Tuesday, September 20, 2011

Omaha Hokum: The Entire Buffett Rule is False


"So here we are back at the same old political stand, though even Mr. Obama concedes that today those he routinely calls "millionaires and billionaires" pay at least some tax. The President's complaint, echoing billionaire Warren Buffett, is that too many billionaires pay a lower rate than regular salary earners. So even as he endorsed tax reform in general yesterday, Mr. Obama insisted that one of his reform "principles" is that people who make more than $1 million must pay a higher tax rate than middle-class earners.

There's one small problem: The entire Buffett Rule premise is false, as the table above shows. In 2008, the last year for which such data are available, the IRS reports that those who made more than $1 million in adjusted gross income paid an average income tax rate of 23.3%. 

That's slightly lower than the 24.1% rate paid by those making between $500,000 and $1 million, probably because the richest are like Mr. Buffett and earn more from capital gains and dividends. The rate for a relative handful of the rich—400 people—fell to 18%. But nearly all millionaires still paid a rate that is more than twice the 8.9% average rate paid by those earning between $50,000 and $100,000, and more than three times the 7.2% average rate paid by those earning less than $50,000. The larger point is that the claim that CEOs are routinely paying lower tax rates than their secretaries is Omaha hokum."

~Wall Street Journal editorial (emphasis added)

MP: Using IRS data for a different year (2009), I made the same point in a CD post yesterday. 

42 Comments:

At 9/20/2011 8:12 AM, OpenID voxrationalis said...

I posted in yesterday's comments my criticism of your critique (http://wp.me/p1z3rV-92).

I'll follow-up. In my example, I take a single mother with a salary of $50K. She may pay $3,675 in federal income tax, and she'll pay $3,825 in payroll taxes. That's 15% of her $50K salary, pretty close to Buffett's 17.4%. Add in the employer side of payroll taxes, and her income is certainly taxed at a higher rate by the federal government than is Buffett's.

Buffett does fudge to get to the 33-41% figure he uses, but the bottom line is this: your core assertion - that millionaires can't possibly pay a lower combined federal tax rate than middle class people - is demonstrably wrong.

 
At 9/20/2011 8:16 AM, Blogger Methinks said...

Is "hokum" Midwest for "utter bullshit"?

How do people not see right through this asshole?

Warren Buffoon pushed TARP because it insured his Goldman Sachs investment in 2008. Now, he wants higher taxes for high earners so he can insure his investment in insurance.

Meanwhile, he employed an army of accountants and lawyers to pay as little as possible in taxes as he was getting rich.

He also denies the government he wants us to fund his billions by taking advantage of the death tax loophole that allows him not to pay death taxes if he wills his money to tax exempt organizations.

The idea is to cozy up to and help along the worst statists in politics so that they are powerful enough to transfer wealth from the population to his pocket. This pig sees that as not only normal, but also as his right.

He's a psychopath more cunning than Madoff. A sick, greedy, criminal bastard.

 
At 9/20/2011 8:30 AM, Blogger Methinks said...

your core assertion - that millionaires can't possibly pay a lower combined federal tax rate than middle class people - is demonstrably wrong.

That's a "core assertion" only in your imagination.

Mark (and now they WSJ) posted data for you that showed that millionaires pay a higher average tax rate than the middle class. Nobody except you asserted that it was impossible for highe earners to pay a lower tax rate.

I could factor in the tax free income his secretary earns on her IRA (IRA contributions are not available to people who earn money from dividends and cap gains). We could assume she has two kids. We could argue that her FICA taxes create a claim on social security when she retires - something that is likely to eventually become means tested and unavailable to the higher earners in their retirement. We can assume she has two kids and a mortgage and all of the deductibles associated with those things. And don't forget her untaxed medical benefits - a larger percentage of her income and not something available to those who earn solely through investment.

We could go on like this and where we will end up is that if she takes all the deductions available, then she will end up not paying any tax at all.

Not an option for high earners.

 
At 9/20/2011 8:35 AM, Blogger morganovich said...

vox-

that's apples and oranges.

FICA taxes are used to buy defined benefits.

if you went to a financial company to buy an annuity or an insurer to buy health insurance, you'd pay the same regardless of income.

with social security, it's already very progressive.

rates rise until you get to 107k. (a number 85% of americans fall below)

at 107k, you get negative nominal interest rates on your contributions. at 35k, they are positive.

the system around medicare is even more progressive.

if you earn 35k, you will pay less that 1/3 of what someone earning 107k does. yet you get the exact same insurance later.

calling that regressive seems awfully disingenuous to me.

you seem to be arguing that the rich ought to pay 5 or 10 times as much for the same thing and calling it fair.

 
At 9/20/2011 8:39 AM, Blogger morganovich said...

also:

methinks is correct. buffet is just talking his book.

life insurance is now predominantly a tax planning tool for the rich. they use it to cover the confiscatory 55% inheritance tax.

rates for life insurance are currently very, very low. you can get 11% annual tax free yields out of it.

he's desperate to shore up that business for berkshire.

he sees an increase in capital gains tax as a way to make it more attractive relative to other investment classes.

far from being a populist champion of the little guy, this is a nasty Machiavellian attempt to clothe himself in righteousness while in reality being a self serving parasite who is rent seeking for personal gain.

welcome to the european corporate state.

 
At 9/20/2011 8:43 AM, Blogger Jet Beagle said...

Even when billionaires receive only capital gains and dividend income, they still pay more than do ordinary taxpayers. That's because income of businesses they own pay corporate business taxes. Buffet's true income is much higher than he reports, but so are his true taxes. Furthermore, capital gains are computed based on nominal dollars, and do not take into account the huge erosion of wealth due to inflation.

 
At 9/20/2011 9:11 AM, Blogger Larry G said...

If the Republicans would produce a real-live cuts-only balanced budget proposal where were Obama and Buffet be on this?

Would they not be rolled in a New York minute for advocating tax increases when we have a balanced budget proposal in hand?

why does this argument go on?

doesn't it go on because without additional revenues we continue to have a 1.5T deficit and a 14T debt that will double in 10 years without changes.

I think the best way to assure that Obama and Buffet would look like fools to everyone would be for the Republicans to make good on their assertion that spending is the problem and the problem can be resolved with cuts.

 
At 9/20/2011 9:59 AM, Blogger Seth said...

One thing that is clear from the Buffett tax hokum is that few people, including Buffett, actually understand taxes and concepts such as double taxation and don't seem interested in actually testing their logic before they spew their hokum all over the place.

 
At 9/20/2011 10:13 AM, OpenID voxrationalis said...

Is my example just that - an atypical anecdote? Fine, I'll just back up and use the same kind of numbers that Perry and the WSJ used.

But first, it's important to understand that the WSJ in particular has twisted Buffett's original argument, in which he clearly included payroll taxes. If you want to say that an assertion is wrong, at least correctly restate the assertion. Yes, I understand that payroll taxes are targeted. I also understand that they pay for around 2/5 of all federal government spending. So there are fair arguments for including or excluding them from this kind of comparison.

So let's go back to table 1.1 of the IRS SOI and the top 400 taxpayers data. The top 400 taxpayers paid an average of 18.11% of their income in federal income taxes. It doesn't include payroll taxes; add those in and it might rise as high as 18.23%, or over 18.4% if you include the employer's side.

Now go back to table 1.1, using 2008 data for consistency. The average tax for someone with AGI in the $40-50K range was 7.5%. Now add the 7.65% payroll tax and we're up to 15.15%. Add the employer's side and it's up over 20%.

Satisfied?

There are three good counterarguments to Buffett here.

First, his methodology, wherein he divides total federal tax by TAXABLE income rather than by AGI, is faulty; it results in average tax rates that increase with deductions, which makes no sense.

Second, as noted above and by others, payroll taxes are by their nature different than the income tax.

Third, as noted by Jet Beagle, Buffett ignores the double taxation of capital income.

These are legitimate. What's not is simply saying that Buffett's math is wrong. It's not.

 
At 9/20/2011 10:29 AM, Blogger morganovich said...

seems like including fica really does not affect the outcome much.

the rich still pay 2X what the upper middle class does, and 2.5X what the middle of the income curve pays.

"This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank.

Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes.

Lower-income households will pay less. For example, households making between $40,000 and $50,000 will pay an average of 12.5 percent of their income in federal taxes. Households making between $20,000 and $30,000 will pay 5.7 percent."

 
At 9/20/2011 10:37 AM, Blogger morganovich said...

"Now go back to table 1.1, using 2008 data for consistency. The average tax for someone with AGI in the $40-50K range was 7.5%. Now add the 7.65% payroll tax and we're up to 15.15%. Add the employer's side and it's up over 20%.

Satisfied? "

no.

read the data i cite above.

it's much easier to shelter 50k than 1 million.

you can't compare theoretical max rates at the bottom with real ones at the top.

only 1.5% of US households make over 250k/year.

the number making a million is well under 1% and probably under 1/2 of 1% and few do it repeatedly. it's mostly from cashing out on cap gains when your company gets bought or whatever.

the "middle" you are talking about pay 7.5% after deductions and including fica.

the median US taxpayer no longer pays a federal income tax at all.

 
At 9/20/2011 10:44 AM, Blogger morganovich said...

sorry, that should read 12.5% for the middle.

 
At 9/20/2011 10:47 AM, Blogger Larry G said...

" the median US taxpayer no longer pays a federal income tax at all."

that's why I'd like to see a chart that details what each credit actually "costs" in total revenues.

I think BOTH the rich AND the middle/lower classes pay less in taxes than they did in 2000.

mortgage deductions, child deductions, exemptions and credits, and tax-free compensation (employer-provided health insurance) are the ways that the people who pay no income taxes - succeed in not paying.

I think everyone should pay something and there should be some level of proportionality.

but not paying anything, we are fostering an entitlement mentality but that mentality extends beyond the poor/middle class to the higher earners who also expect the kinds of entitlements that reduce their tax liabilities also.

and as I said - if we had a legitimate cuts-only balanced budget proposal - much of this discussion - although legitimate - would be a lot less a push.

 
At 9/20/2011 11:20 AM, Blogger Benjamin said...

These numbers might be more convincing if they included payroll and sales taxes.


As they do not, they are worthless for purposes of bona fide debate--but excellent in the echo chamber.

 
At 9/20/2011 12:11 PM, Blogger Paul said...

"I think the best way to assure that Obama and Buffet would look like fools to everyone would be for the Republicans to make good on their assertion that spending is the problem and the problem can be resolved with cuts."

Or how about Obama first make good on his assertion that the the wealthy don't pay enough in taxes and the problem can be resolved by hammering them? He hasn't produced anything on paper yet to back his claims. He is the President, yet you give him a pass.

 
At 9/20/2011 12:15 PM, Blogger morganovich said...

bunny-

the numbers i posted do contain payroll taxes.

 
At 9/20/2011 12:22 PM, Blogger Methinks said...

Vox,

If by "Buffet's math" you mean taking a set of numbers and performing arithmetic with them, then, yes, Buffet's math may be correct.

But, if you mean "doing the math" as slang for accurately calculating the relevant numbers, then Buffet's math is as wrong as it is self-interested.

I'm sure there's an update to these numbers, but I am not interested in digging around for them since tax rates haven't changed since 2005.

Mankiw posted a link to a detailed CBO report on taxes (click on the link in his post for the report).

All in (that is, investment income, income tax, fica - everything), the Evil Rich pay a higher percentage.

The effective Federal tax rate for the tiny minority in the top 0.01% of earners is 31.5%. It is about 32.1% for the top 0.05%.

The effective Federal tax rate for the middle quintile is 14.5% and 17.4% for the fourth quintile.

That's all in.

Buffet's "math" is wrong because that Buffoon is performing arithmetic on the wrong numbers.

 
At 9/20/2011 12:22 PM, Blogger Methinks said...

Sorry, left out the link:

http://gregmankiw.blogspot.com/2009/02/tax-rates-for-rich-and-poor.html

 
At 9/20/2011 12:49 PM, Blogger Larry G said...

" He hasn't produced anything on paper yet to back his claims. "

well we have a 14T debt and a 1.5T deficit and that is his plan.

you can disagree with it but until you put up your own plan what have you accomplished?

nothing.

that's the problem.

put a competing plan on the table and we can compare and contrast them but just attacking his plan is not going to get us anywhere.

don't the folks who say we don't need to tax the rich - have a responsibility to show how we can balance the budget with their priorities?

 
At 9/20/2011 12:51 PM, Blogger Benjamin said...

There are about 250,000 people in America with annual incomes exceeding $1 million.

It is remarkable they can get whole armies of sycophants and catamites to do their bidding.

Money talks, jack.

 
At 9/20/2011 1:24 PM, Blogger Paul said...

"well we have a 14T debt and a 1.5T deficit and that is his plan."

Huh? Are you saying his plan is to keep running staggering, unprecedented, deficits?

"you can disagree with it but until you put up your own plan what have you accomplished?"

I'm really tired of pointing out there have been several GOP plans that far exceed anything Obama has offered.

"don't the folks who say we don't need to tax the rich - have a responsibility to show how we can balance the budget with their priorities?"

Don't freeloaders who want to tax the rich to pay for their handouts have a responsibility to show how we can balance the budget on the backs of the job creators? Obama hasn't done that, has no plans to do it, yet you keep loading the responsibility for balancing the budget on the GOP House.

 
At 9/20/2011 1:35 PM, Blogger Larry G said...

"well we have a 14T debt and a 1.5T deficit and that is his plan."

Huh? Are you saying his plan is to keep running staggering, unprecedented, deficits?

nope. I'm saying for those that think his plan results in that failure - where is their alternative plan?


"you can disagree with it but until you put up your own plan what have you accomplished?"

I'm really tired of pointing out there have been several GOP plans that far exceed anything Obama has offered.

you might be tired of it but when the Republicans respond to Obama's plan where is their plan?



"don't the folks who say we don't need to tax the rich - have a responsibility to show how we can balance the budget with their priorities?"

"Don't freeloaders who want to tax the rich to pay for their handouts have a responsibility to show how we can balance the budget on the backs of the job creators? Obama hasn't done that, has no plans to do it, yet you keep loading the responsibility for balancing the budget on the GOP House."

nope.

you're passing judgment on their plan which is fine but when you do that - you need to promote a viable alternative plan - instead of using bomb-throwing rhetoric while providing no real alternative.

How about naming the plan that most Republicans support as an alternative to Obama's plan?

where is that plan?

 
At 9/20/2011 1:36 PM, Blogger arbitrage789 said...

Let's go ahead and raise the capital gains tax rate.

All the idiots now calling for it will end up rather disappointed, as it fails to bring in additional revenue.

But it'll take a few years for them to figure out what happened.

 
At 9/20/2011 1:38 PM, Blogger arbitrage789 said...

Larry G,

He who puts out a specific plan loses the next election.

Voters much prefer smoke, mirrors, and fantasy.

 
At 9/20/2011 2:09 PM, Blogger Jon said...

Buffett is not making claims about typical CEO's. His claim is in fact about the Forbes 400. See here:

http://www.cnbc.com/id/21708265/

Here's a citation from the article:

He told Brokaw: "I'll bet a million dollars against any member of the Forbes 400 who challenges me that the average (federal tax rate including income and payroll taxes) for the Forbes 400 will be less than the average of their receptionists."

So the WSJ confirms Buffett's claim (the Forbes 400 pay less as a % than everyone else) and yet they pretend this somehow shows that Buffett is wrong. He's not wrong. That's precisely what he's been saying.

 
At 9/20/2011 2:14 PM, OpenID voxrationalis said...

I submit that I shouldn't have characterized the core assertion as that what Buffett described is impossible.

morganovich wrote: "read the data i cite above."

It's pretty much the same data I pointed to, with two major differences. First, it doesn't include the employer side of payroll taxes. Second, it groups all of the $1M+ earners rather than splitting that group.

The latter is important because the higher the income, the more comes from capital and is taxed predominantly at 15%. As a group the top 400 pay less than 18.5% of AGI to the federal government (2008).

"it's much easier to shelter 50k than 1 million."

It's IMPOSSIBLE to shelter earned income from payroll taxes. For the middle-class worker, that's virtually all income, which is effectively taxed at 14.2% before the paycheck's even written. That said, the standard deductions and exemptions obviously have a much bigger impact on lower income earners.

"you can't compare theoretical max rates at the bottom with real ones at the top."

I didn't. I used the average rates of different groups, exactly as Perry and the WSJ did.

"only 1.5% of US households make over 250k/year."

I think it's a touch higher than that, but I don't have the data. The 2008 data show 3.07% of all returns with AGI of $200K+. Over $1M was 0.22%.

"...and few do it repeatedly. it's mostly from cashing out on cap gains when your company gets bought or whatever."

Can you point me to supporting data?

"the 'middle' you are talking about pay 7.5% after deductions and including fica."

No. According to the Tax Policy Center, the median for a family of four is about $75K, and the effective tax rate was 12.33% for 2010 (http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=228). Note that this does not include any impact from the employer's side of the payroll tax. Add that in and 18.4%, the effective rate on the top 400, is within reach.

But isn't this entire discussion irrelevant? I think Buffett's (and subsequently Obama's) proposal here isn't to raise the rates of all top earners, but to establish an AMT-like net to catch those few whose average tax rates are below some specified level?

Isn't the result exactly what Perry recommended in the last sentence of his original post (which he has since removed): "Instead of raising tax rates, we should probably figure out what kind of loopholes allow Warren Buffet to pay taxes of only 17.4% on his $40 million income last year."

"the median US taxpayer no longer pays a federal income tax at all."

Perhaps, but irrelevant. I'd put good money on a wager than nobody at Berkshire Hathaway, makes only the median AGI of $33K (2008).

 
At 9/20/2011 3:19 PM, Blogger Paul said...

Larry,

"nope. I'm saying for those that think his plan results in that failure - where is their alternative plan?"

This isn't a matter of opinion, President Obama has run up staggering, unprecednted 1.5 trillion dollar deficits. The weight should be on him, as the nitwit President who grew government to unsustainable levels, first and foremost.

Not John Boehner.

Also, the GOP passed the Ryan plan that was voted down by Harry Reid's Senate. Ryan's plan does far more for deficit reduction than Obama's soak the rich economy killing schemes.

"you're passing judgment on their plan which is fine but when you do that - you need to promote a viable alternative plan ."

Ryan Plan. Cut, Cap, and Balance. Both passed, both shot down in the Democrat Senate. Doing nothing would be a better option than anything Obama has proposed thus far.

 
At 9/20/2011 3:32 PM, Blogger Larry G said...

This isn't a matter of opinion, President Obama has run up staggering, unprecednted 1.5 trillion dollar deficits. The weight should be on him, as the nitwit President who grew government to unsustainable levels, first and foremost. "

are you daft?

he INHERITED a 10 trillion debt and an EXISTING 1.5 trillion annual structural deficit.


Not John Boehner.

Also, the GOP passed the Ryan plan that was voted down by Harry Reid's Senate. Ryan's plan does far more for deficit reduction than Obama's soak the rich economy killing schemes."

they did but Ryans so-called plan does not balance the budget until 2030.

is this the plan the GOP supports as an alternative to Obama's plan?


"you're passing judgment on their plan which is fine but when you do that - you need to promote a viable alternative plan ."

Ryan Plan. Cut, Cap, and Balance. Both passed, both shot down in the Democrat Senate. Doing nothing would be a better option than anything Obama has proposed thus far. "

cut, cap and balance is a bumper sticker slogan..

what happens to our debt if we don't get a balanced budget until 2030?

he doesn't cut anything but entitlements and he rely's on supplys-sides theories and a 3% unemployment rate to balance the budget.

Ron Paul balances the budget in 5 years.

that's not a plan .... that's just bogus...

but I'm asking - what plan are the Republican supporting at the competitive alternative to Obama's plan?

I don't see them supporting Ryans...and for good reason..

 
At 9/20/2011 3:39 PM, Blogger morganovich said...

vox-

the top 400 are hardly a representative sample.

the top 1% pay well over 25%.

you are just cherry picking.

"It's IMPOSSIBLE to shelter earned income from payroll taxes."

not true. it comes out of taxable income. further, many of the 51% who pay no income tax actually pay negative income tax. that is a de facto shelter on other taxes.

supporting data:

http://en.wikipedia.org/wiki/Household_income_in_the_United_States

1.5% of us households make over $250k.

"No. According to the Tax Policy Center, the median for a family of four is about $75K"

1. i already corrected that.
2. median family income is nothing like 75k. national household median income is 44.4k.

in terms of "loopholes" isn't that already coming?

cap gains are going from 15% to 20% then are going to get another 2.5% tacked on from FICA under obamacare.

that's a 50% hike in the tax rate for cap gains.

and it's still not going to fix anyhting.

the loopholes we really need to close are the ones that have moved the number earners paying no federal income tax from 24% a decade ago to 51% now.

that's where the meat is going to be.

the top 1% are already paying what, 40% of income tax? the top 10% pay 70%.

the US, by income distribution, already has the most progressive tax system in the OECD.

you really think the answer is to tax the wealthy more?

 
At 9/20/2011 3:49 PM, Blogger Larry G said...

the are some folks who are exempted from paying payroll taxes...

http://www.irs.gov/charities/charitable/article/0,,id=123235,00.html

 
At 9/20/2011 3:51 PM, Blogger Methinks said...

Vox,

I posted a link to the CBO data.

The top 0.01% pay an ALL IN (effective - from all sources) Federal rate of 31.5%

The middle quintile pays an 14.5% and the fourth quintile pays 17.4%.

31.5% is not 25% and it's more than 14.5% and 17.4%.

 
At 9/20/2011 3:55 PM, Blogger Methinks said...

He told Brokaw: "I'll bet a million dollars against any member of the Forbes 400 who challenges me that the average (federal tax rate including income and payroll taxes) for the Forbes 400 will be less than the average of their receptionists."

He'd lose unless their secretaries are paid so much they are in the top .05% of income earners.

The top 0.01% pays 31.5%.

The group making just a little less at the top of the top quintile pays 32.4%.

So, unless all of their secretaries are making around a million bucks a year, those members of the Forbes 400 are paying more.

 
At 9/20/2011 7:14 PM, OpenID voxrationalis said...

morganovich wrote:

"the top 400 are hardly representative... just cherry picking."

Oh come on, that's weak. I'm citing the actual statistics of one of the two groups that Buffett specifically described in his op-ed (the other was $1M+). Which is exactly what Perry did NOT do in his post yesterday. And I think with that population, I've described the situation Buffett was highlighting. Repeating things won't help here - if you're not convinced by now that there are people for whom Buffett's description applies, including the population of the 400 top taxpayers, there's no point in me spinning my wheels.

"'It's IMPOSSIBLE to shelter earned income from payroll taxes.' - not true... many of the 51% who pay no income tax actually pay negative income tax. that is a de facto shelter on other taxes."

Not as many as you think, I think (though I don't have the stats), but there certainly is some of this. But for most of us, including anybody working at BRK, there's no avoiding payroll taxes.

"supporting data: http://en.wikipedia.org/wiki/Household_income_in_the_United_States"

Really? Wikipedia's got data showing the roll of millionaires changes dramatically from year to year? I remain skeptical.

"2. median family income is nothing like 75k. national household median income is 44.4k."

Family income and household income are two different things, and I tend to look at family income first because it's not as affected by demographic changes like increasing numbers of single retired people. I cited this: http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=228. Census says $60K here: http://www.census.gov/hhes/www/income/data/historical/families/index.html. In terms of household, the latest Census figure is $49,445.

"that's a 50% hike in the tax rate for cap gains."

So's is an increase from 2% to 3%, though I think you'd agree that an increase from 50% to 70% is bigger. Anytime somebody claims a 50% increase in a rate, it's a pretty good bet they're hiding something.

"the loopholes we really need to close are the ones that have moved the number earners paying no federal income tax from 24% a decade ago to 51% now. that's where the meat is going to be."

No problem - end all of the Bush tax cuts. But if you do it now, make sure the Fed's flooding the world with cash or this economy's going to REALLY tank.

BTW, If you don't think the solution involves increasing taxes on the top 1% (income share 20%), why do you think it involves raising taxes on the bottom half (income share 12.75%)?

"the US, by income distribution, already has the most progressive tax system in the OECD."

Of course we do - goes along with having the highest income inequality in the OECD.

 
At 9/20/2011 7:26 PM, Blogger Innovation rules said...

Here's some more math.

Lumping millionaires, most of whom are running a business through their tax account, with billionaires is like lumping millionaires with kids who make a thousand dollars.

If we confiscated all the billionaire's money and threw them on welfare, we wouldn't have enough money to pay the deficit for a year. Even adding all the millionaires wouldn't do it.

The money obama will get from raising taxes on the super-rich is akin to wind and solar energy; it may sound good, but it is about as effective as harnesssing your own methane as an energy source.

But it may drive some capital out of the country, and even some luxury businesses like small jets. And that will be more math.

 
At 9/20/2011 7:50 PM, Blogger Dahveed said...

Well, you're not a News Corp company - It takes time to hack those phone voice mails.

They probably subscribe here and saw your analysis.

 
At 9/20/2011 9:26 PM, Blogger Methinks said...

BTW, If you don't think the solution involves increasing taxes on the top 1% (income share 20%), why do you think it involves raising taxes on the bottom half (income share 12.75%)?

The solution is spending cuts, not income tax increases. And debasing the currency doesn't create prosperity.

The cold, hard reality is that most of the millionaires have a lot of flexibility in how they take their income. Muni bond interest, for example, is exempt from taxes. The higher the taxes, the higher the tax adjusted return. They are also often business owners who can adjust how much they work by simply shrinking their business (and firing workers). You're more likely to see a decrease in revenue by increasing taxes on the high earners.

The vast majority of middle income earners are wage earners. The additional taxes are taken straight from their paychecks and they don't have the option to work less. They'll get fired. It's way easier to raise revenue by taxing the sainted middle class. That's just the cold, hard reality. And that's why Obama keeps reaching down to the $250K income level.

Instead of figuring out how to rob people of the fruits of their labour, we should be concentrated on how to stop politicians from buying votes with money confiscated from us at gunpoint so that we may all be richer.

 
At 9/20/2011 9:27 PM, OpenID voxrationalis said...

Methinks wrote: "The top 0.01% pay an ALL IN (effective - from all sources) Federal rate of 31.5%"

You need to get more granular. I'll do this on my blog later in more detail, but the bottom line is that the very top of the income scale skews everything. This is all 2008 data, and it's just income tax, not including payroll taxes. Sorry.

Take a look at Perry's table from his post yesterday, of average tax rates by income range. Note that at the top end (higher than $5M), the progressivity reverses. Here's the same thing, using 2008 data (because that's the most recent top 400 taxpayer data), and dividing tax by AGI rather than taxable income:

$10K-$15K: 2.9%
$15K-$20K: 3.8%
$20K-$25K: 5.2%
$25K-$30K: 6.2%
$30K-$40K: 6.8%
$40K-$50K: 7.5%
$50K-$75K: 8.5%
$75K-100K: 9.3%
$100-200K: 12.7%
$200-500K: 19.6%
$500K-$1M: 24.1%
$1M-$1.5M: 24.8%
$1.5M-$2M: 25.0%
$2.0M-$5M: 24.8%
$5M-10.0M: 24.0%
$10M-109.7M: 22.2%
$109.7M+ (Top 400): 18.1%

Sources: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.html and http://www.irs.gov/pub/irs-soi/08intop400.pdf.

 
At 9/21/2011 7:35 AM, Blogger Methinks said...

Vox,

What's your point? You want to punish everyone to get back at 400 people?

Even with the reversal in progressivity, the 400 are paying more as a percentage than their secretaries. Buffet's still a liar and you're fighting for a Pyrrhic victory. The Buffet tax is on people making more than $1MM, not on the top 400. That group, even by your own data, is paying at a very progressive rate.

That 400 receives most of its income from investment and those people have the most flexibility in how they invest. Do you really want to push them into municipal bonds instead of start-ups? They're also the biggest philanthropists. Do you really want more money to go to government instead of charitable causes?

Even that giant hypocrite, Warren Buffoon, kept his wealth well away from the congress clowns. Maybe you should go after him with calls to yank that money out of the Gates Foundation and give it to its proper owner, the government.

 
At 9/21/2011 8:53 AM, Blogger morganovich said...

"Oh come on, that's weak. I'm citing the actual statistics of one of the two groups that Buffett specifically described in his op-ed (the other was $1M+). Which is exactly what Perry did NOT do in his post yesterday."

no vox, you are just picking irrelevant nits and ignoring that that group is about to get a 50% tax hike anyway.

those 400, you think they're going to stick around to be milked just because you think they ought to be treated as special revenue sources?

i already bought dual citizenship, and i'm nothing like in that group.

you think they (and i) won't just leave?

you think other countries aren't DYING to have them?

capital is more mobile than anytime in history.

ignore that at your peril.

you don't get that rich by being stupid about your money.

we already have the most progressive tax system in the OECD and you are complaining that it's not slanted enough toward the rich?

this is just tyranny of the majority masquerading as fairness.

you want to take away specific rights from a group to milk them in punishment for their success.

this country has citizens, not subjects.

"So's is an increase from 2% to 3%, though I think you'd agree that an increase from 50% to 70% is bigger. Anytime somebody claims a 50% increase in a rate, it's a pretty good bet they're hiding something. "

are you really this bad at math?

20% + 2.5% = 22.5% new cap gains rate

22.5% - 15% = 7.5% increase in rate

7.5%/15% = 50% hike in taxes paid.

far from my hiding something, it seems that you need to revisit your basic math skills.

each sale will pay 1.5X as much tax as it used to.

what would you call that apart from a 50% increase?

if you made $100 and paid 15% you pay $15. that number goes to $22.50 under the new system. are you trying to tell me 22.50 is not 50% higher than 15?

"BTW, If you don't think the solution involves increasing taxes on the top 1% (income share 20%), why do you think it involves raising taxes on the bottom half (income share 12.75%)?"

because that top 1% is already paying 40% of taxes.

and you misunderstood my argument on progressiveness. that's most progressive after adjustment for income inequality.

http://mjperry.blogspot.com/2011/03/us-has-most-progressive-tax-system-for.html

i suggest you read this carefully.

the OECD average % taxes paid/% income earned is 1.11 for the top 10%.

in the US it's 1.35, a massive difference.

the difference is even greater if you look at the top 400, as you seem to like to do. the rest of the world does not tax global income. if you are an EU billionaire, you put your money in the US and pay NO TAX. i know lots of people who do this. the only other nation that taxes all global income like the US does is north korea.

our rich are already taxed more than any other nation relative to their income share.

allowing over half the public to pay no income tax is death for a democracy. the moral hazard is horrific. every time they see a spending program, they know that someone else will pay. there is no recovery from that kind of incentive structure.

everyone pays tax from dollar one keeps a system's decisions fiscally sustainable.

51% being able to vote for free beer from the other 49 is a recipe
for disaster.

 
At 9/21/2011 9:28 AM, OpenID voxrationalis said...

Methinks - why so angry?

"What's your point?"

My point was that your information was incomplete.

"the 400 are paying more as a percentage than their secretaries. Buffet's still a liar and you're fighting for a Pyrrhic victory."

First, I don't think you understand what a Pyrrhic victory is. Second, Buffett's not a liar - he crafted his argument well, fudging his statistics in a way that maximizes the differential between his tax rate and those of his middle-class employees. I'll write it up hopefully this afternoon, because I haven't seen anybody writing about this (including Glenn Kessler at the Washington Post today) getting it right.

"The Buffet tax is on people making more than $1MM, not on the top 400. That group, even by your own data, is paying at a very progressive rate."

"My" data shows that grouping all $1M+ taxpayers together hides the loss of progressivity at the top.

The President hasn't made a specific proposal yet. The trial balloon he floated said only "No household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay." That sure looks like an AMT-like mechanism to me.

For example, using the data above, perhaps the Buffett rule will be that all income in excess of $1M shall be taxed at a rate not lower than 25%. Note, this would put capital gains taxes for the very wealthy at or below the level they were between WWII and 1997, with the exception of 1981-1986 when they were 20%.

"Do you really want to push them into municipal bonds instead of start-ups?"

You have to look at changes in after-tax returns to understand the changes in incentives, and there simply wouldn't be a sufficient change to spur much of what you suggest. But if it did, continue the analysis - less tax revenue, but lower borrowing costs for municipalities leading to lower taxes locally.

 
At 9/21/2011 10:06 AM, Blogger Methinks said...

Vox,

You're just some guy on the internet. No offense, but you're just not important enough to waste my anger. I'm just trying to focus your sloppy thinking.

I now realize this impossible as you think it's perfectly logical to string together non-sequiturs and call it an argument.

Note, this would put capital gains taxes for the very wealthy at or below the level they were between WWII and 1997, with the exception of 1981-1986 when they were 20%.

This is a perfect example. That has nothing to do with anything. Nobody is going to make investment decisions based on what the tax rate was in some historical period. Their opportunity cost isn't between WWII and 1997.

But if it did, continue the analysis - less tax revenue, but lower borrowing costs for municipalities leading to lower taxes locally.

Yet another example. If you take your own advice and continue the analysis, then you will realize two things:

1.) If the minimum payment must be no less than 25% of all income, then that may mean that munis are no longer tax exempt for the very group that makes up the overwhelming majority of muni bond buyers. Muni borrwing rates will go up in that case, not down.

2.) If Munis remain exempt, more money will likely move into munis, driving down the borrowing rate and not achieving your goal of "correcting" the loss of progressivity on that pesky handful of Americans who dare to be very successful.

3.) I repeat. Yet again. These are the people with the most money to invest and who also qualify to invest in start-ups. If more of their money is moving into tax shelters, there will be less investment in innovation, in American entreprenuers. Is this what you want? You conveniently ignore thinking about this issue in your determined effort to equalize outcomes.

A Pyrrhic victory is one where you lose more than you gain. In an effort to increase progressivity (in itself and hideous goal) by increasing the tax rate on people you are envious of, you will lose investment and the associated economic growth (impoverishing the country) and you will decrease tax revenue.

BTW, my information was not incomplete. You clearly didn't access the link. The CBO's data is very detailed and it did show that the top 0.01% paid a rate 1% lower than the rest of the top 0.05%. And those numbers are the much more complete effective tax rates.

Neither your nor Obama's nor Buffoon's argument is that this handful is not paying as much as other million dollar earners. You all argued originally that million dollar earners pay less than the middle class.

That is patently false.

Pretending that wasn't the argument makes you look ridiculous. Pretending that efforts to punish 400 families will yield a better result is just stupid.

 
At 9/26/2011 10:12 AM, OpenID voxrationalis said...

Methinks and morganovich - I almost left well enough alone, because life got busy and then because this IS a rather pointless exchange (which is quite different from anything Pyrrhic), but I must point out a few things.

"each sale will pay 1.5X as much tax as it used to. what would you call that apart from a 50% increase?"

Maybe a 7.5% tax increase, better would be an 8.8% decline in after-tax income -- the change in incentives to the taxpayer, which "a 50% increase in the tax rate on capital gains" completely misses. A rate bump from 2% to 3% would also fit your description.

"top 1% already paying 40% of taxes."

No. CBO data for 2006 show the top 1% paid 28.3% of federal taxes.

"you misunderstood my argument on progressiveness"

No, you're altering your claim. Your data doesn't compare tax rate levels. Denmark would appear to be great, since the ratio of tax share to income share among the top 10% is just 1.02. But taxes/GDP in Denmark is 85% higher than in the U.S. Would you rather live in a country that collects 26% of GDP in tax or one that collects 48%? (http://www.oecd.org/dataoecd/13/38/46721091.xls)

"...that may mean munis are no longer tax exempt for the… overwhelming majority of muni bond buyers."

(1) looks like ~35% of munis are held by retail investors, ~35% or so by funds. (2) 78% of tax-exempt interest in 2008 went to taxpayers with less than $1M of AGI. So the share held by those with AGI over $1M is about 15% of all munis. Not insignificant, but certainly not an "overwhelming majority."

"3.) I repeat. blah blah blah..."

What empirical data do you have to back your claim that raising tax rates on capital from 15% would have such an impact? What was economic growth like between World War II and 1968, with a 25% rate on capital gains? What's it been like since 1997, when the rate was dropped from 28% to 20%, and since 2003, with a 15% rate?

“BTW, my information was not incomplete. You clearly didn't access the link. The CBO's data...”

I agree that the CBO table Mankiw linked to is superior than the most recent data released by the CBO, and I’m grateful that you pointed it out to me. However, I don’t think it’s helpful for your argument that historically low tax rates are necessary for economic growth.

“You all argued...”

With this edit, your statement is true: “[some] [multi-]million dollar earners pay [lower effective tax rates] than [much] of the middle class.” If you disagree, go back and read the original sources.

It’s been fun and educational. See you next time.

 

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