Shortly after President Obama was elected, NBC News interviewed a young woman from Detroit named Peggy Joseph. She explained that she was excited about Obama’s election because “I won’t have to worry about putting the gas in my car. I won’t have to worry about paying my mortgage.”
In the three years since, President Obama may not have actually paid her mortgage or filled up her tank, but judging from last night’s State of the Union address, he’s still trying.
The president’s address — more campaign speech than policy platform — was long on calls for “fairness” and “opportunity,” but it really boiled down to the president’s vision of a society where government does everything for everyone — financed, of course, by higher taxes on “the rich,” who need to pay “their fair share.”
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The president’s argument ignores the fact that the rich already pay a disproportionate share of federal income taxes. In fact, the much-reviled 1 percent earns 16 percent of all income in this country, but pays 36.7 percent of all federal income taxes. One might conclude that this group is already paying its fair share.
Take, for example, the president’s renewed push for a so-called “Buffett rule,” based on the idea, in Obama’s oft-cited formulation, that investors such as Warren Buffett should not pay a lower effective tax rate than their secretaries. He even had Buffett’s secretary, Debbie Bosanek, sitting in the presidential box.
Buffett makes most of his money from investment income (capital gains and interest), and he pays a capital-gains tax rate on that money. That tax rate could theoretically be lower than the tax rate that Ms. Bosanek pays on her wage-based income, although only if Ms. Bosanek’s income is fairly high and she took few deductions. However, the president’s narrative ignores the fact that Buffett’s income had already been taxed at the corporate level. When the effect of both taxes is combined, the real effective tax rate is closer to 45 percent. That is quite a high rate on an inherently risky activity — investing — that our tax code should encourage.
And significantly, note that the president’s solution to this supposed problem is not to reduce taxes on Ms. Bosanek, but to raise them on Mr. Buffett.
That is because the president sees the Buffett rule and his complaints about other tax loopholes as simply a tactic, the camel’s nose under the tent, in his desire for more money for the federal government. That is why his actual tax proposals, hidden behind rhetoric about “millionaires and billionaires” and the “wealthiest 1 percent,” would actually raise taxes on people earning as little as $200,000 per year, as well as many small businesses. And many of his proposals will probably hit people with incomes even lower.
And he wants that money so that he can spend it.
The president might have given lip service to the need to reduce deficits and the debt, but most of his speech was a laundry list of government programs to spend more money doing more things for more people. From health care to housing, from worker education to industrial policy, from “green energy” to college loans, the president sees the government as both the engine of our prosperity and the guarantor of fairness.
The president’s vision of the state of the union is a zero-sum one in which, if some people get rich, it must make other people poor. If Warren Buffett makes money, then Peggy Joseph won’t have gas for her car. The only alternative is for the government to step in and make Mr. Buffett pay for Ms. Joseph’s gas.
Of course there is another option.
We all seek a society in which every American can reach his or her full potential, in which as few people as possible live in poverty, and in which no one must go without the basic necessities of life. More important, we want a society in which every person can live a fulfilling life. But the evidence is now inescapable that the best way to achieve that goal is not through welfare-state redistribution of wealth, but through the creation of more wealth. We should judge the success of our efforts not by how much charity we provide to the poor, but by how few people need such charity.
Would it not be a better America if we could make it possible for Ms. Joseph to get a better job so that she could afford her mortgage and her gas? For that matter, wouldn’t we like a country where she could afford a bigger house and a second car? Nothing that the president has proposed would help bring that about.
Poverty, after all, is the natural condition of man. Indeed, throughout most of human history, man has existed in the most meager of conditions. Prosperity, on the other hand, is something that is created. And we know that the best way to create wealth is not through government action, but through the power of the free market. Last night, President Obama said, “This nation is great because we worked as a team [and] have each other’s backs.” Others might suggest that this nation is great because we are free.
We will probably spend the next year debating these two visions. Last night’s speech was the start.
President Obama said, “This nation is great because we worked as a team [and] have each other’s backs.”
It'll be nice when we have someone in office who doesn't talk like this, and doesn't fist bump his wife, and has had a real job, and likes the country, and isn't so whiny, and doesn't act like nouveau riche, and doesn't say "uh" so much when he speaks teleprompter free, and who has a wife who isn't such a malcontent, and isn't adored by leftist media and weak-kneed conservatives like Pants Crease Brooks.
> "That is quite a high rate on an inherently risky activity — investing — that our tax code should encourage."
Et tu, CATO? Why should taxes be used to encourage or discourage anything?
And the statement is factually wrong -- capital gains taxes are simply applied to realized gains on sale of capital. Those gains may not have come from taxed corporate profits, they could simply be market fluctuations or legitimate changes in demand (e.g. for real estate, etc).
In addition, much so-called "investment" occurs in the secondary market, where it doesn't feed new projects or build out new capabilities. It's just a parking lot for money. After years of claiming "10% per year, just keep your money in the system", I think it's becoming abundantly clear that net growth in secondary stocks over the very long term will be closer to low-risk rates.
My short remedy (that will never happen): eliminate all forms of business and corporate tax, replace with an appropriately steep progressive income tax that treats *all* income precisely the same, and taxes it precisely once. Commit to revising the tax rates frequently so that revenue can be matched to spending. Stop tweaking the market or influencing behavior with tax codes. Income is income, and should be treated the same whether you buy a yacht OR a house OR a savings bond OR a stock portfolio.
Once that happens, then we can have a serious discussion about spending and how to reduce it. Until that happens, we've got two options: Democratic tax and spend, or Republican lower taxes and spend more anyway. Of the two, I prefer the former since it at least points to some future of responsible governance. Starve the beast failed, and will continue to fail because Republicans just can't say no to spending.
In regards to your remedy, the Supreme Court already has ruled that direct income taxation is unconstitutional. Why do you think that before you take home your pay from your employer, it is first taxed at the corporate level, where you have yet claimed it?
Also, to support a progressive tax rate is to not treat all incomes precisely the same. Oh, you mean investment and earned income? In the real world, returns on investment is just that and not "earned", but through the tax code anything can be said to have been "earned".
"Poverty, after all, is the natural condition of man. Indeed, throughout most of human history, man has existed in the most meager of conditions. Prosperity, on the other hand, is something that is created. "
Too late for this, Mr. Tanner. Now that socialism has engulfed us silently, too man don't believe this anymore.
Sir. The fatal flaw in your proposed new tax plan is frequently adjusting tax rates so that revenue equals spending. That only guarantees that spending will increase. Perhaps the reverse is a viable solution.....cut spending to match revenue. Thus, we as a nation can live within our means!
Capital gains income has not necessarily been previously taxed.
If I sell common stock that I have held for years at a significantly appreciated price, I pay capital gains on that appreciation. However, that particular gain has not been taxed unless you claim that the gain would have been greater except for other taxes.
A different example would be a gold coin that I bought for $300 and sold for $1500. The $1200 gain has not been taxed anywhere else.
Where do you think the gain in value of that share of stock came from. It came about because the company invested in itself and made itself more valueable. If it had more money, it would have either invested more money in itself, or it would have given out more money in the form of dividends. BOth of those would have increased the share price even more.
Some capital gains haven't been previously taxed and some have. If the price of a stock goes up because there is more demand for stocks in general, then the capital gain hasn't been taxed yet. Same goes for non-stock capital gains like commodities, real estate, etc.
My opinion is that the corporate rate should be zero, and dividends (profits) should be distributed to the share holders every year (schedule K's), which are then taxed at the normal individual rate.
As for capital gains for non-stock investments like commodities, real estate, collectibles, etc. those should be taxed at the individual rate, but that one is allowed to adjust the cost basis by the price and wages index to remove the taxation already collected by the Fed (i.e. inflation).
I can't help but wonder about all of that 'spend.' Where is it? We've incurred trillions of dollars of debt under Obama. Where has all of this money gone? He certainly isn't investing it in national defense or any of the other things that the federal government was originally conceived for.
The president and his party seek to make saves of us all. One class will be enslaved via government benefits and the other enslaved to foot the bill. The first group won't object as much as the second and may in fact enjoy their slavery. The second group, of which I am a part, will not long tolerate our slavery.
If the president wants a "fair" society then he will make the 47% who ay no income taxes do so. How is it fair that half the country gets a free ride on the other half?
This man, his party, and their ideology and ideas are dangerous and they must be stopped
While the practicality and logic are correct concerning 'growing the economy raises all boats', many people buy the argument that the government should intervene and reduce the disparity in income between the rich and everyone else. It is a very anti-capitalist creed. However, people by nature want to be taken care of. It is not in their best interests to be more and more dependent on government but it is an uphill battle to convince them of that. The odds of the federal plantation growing are great. Whether we can resist that urge as a nation is questionable.
I think I heard that Mitt Romney paid something like $6,200,000 in taxes on income last year. Now any who have ever cared to read anything I've ever posted know that I'm not particularly bright--I guess I'm having a real hard time getting my head around the mathematics that verify the fairness of "progressive" tax systems. Maybe a helpful member of the class envy crowd can explain to me--in un-cynical terms--why Romney, or any other successful citizen, for that matter--should have to pay more in taxes than someone who is less successful or productive. For extra credit, I'd also welcome a lesson on the fairness of flat tax systems too. Unless basic math has changed since my days in the public school system, a percentage of a higher income can translate into a significantly greater amount of money than the same percentage of a lower income. Doesn't seem all that fair to me--heck, I'd even appreciate a simple lesson on what "fair" means.
Well said. 'Fair is an ambiguous word because it is defined by the user of the word. I might ask if it is fair that about 47% of my countrymen and women pay no Federal income tax whatsoever. That 47%, and their families, receive the protection of the US military, they drive on Federal Interstate highways and they fly in an air transportation system fully paid for by the Federal Government - and on it goes. I pay Federal income taxes for all those things (and many more) so I should have some say about the fairness of it all. However, I don't have a say. Because of the progressive tax system I am an "economic slave" whose Master is the Democratic Party and whose "slave gang bosses" are Federal bureaucrats whose make the rules I must live by (witness: the IPAB created by the obamacare statute). Lest you think I inherited any wealth I might have, or that I won the lottery - guess again. I was born into very humble circumstances but heeded the words of my relatives and friends as I grew up: "Work like hell and get all the education you can". I did both, and I did what the Government encouraged me to do: save for my old age so the Government didn't have to take care of me. What is my reward for living the American Dream - forced to live in a society where Democrats make promises to get elected, vote the benefits they promised to the 47% and put the bureaucrats in charge of my life's regulations. I was raised with a definition of "fair" based on the "Pursuit of Happiness" claimed in our Declaration of Independence and honored in our Constitution. I never thought that fair meant Government Guaranteed Happiness for some Americans that is paid for by other Americans. Our National Oath of Allegience says "One Nation...with Liberty and Justice for All." Our current President is doing all he can to steal our liberty and define justice for us. We need to vote the man back to Chicago, from whence he came. That, in my humble opinion, would truly be fair.
The Obloviator should have thanked the Romneys for paying for his family's vacations over the past year with all of their tax dollars instead of babbling on for over an hour about nothing in his SOTU.
By the way, here is even more cynicism from Obama: Wasn't it in 2010 that he lambasted the Supreme Court for ruling that corporations can have a little more say in our political system? Well, is he not using Berkshire Hathaway to make his point? Is not Warren Buffet's secretary a representative of said corporation? Talk about gall.
“Back in the thirties we were told we must collectivize the nation because the people were so poor. Now we are told we must collectivize the nation because the people are so rich.” WFB
The underlying problem is a national government which has expanded far beyond its original constitutional bounds. We can only hope to be free of this or future administrations of its ilk when we restore the original limits on the national government which have been stripped away by Supreme Court decisions since 1937. Given how entrenched that Supreme Court jurisprudence is, our only sure method of accomplishing such a restoration will be constitutional amendments restating and reinforcing those original constitutional limits. See External Link.
There is currently income redistribution taking place in this country - via government-imposed taxes - from the middle and upper middle class (who pay 25-35% in federal income taxes + payroll tax) to the super rich (who pay only 15% taxes and only on income that they are unable to hide in one of the numerous loopholes and tax shelters available to them).
The only way to fix this income redistribution and bring tax fairness is:
1. Tax all income at exactly the same rates. The income of the super rich (capital gains, dividents, salaries for money managers) should be taxed at the same marginal rates as regular income - just as when federal taxes were originally introduced in the USA.
2. Close ALL tax shelters and loopholes that the super rich use to hide a large part of their income (Cayman/Swiss accounts, hundred-million-$-tax-free IRAs, etc.)
3. Reform (or, better, eliminate) the AMT to only target the super rich - as originally intended! Now the AMT mostly targets the middle class!
4. Introduce new tax brackets for incomes over $1M and $10M. When federal taxes were originally introduced in the USA only incomes of over $1.2M (in 2011 adjusted $) were taxed, at progressive rates, but now there is not even a separate tax bracket for incomes larger that $1M.
