On Wednesday, Senate Democratic leaders proposed a new 5.6 percent tax on people earning more than $1 million a year to cover the cost of President Obama’s $447 billion jobs plan. While a “millionaire tax” has some populist appeal as a general proposition, I suspect that this tax won’t go through. And that’s a good thing.
First, it is a distraction from spending cuts and the reform of autopilot programs. A millionaire tax won’t solve our budget problems; there simply aren’t enough millionaires. And even if there were enough millionaires and the government could impose a surtax on them, it would be unfair, considering that they are already contributing more than their fair share to the tax bill. As I highlighted last week,
In 2009, millionaires made up 0.1 percent, or just fewer than 240,000, of the 140 million tax returns filed that year. Despite their small demographic imprint, the magnitude of their contribution in paid taxes is hard to overlook. Over the past ten years, millionaires have paid 17 to 28 percent of total income tax returns per year.
The 233,435 taxpayers who reported earning seven digits or more in 2009 brought in a total of $702.2 billion, received $77.2 billion in personal exemptions and total deductions, and paid 25 percent ($176.4 billion) of their income in taxes overall.
These guys also paid 20 percent of all federal income taxes.
Besides, advocates of a millionaire tax should be careful what they wish for, since the incidence of the tax is very likely to fall most heavily on non-millionaires, in the form of lower wages, higher prices, and fewer jobs. I doubt this is the outcome the president is looking for.
If the purpose of the tax is simply to pit one class of taxpayers against another, here too the Democrats are wasting their time. The tax code code already does that: renters versus homeowners, parents versus people without kids, married couples versus single taxpayers, and so on. This is why we need fundamental tax reform, not a millionaire surtax.
Finally, it is widely forgotten by members of Congress that the role of the tax code isn’t to milk taxpayers as much as possible. Its role is (or should be) to generate enough revenue for necessary government functions (and these don’t include Amtrak, grants to the states, loans to Solyndra, subsidies to farmers, etc.) with some level of fairness and as little economic distortion as possible. Surtaxes on millionaires do not do that.
Simple question. Are you ok with the fact that Warren Buffet pays a lower tax rate than his secretary?
Reply to this commentLinkReport AbuseSimple question for you, Slide:
Can you guys get it through your thick heads you are comparing apples and SPAM?? Warrent Buffet pays capital gains taxes, 15%. His secretary pays ordinary income, plus PAYROLL taxes, which are a much larger portion of her income than Buffett's is of his.
Secondly, payroll taxes are being remitted in exchange for a claim on future Social Security and Medicare benefits, a tangible stream of income she will have in retirement. It is a tax, yes, but qualitatively the same as general revenue income tax, which is paid with no corresponding claim or benefit to the payor. Payroll taxes are therefore best compared to an insurance premium: a defined contribution today in exchange for a defined benefit tomorrow.
Now the day Buffet is promised a lifetime retirement income of, say, $300 million a year, paid by current taxpayers, talk to me about the discrepancy.
Reply to this commentLinkReport AbuseCorrection: "qualitatively NOT the same as general revenue income tax."
Reply to this commentLinkReport AbuseI think that's been demonstrated to be an urban legend. Second, if Warren Buffett thinks he should pay more, there's nothing stopping him. Third, yes, capital gains should be taxed at a lower rate (ideally, not taxed at all) because they represent at-risk capital invested in the economy that creates more jobs and more wealth; which should be encouraged.
Warren Buffett represents a class of people who have great wealth... but wealth is not taxed in this country. Income is taxed. And income represents productivity and aspiration. Punitive taxes on income fall on people who are aspiring to be wealthy, not people who have already got theirs. That's why people like Buffett are happy to kick the ladder down behind them once they've made it to the top.
In sum, it's a myth (who even has a "secretary" any more, that terminology went out in the eighties), and second, I wouldn't care if it weren't.
Reply to this commentLinkReport AbuseFurther, Buffet is an extreme anomaly. The rich pay more, by every measure. Percentage of average tax rate, share of total income taxes paid, and share of all federal taxes paid, if you insist on including payroll taxes.
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The idea that your average millionaire is paying a lower average tax rate than your average $60k a year secretary is, simply, a LIE.
Reply to this commentLinkReport AbuseThis has been debunked elsewhere.
What I am NOT okay with is Buffett paying her/him only $60K a year.
That seems low for an executive assistant to one of the richest dudes in the world.
Reply to this commentLinkReport AbuseHe pays a much higher rate than his secretary when you understand that the 35% corporate tax rate is applied before he is taxed at the 15% maximum rate on his dividend income.
Why Buffett, an intelligent man, doesn't explain why he ignores this facet of the issue is curious to say the least.
Were there no corporate taxes then, yes, he'd likely have a lower rate than many families making $100,000. But Buffett is also famous for NOT taking a very high salary either, isn't he? Were he to pay himself a $100 million dollar salary (taking it out of Berkshire corporate income first) he'd pay a vastly higher tax than his proverbial "secretary".
And why do you think he structures his pay in this manner? It wouldn't be to minimize HIS tax rate would it?
Reply to this commentLinkReport AbuseOh, if that's the standard, jag, Slide's got a point. But not in the way he thinks he does.
You may have missed the headline that Berkshire is in arrears on its corporate taxes, back to 2002.
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Which makes Buffett's appeal here even more outrageous and hypocritical. He not only won't voluntarily pony up more than his legal liability to the IRS, even though he can, but his company isn't even paying theirs.
You libs must really enjoy being played for suckers. You trot out Buffett and his genial, quasi-populist, disheveled Grandpa schtick to shill for higher taxes, when your spokesman is actually behaving like Gordon Gecko, laughing all the way to the bank.
Reply to this commentLinkReport AbuseThere's also the fact that Warren Buffet's company makes lots of money helping other people figure out ways to minimize their taxes. The higher tax rates go, the more money Buffet makes.
Reply to this commentLinkReport Abuse35% corporate tax rate? Pffft. Effective rates are less than 20%, but I think you know that. Guess what GE paid last year? NADA. Wells Fargo, Dupont, Honeywell, Verizon? Less than zero. The list goes on and on...
And what is your point about him structuring his compensation to maximize his advantage? That's the name of the game and part of the problem.
Reply to this commentLinkReport AbuseEffective rates, at 20%, are still higher than even the *nominal* rates in the rest of the industrialized world.
GE paid NADA last year (maybe, or maybe not -- that would require more digging into financial statements than the average liberal is capable of), because it's offsetting its $30 billion loss from previous years. You're free to argue that this should not be allowed. Good luck.
The point is that liberals pointing to low taxes paid by corporations *in years immediately following a recession when they took massive losses) are being dishonest. The honest number would be their average tax payments over time. And again, over time, the average corporate tax rate *actually paid* is among the highest in the developed world.
Reply to this commentLinkReport AbuseSlide and Obama share some characteristics which are rather dangerous to the country. Both are obviously economic illiterates. Both are envious of other peoples wealth and greedy to take it from them. Neither flattering or beneficial characteristics to have when we are in such an economic mess.
Reply to this commentLinkReport Abuse"Both are obviously economic illiterates."
"Econoramuses", if you will.
Reply to this commentLinkReport Abuse" Neither flattering or beneficial characteristics to have when we are in such an economic mess."
They aren't flattering or beneficial at any time.
Reply to this commentLinkReport AbuseYou are correct sir.
Reply to this commentLinkReport AbuseSimple questions from simple minds.
Buffet does not pay a lower tax rate than does his secretary.
To the extent that Warren takes his salary as capital gains rather than income, capital gains is taxed at a lower rate than some income tax rates. However, this is only half the story, capital gains are taxed at the corporate tax rate prior to being distributed, so in reality, capital gains are taxed more highly than simple income.
Reply to this commentLinkReport AbuseTaken in isolation, no. In the context of all the other considerations that go into setting tax policy, yes.
Simple question of my own: Let's say Warren Buffett decided not to realize any income at all this year, and got his living expenses by borrowing against his assets. He would not pay any taxes at all. Are you OK with that fact?
Which tweaking the capital gains tax rate, or the marginal income tax rate, would change not at all?
Are you mentally and informationally equipped to even participate in this debate?
(capcha -- "not yet")!
Reply to this commentLinkReport AbuseWhy is the tax "unfair"? This is simply an opinion (to which you are entitled).
Is it unfair that the market pays investment bankers more than teachers? You bet. But you don't complain.
And your view on the essential functions of government is also an opinion.
I do agree with your view on taxes: they should be structured in a way to make sure that government pays its way. According to this view, along with the way government functions today, taxes are way too low.
We have a tax structure that favors small government, not the government that we have. Either we have to restructure the government or the tax structure. You are for the former. I am a bit ambivilent.
However, there is one overarching principle: the tax structure should support the government structure. Today, it does not.
Reply to this commentLinkReport AbuseWhy is it unfair that the market pays an investment banker more than a teacher?
Not many people can be investment bankers, on the other hand, the SAT scores for students with Education degrees is amongst the lowest of all careers.
Investment bankers create products that benefit millions. Teachers on the other hand only get to ruin 20 or 30 students at a time.
Just because the market does not judge as highly as you judge yourself, is not evidence of a market failure.
Reply to this commentLinkReport Abuse"Is it unfair that the market pays investment bankers more than teachers? "
No it isn't unfair. Teachers chose that occupation, freely. It doesn't pay as much as much as bankers nor does it pay as much as many politicians, policemen, fireman, athletes, entertainers or novelists like J.K. Rowling.
What would be "unfair" would be if a person didn't have a choice to become a banker instead of a teacher.
"the tax structure should support the government structure"
Well which comes first? The ability to pay taxes or the "need" for government subsidies for PBS, NPR, Solyndra and the multitude of dubious and duplicate "services" the state has been expanded to now be part of its ongoing "structure"?
When the state stops spending on "Head Start", a program numerous reviews show is utterly unproductive, I'll believe it has "sized" itself reasonably soundly. But it isn't even close yet and there is little or no movement to shutter even the most wasteful of expenditures (why are we even still arguing about postal practices like six day a week delivery of mail which is 50% "junk").
Paying higher taxes merely to support useless activities is not a virtue.
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