Warren Buffett’s secretary is reportedly sitting in the box with the First Lady tonight. Obviously, President Obama will repeat the utterly false claim that Warren Buffett bears a lower tax burden than his secretary does. If you understand the varying tax treatment of labor and capital income at the corporate level — the former being deductible from taxable income, the latter a part of taxable income — then you understand why Buffett’s claim is false. If you further understand how screwed up the tax calculation on phantom capital gains is, how taxing the principal of an investment already taxes its return, and how America’s corporate income tax came about in the first place (Congress enacted it as a substitute for individual income taxation, after the Supreme Court declared direct income taxes unconstitutional), then you understand that those who defend Buffett’s false claim about the undertaxed wealthy are either ignorant or dishonest.
The wealthy pay a significant higher share of their income in taxes than the middle class or the poor do. If you combine federal, state, and local taxes together and divide by income, the top quintile of U.S. households pay about twice as much in taxes as a share of their incomes as the bottom quintile does. Because government spending disproportionately benefits lower-income households, the progressivity of government’s fiscal structure is even more steep than the tax data alone would show.
If you want to defend this level of progressivity, fine. If you want to argue that the system ought to be even more punitive at higher income levels, go for it. But denying that the wealthy already pay a disproportionate share of taxes is an act of gross irresponsibility.
this is a nice succinct breakdown that more people should see. Thank you.
Reply to this commentLinkReport AbuseCapital gains and dividends are ephemeral: they may or may not happen as one invests and hopes for the best.
Capital gains are peculiar in that they happen only when there is a gain and when the investor chooses to realize that gain. Set the tax rate too high and the investor will not cash in, hoping for a greater gain that offsets the tax rate. Of course what happens is that too often the gain evaporates, so the investor and government don’t get what could have been realized.
We saw this in 1987 when the 1986 capital gains increase made folks reluctant to cash in, driving 1987 tax receipts to a level lower than anticipated. Most investors are willing to pay 15% on gains, but push the rate to 20% and fewer are willing to do so, betting / hoping that their gain increases. It does not, perhaps more often than not. Put the rate at 28%, and more folks may want to “defer” the gain until something bigger comes along:, but it probably does not. And so forth. Put the rate at 38% and folks will defer for a long, long time.
It’s probably more realistic to think of the capital gains tax as a transaction tax. When one does, one realizes the key is to get as many transactions (sales) as one can, so a lower rate makes sense. Moreover, the synergy is likely astounding. An asset that’s been a dog for me, the absent caretaker, can rocket up in the hands of an active, motivated investor who’s of the mind to make a silk purse out of the sow’s ear s/he just purchased. Whether it’s a plot of land or majority position in some company that’s limping along, some folks have the knack for finding and realizing value. That’s what Bain did on a larger scale.
Reply to this commentLinkReport AbuseOr, more succinctly, "Joe Wilson!" Mr. Obama.
Reply to this commentLinkReport AbuseSo Warren Buffett, one of the more successful business gurus in the nation is being dishonest on his taxes?
And you know this how?
Don't know your professional background, but it seems to me that Messers. Buffett, Gates, and the 50 or so other billionaire-types that have rallied together on taxes, donation of the bulk of their estates to foundations, etc just *might* actually know what they are talking about and doing, and so do their multitude of associated lawyers, estate planners, etc etc.
And they're not doing all of this because they're 'liberals' or what-not.
And what, precisely, is wrong with the top paying twice as much as the bottom? Sure, tax levels have flattened over the years, and for good reasons, but I don't think even Reagan would disagree with the more successful paying a higher percentage of their income in taxes.....and while you talk about adding in state and local taxes, the majority of those are deductable on the federal level .....so...........
Try to take your partisan blinders off and think about how the average American thinks about these things.......
Reply to this commentLinkReport AbuseWhy are you saying it's false that Warren Buffet pays a lower effective tax rate than his secretary? That's based on what?
And I'm not sure the chart you point to is making your point as strongly as you think --- i.e. the top 1% account for 20.3% of total income in the country and 21.5% of tax burden. Big deal.
Also -- and maybe you heard about this today because it was reported by many, many news outlets -- one of the Republican primary candidates for President of the United States released some tax information showing that despite having income in excess of $20 million in 2010 he only paid an effective tax rate of 13.9% -- which is lower than the rate paid by about half the country.
If I deny that this man "already pay[s] a disproportionate share of taxes" am I committing "an act of gross irresponsibility"?
Reply to this commentLinkReport AbuseEric, I'm sure you are aware the John Kerry's (who was the Democratic presidential nominee!) had an even lower effective tax rate. Right?
Reply to this commentLinkReport AbuseIt's not a matter of proportionality; it's a matter of how much of a burden it is. If Romney paid 40% of his income instead of 14%, he would be paying $22,000 a day in taxes, but he would also have $33,000 of income per day to spend. Imagine what your life would be like if someone were handing you a check for $33,000 each and every day of the year. Your taxes wouldn't be a burden to you in even the tiniest, most insignificant way.
When a rich person has to restrict the amount they spend on food for their family to $10,000 a day, it's absolutely no problem. When a poor person has to get by on $10/day for their family, it's a horrible problem.
Reply to this commentLinkReport AbuseFirst they came for 40% from the 1%. Then they came for came for 50% from the 5%. Then they came for ...you.
Reply to this commentLinkReport AbuseIt is not the top 20% or 10% or even 1% that pay less in taxes than their fair share. It is the top 0.01 or 0.001%. People like Romney who pay 13% tax rate not only on investments but also on salary/compensation as carried interest.
Reply to this commentLinkReport AbuseAnd another thing....
I always thought obeying the laws WAS playing "By the same rules" and "fair." The Dems had control of both houses and Obama's house and spent their time on imposing UNfairness via Obamacare instead of their idea of tax reform. Since they did have those majorities, that was, defacto, "Fair" too.
Watching the speech tonight, my wife said "That's what kids always whine--'its not fair!'" and she's right. This is the new incarnation of the "blame Bush/tsunamis/arabsprings/ anyone/anything/teapartiers/thetone/whatever" school of Obama-talk. And by the way, it is the selfsame trope of those who tell people living in generations of poverty and welfare state decay that it is "Racism" that put them there. What word do striking and demonstrating unions put on their signs more than any other? "UNFAIR!"
We have to do more than laugh about "Are you blaming Bush AGAIN?" and point out this pattern of blamegame politics because if independents and moderates and all those folks who were suffering Bush Fatigue and thought they'd vote something historic even with doubts don't wise up this time, they'll only have THEMSELVES to blame...and that, not Obama's rhetoric, would indeed be "unfair!"
Reply to this commentLinkReport AbuseCapital gains taxes (at least on long-term assets) is largely a tax on inflation, not real economic gains. Anything above zero therefore discourages investment, except for short-term speculation. It also robs homeowners and retirees of economic security, making them more dependent upon government.
Reply to this commentLinkReport AbuseGreat post, John. Anyone who doesn't understand these economic/tax figures is willfully ignorant.
Reply to this commentLinkReport Abuse"...denying that the wealthy already pay a disproportionate share of taxes is an act of gross irresponsibility."
"Gross irresponsibility"? That's far too kindly put.
Reply to this commentLinkReport AbuseThe problem is not the top 1% v.s the middle 50%. The problem is the top 1-2% v.s the top 0.01-0.02%. The extremely rich 0.01-0.1% are getting richer because they don’t pay their fair share as Buffet is saying. They pay 15% not only on their investments, but also on their salaries (carried interest). 92% of the income of the top 0.01% is taxed at 15% - and this is only the income they cannot hide in loopholes and tax shelters. Find some recent references about how much the tom 0.01% and 0.1% pay in taxes v.s. the upper middle class (say top 5% or 2%) and then we can talk. Why do you think Romney does not want to release his older Bain tax returns - because even his salary at Bain (while making his millions without risking his own capital) was taxed at 15%. I, on the other hand, pay 25% average federal tax rate - why Romney who makes many times what I make should pay half of what I pay in effective tax rate - even on his salary?
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