
  • President Lyndon Johnson signed Medicare signed (sic) into law in 1965—providing millions of elderly healthcare stability. President Obama’s historic health care reform law, the Affordable Care Act, strengthens Medicare, offers eligible seniors a range of preventive services with no cost-sharing, and provides discounts on drugs when in the coverage gap known as the “donut hole.”
  • In a June 28, 1985 speech Reagan called for a fairer tax code, one where a multi-millionaire did not have a lower tax rate than his secretary. Today, President Obama is calling for the same with the Buffett Rule.

I imagine Bill Clinton will be especially receptive to Obama’s habit of shoehorning himself into the limelight previously occupied by others. As you can see, the bullet points make clear that while each president has done something historic or notable, Obama is carrying forward every one of those accomplishments since Coolidge. No wonder he always seems so proud of himself.

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The Buffett Rule and Tax Fairness

The so-called Buffett Rule will come up for a vote in the Senate today and will almost certainly fail. And that’s a good thing because the Buffett Rule is not tax policy, it is demagogy.

President Obama is exploiting the fact that the corporate and personal income taxes have never been properly integrated into a single, coherent tax system, which is a failure of government. Instead, there has been an endless series of ad hoc, jerry-built fixes during the last century to either prevent the exploitation of the two tax systems by taxpayers (such as individuals incorporating themselves to pay lower corporate rates) or to obviate what would be double taxation and thus—pardon the expression—unfair. Often, the fixes caused new opportunities for exploitation or created new unfairness (not to mention new opportunities for demagogy). This generated new fixes, and so on and on ad infinitum. The result is a tax code that is a national disgrace.

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The so-called Buffett Rule will come up for a vote in the Senate today and will almost certainly fail. And that’s a good thing because the Buffett Rule is not tax policy, it is demagogy.

President Obama is exploiting the fact that the corporate and personal income taxes have never been properly integrated into a single, coherent tax system, which is a failure of government. Instead, there has been an endless series of ad hoc, jerry-built fixes during the last century to either prevent the exploitation of the two tax systems by taxpayers (such as individuals incorporating themselves to pay lower corporate rates) or to obviate what would be double taxation and thus—pardon the expression—unfair. Often, the fixes caused new opportunities for exploitation or created new unfairness (not to mention new opportunities for demagogy). This generated new fixes, and so on and on ad infinitum. The result is a tax code that is a national disgrace.

So instead of the Buffett Rule, how about a couple of fixes that would eliminate much of the illusory unfairness that the president wants to exploit for his own selfish purposes (i.e. re-election).

1) Dividends are taxed at 15 percent because they are paid out of corporate profits that have already been taxed at the corporate level, at 35 percent. Interest on corporate bonds, however, is a business expense and thus deductible. That’s why interest income at the personal level is taxed at the normal rate. So why not treat interest and dividends alike? Allow corporations to deduct them both as business expenses and tax both of them fully at the personal level. This would not only eliminate the illusory unfairness at a stroke, but it would have the considerable additional virtue of eliminating the bias towards raising capital through borrowing rather than equity. It would also tax dividend income at the same progressive rates that are laid on wages and salaries, rather than at a flat rate. Liberals should love that idea.

2) Capital gains also come out of after-tax profits, although indirectly. (The profits not taxed away or paid as dividends increase the book value of the corporation —the value of its liquidated assets minus liabilities—and thus raise the floor price of the stock regardless of market conditions, as a stock seldom sells for below its book value.) This, along with the fact that the money is at risk while invested (which wages and salaries are not) and that capital gains are not adjusted for inflation, is why they, too, are taxed at 15 percent, not the full personal rate.

If capital gains were adjusted for inflation, at least some of the unfairness inherent at taxing them at higher rates would be eliminated. Consider an example. If you inherited $100,000 worth of stock in 1962 and sold it today for $760,000, your capital gains tax on that stock would be $99,000. But your real, inflation-adjusted gain would be zero. The $99,000 would, in fact, not be an income tax on a capital gain but an excise tax, measured in inflation, on the privilege of living in a country whose government has failed to maintain the value of the currency. Talk about unfair!

If President Obama cared about tax fairness, he would seek to actually make the tax code more fair. Instead, he is seeking to be re-elected–nothing more, nothing less.

 

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The President’s Intellectual Exhaustion

Everyone from President Obama to Jason Furman, the principal deputy director of the White House National Economic Council, to the Washington Post’s Dana Milbank to Politico’s Jim VandeHei, agree that the so-called Buffett Rule is a gimmick that has almost no bearing on the budget deficit. And for good reason. The Treasury Department confirms that the tax would raise at most $5 billion a year—or less than 0.5 percent of the $1.2 trillion fiscal 2012 budget deficit and, over the next decade, 0.1 percent of the $45.43 trillion the federal government will spend (for more, see here). By one estimate, the “Buffett Rule” would cover 17 days of the president’s next decade of deficits. So it’s not, in any sense, a serious or meaningful proposal. And yet it has, as the New York Times reports, become a “centerpiece” of the Obama re-election campaign.

So there you have it. The Obama presidency has reached the point where a policy that virtually everyone (including the president) concedes is a gimmick is now a centerpiece of Obama’s campaign.

There are many ways to measure the intellectual exhaustion of the Obama presidency. This isn’t a bad place to start.

Everyone from President Obama to Jason Furman, the principal deputy director of the White House National Economic Council, to the Washington Post’s Dana Milbank to Politico’s Jim VandeHei, agree that the so-called Buffett Rule is a gimmick that has almost no bearing on the budget deficit. And for good reason. The Treasury Department confirms that the tax would raise at most $5 billion a year—or less than 0.5 percent of the $1.2 trillion fiscal 2012 budget deficit and, over the next decade, 0.1 percent of the $45.43 trillion the federal government will spend (for more, see here). By one estimate, the “Buffett Rule” would cover 17 days of the president’s next decade of deficits. So it’s not, in any sense, a serious or meaningful proposal. And yet it has, as the New York Times reports, become a “centerpiece” of the Obama re-election campaign.

So there you have it. The Obama presidency has reached the point where a policy that virtually everyone (including the president) concedes is a gimmick is now a centerpiece of Obama’s campaign.

There are many ways to measure the intellectual exhaustion of the Obama presidency. This isn’t a bad place to start.

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Income Inequality and the Buffett Rule

In his post this morning on Liberals, Conservatives, and Tax Fairness, Peter Wehner writes,

Liberals are correct about this: income inequality has increased over recent decades. The task of conservatives is to give a full and fair picture of income gaps in America, to explain what is behind it, and to point out the injustice of the left’s remedies and the degree to which their proposals represent a radical departure from America’s ideals.

I could hardly agree more, and agree that his excellent article in National Affairs, “How to Think About Inequality,” is a great place to start.

I would add one more reason why income inequality has grown in recent decades, and it’s not a small one: technology. Whenever a major new technology develops, it causes a marked and sudden inflorescence of new fortunes that greatly exceed the old fortunes. This happened with railroads (Vanderbilt, Gould, Harriman, Hill, etc.), steel (Carnegie, Phipps, Frick, Schwab, etc.), automobiles (Ford, Dodge, Sloan, Kettering, Mott, etc.), petroleum (Rockefeller, Flagler, Archbold, etc.) For each of those megafortunes, there were hundreds of others whose possessors were merely very rich, not Forbes-400 rich.

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In his post this morning on Liberals, Conservatives, and Tax Fairness, Peter Wehner writes,

Liberals are correct about this: income inequality has increased over recent decades. The task of conservatives is to give a full and fair picture of income gaps in America, to explain what is behind it, and to point out the injustice of the left’s remedies and the degree to which their proposals represent a radical departure from America’s ideals.

I could hardly agree more, and agree that his excellent article in National Affairs, “How to Think About Inequality,” is a great place to start.

I would add one more reason why income inequality has grown in recent decades, and it’s not a small one: technology. Whenever a major new technology develops, it causes a marked and sudden inflorescence of new fortunes that greatly exceed the old fortunes. This happened with railroads (Vanderbilt, Gould, Harriman, Hill, etc.), steel (Carnegie, Phipps, Frick, Schwab, etc.), automobiles (Ford, Dodge, Sloan, Kettering, Mott, etc.), petroleum (Rockefeller, Flagler, Archbold, etc.) For each of those megafortunes, there were hundreds of others whose possessors were merely very rich, not Forbes-400 rich.

The microprocessor is the most profound technology since the steam engine and has, therefore, created an inflorescence of fortunes such as has never been seen before. Of the 400 people on the Forbes List for 2011, no fewer than 48 of them are categorized as having fortunes based on “technology.” Many other fortunes on the list, such as those of the Walton family, which founded Walmart, would not have been possible without the microprocessor. And again, for every one of these billion dollar new fortunes, there are dozens of multi-million dollar ones and million dollar ones. The wealth creation caused by the microprocessor is astonishing.

And these new fortunes can arise with amazing speed. Instagram, which developed a photo-sharing technology, was founded in October 2010, and was bought this month for $1 billion. The buyer was Facebook, which was founded in 2004. Facebook’s principal stockholder, Mark Zuckerberg, who is all of 27 years old, is worth $17.5 billion, according to Forbes. He will be a lot richer still when Facebook’s IPO launches soon.

This process, inevitably, causes income inequality to widen. To suppress the process, i.e., to prevent the creation of these great new fortunes, would be to suppress wealth creation itself, economic idiocy of the highest order. No one is one dime the poorer because the likes of Bill Gates, Mark Zuckerberg, and Michael Dell have become multi-billionaires in the last few years. We are all richer thanks to them. (That includes me, who is writing this on a brand new Dell computer that works great. Thanks, Mike!)

And while we should certainly take the issue of income equality seriously, I’m not at all sure we should take President Obama’s remedy du jour—the Buffett Rule—seriously at all. It’s nothing but an attempt to double the tax on capital gains in the name of “fairness,” the most subjective term in the American political vocabulary. I like John Hinderaker’s suggestion on Powerline:

So how about if the GOP responds to any legislation incorporating the Buffett Rule by seeing the Democrats their demagoguery and raising them with a couple of demagogic proposals of their own, in the form of proposed amendments? The Republicans could say, sure, we’ll go along with the Buffett Rule if you Democrats will agree to the Reynolds Tax, a 50 percent surtax on the increased incomes of former government officials when they move into the private sector, working for the same companies they once regulated. Or Republicans could offer an amendment incorporating the Clooney Rule, based on the fact that actors and actresses are such advocates of higher taxes: a new, 80 percent tax rate on all income in excess of $1 million earned by acting in any film or theatrical production. Or they could counter with the K Street Rule, an 80 percent tax on all income in excess of $1 million earned by lobbying. Or the Ambulance Chaser Tax, an 80 percent levy on all lawyer contingent fee income in excess of 10 percent of a recovery. (That one would provoke howling from coast to coast, from one of the Democrats’ prime constituencies.)

Conservatives should treat the Buffett Rule with the contempt it deserves.

 

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Liberals, Conservatives and Tax Fairness

In defending President Obama’s effort to make as the centerpiece of his campaign the so-called Buffett Rule — which would require anyone earning at least $1 million a year to pay at least 30 percent of his income in taxes — Jason Furman, deputy director of Obama’s National Economic Council, said, “Our goal is to have a progressive tax system.”

Furman added that the tax was never intended “to bring the deficit down and the debt under control” (contradicting a past claim made by the president). The goal, according to Furman, is to establish “a basic issue of tax fairness.”

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In defending President Obama’s effort to make as the centerpiece of his campaign the so-called Buffett Rule — which would require anyone earning at least $1 million a year to pay at least 30 percent of his income in taxes — Jason Furman, deputy director of Obama’s National Economic Council, said, “Our goal is to have a progressive tax system.”

Furman added that the tax was never intended “to bring the deficit down and the debt under control” (contradicting a past claim made by the president). The goal, according to Furman, is to establish “a basic issue of tax fairness.”

Let’s take Furman’s claims in order, starting with the goal of a progressive tax system.  According to the CBO, the top 1 percent of earners pay 40 percent of all federal taxes, compared to less than 20 percent in the 1970s. And today, according to research by the OECD, income taxes in America are the most progressive among the rich nations of the world. As Stephen Moore has observed, the “richest 10 percent of Americans shoulder a higher share of their country’s income-tax burden than do the richest 10 percent in every other industrialized nation, including socialist Sweden.”

Second, the United States now has the top corporate tax rate in the world, having recently passed Japan (and once again placing America ahead of socialist Sweden).

Third, middle-class workers on average pay just under 15 percent of their income in federal taxes while the richest 0.1 percent pay almost twice that rate (26 percent). The Buffett Rule applies to the exceedingly small number of individuals who make most of their money from capital gains, which are taxed at a lower rate than ordinary income in order to encourage savings and investment and because that income has already been taxed as corporate income. It’s reasonable to assume that The Buffett Rule is, in the words of the Wall Street Journal, “really nothing more than a … way for Mr. Obama to justify doubling the capital gains and dividend tax rate to 30 percent from 15 percent today.”

As for the “basic issue of tax fairness:” This is a recurrent theme for Obama. In a 2008 debate between Obama and Hillary Clinton, ABC’s Charles Gibson asked Obama why he would support raising capital-gains taxes given the historical record of government’s losing net revenue as a result. “Well, Charlie, what I’ve said is that I would look at raising the capital-gains tax for purposes of fairness,” Obama replied. This moment revealed that Obama isn’t simply or even primarily interested in raising taxes for economic reasons (e.g., raising revenues or spurring growth). He sees taxes through a moral prism, as an instrument to advance “fairness,” which he takes to mean leveling higher taxes on wealthy Americans in order to decrease income inequality. The president really does favor, in his words, “spreading the wealth around.”

This debate goes to the core of what separates progressives and conservatives. The former are drawn to the concept of equality of results while the latter are far more committed to equality of opportunity. And for liberals, the problem of income inequality has to do with the rich whereas for conservatives, the problem is not wealth but persistent poverty. As Robert Beschel and I argue in this National Affairs essay, “the right way to deal with income inequality is not by punishing the rich, but by doing more to help the poor become richer, chiefly by increasing their social capital. This means not simply strengthening the bonds of trust and mutual respect among citizens, but also equipping Americans — especially the poor — with the skills, values, and habits that will allow them to succeed in a modern, free society.”

Liberals are correct about this: income inequality has increased over recent decades. The task of conservatives is to give a full and fair picture of income gaps in America, to explain what is behind it, and to point out the injustice of the left’s remedies and the degree to which their proposals represent a radical departure from America’s ideals.

But more is required than simply that. Social mobility, which is the central moral promise of American economic life, has been the traditional alternative to economic egalitarianism. But the truth is that whether one judges by intragenerational mobility (meaning movement within or between income brackets and social classes within an individual’s lifetime) or intergenerational mobility (movement within or between income brackets and social classes occurring from one generation to the next), the United States is less mobile than it should be. Many European countries, for example, now have as much social mobility as, and more opportunity than, the United States. Today, a child’s future depends more on parental income in America than it does in Canada and Europe.

It would therefore be a mistake for conservatives to ignore the issues of social mobility and income inequality. They couldn’t even if they wanted to. The divide between rich and poor in America will be a focal point of this election. This is an instance, then, when the left is forcing the conservative movement to grapple with an issue it might otherwise ignore. (When things are working right, liberalism and conservatism focus attention and spur creative thinking on topics each movement is largely indifferent to.) The challenge for conservatives is to offer up a comprehensive social agenda in the face of America’s deep cultural and structural problems. Assembling such a platform is a hugely complicated task. But doing so, and translating good ideas into policy, would make America a more just, decent, and less divided society.

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