Tuesday, April 17, 2012
Economic Ignorance and the Buffett Rule
By Ross Kaminsky on 4.17.12 @ 6:10AM
As Obama's class war is endorsed by 51 U.S. senators, polls suggest it's a political winner.
On Monday, the United States Senate voted on S.2230, the Orwellian-of-title "Paying a Fair Share Act of 2012." (More precisely, senators voted on whether to invoke cloture and end debate on the measure.) Based on the so-called "Buffett Rule," the bill, authored by Rhode Island Senator Sheldon Whitehouse and cosponsored by the most left-wing members of the Senate, aims to raise the taxes of American taxpayers who earn $1,000,000 or more in a year by forcing anyone who meets the income thresholds to pay a minimum percentage of their total income to the federal government.
The tally was 51 votes in favor, short of the required 60 votes, with 45 senators voting against this naked and divisive class warfare. It was a party-line vote other than Susan Collins (RINO-ME) who voted with the Democrats while Mark Pryor (D-AR) voted with the Republicans. (Neither is up for re-election in 2012.) Two Republicans, one Democrat, and Joe Lieberman did not vote, with Lieberman issuing a statement that he was against the Buffett Rule.
Specifically, the bill would create a 30-percent income tax rate which phases in beginning at one million dollars of income and is fully effective at $2 million of income.
Other than the "phase-in" the tax calculation is simple: If you make more than a million dollars, take your adjusted gross income, subtract charitable deductions, then multiply by 30 percent. From that amount, subtract the income tax, payroll tax, and Alternative Minimum Tax already due or paid, but add back your itemized deductions. (Taxes paid to foreign governments, income taxes withheld from your paycheck, and tax refunds for fuel used on farms and other non-road purposes are not added back to income for "Fair Share" calculations.) Then write a check for that amount to the United States Treasury.
For those Americans who are unfortunate enough to have great success in their businesses or investments, this bill effectively disallows deductions for mortgage interest, retirement account contributions, adoption expenses and other common itemized deductions except for donations to charity.
Between one and two million dollars of income, the additional tax is reduced based on how far along that scale you are, so that at $1.5 million, your "fair share" punishment is half of the amount calculated based on the above formula.
One revolutionary aspect -- in the sense that V.I. Lenin or Fidel Castro was a revolutionary -- of the "Fair Share Act" is that it does not add a marginal rate increase to those earning above the Democrats' demonization threshold. Instead, it retroactively increases the tax rate on the first dollar earned, while simultaneously increasing the amount of the victim's earnings that is subject to taxation.
It is a plan that is corrosive to our nation, pitting Americans against each other. It is a plan that will have negligible economic impact, raising less than 1 percent of the anticipated accumulated deficit over the next decade… and even that assumes away the anti-growth impacts of such an anti-entrepreneurial tax. The likely result is even worse than these estimates. And because so many Americans no longer know what has made our nation a success, it is a plan that, even as it fails legislatively, may work politically.
To the extent that very-high-income Americans have an effective tax rate that is lower than class warriors think it "should" be, it is primarily from the portion of their income that comes from capital gains (and to a lesser extent from dividends). History has shown us that raising capital gains taxes does not generate more tax revenue.
The vaunted Clinton budget surplus, for example, only arose in the second half of his presidency after he signed the 1997 law that cut the capital gains tax rate from 28 percent to 20 percent. According to a Heritage Foundation study, the Treasury Department estimated that the tax cut would cause a small net loss of revenue to the government, estimated at about $30 billion in the fourth year after implementation.
Instead, from 1996 to 1999, capital gains tax receipts increased by over 71 percent while GDP growth accelerated and unemployment dropped. To be sure, not all of the increased economic activity and stock price increase of the period was due to the capital gains tax cut. But some of it surely was, a contention boosted by the fact that capital gains tax receipts also jumped almost 25% in just two years following President Reagan's 1981 tax cuts.
But this isn't really about revenue for the Obama administration, and it never has been. When asked in 2008 about whether he would raise capital gains taxes even if it doesn't raise revenue, he said yes "for purposes of fairness."
Unfortunately for our republic, American citizens' economic literacy -- which should be the body politic's primary anti-venom against President Obama's snake oil -- is just where the liberals want it, which is to say non-existent. Progressives have spent a century stripping public education and the ivory towers of universities of economic rationality. Such rationality -- including the obvious lessons of an untaught history -- would reinforce the limited-government principles of our Founding which are directly antithetical to the Progressive vision. Economic and political restraint go hand in glove, as well understood by those who penned our national rulebook called the Constitution.
For those of you who went to public school and finished high school in the last 20 years, you know that the Constitution is a barely legible piece of paper, written by a bunch of dead rich white guys. You know that it means what a few people in black robes say it means (regardless of its plain language). And you probably don't know that the left sees it as "political witchcraft" and an obstacle to their long-held dreams of political nirvana in which the smart people (no conservatives or libertarians need apply) wield power over the rest of us -- for our own benefit, of course. In short, you know just what John Dewey (hero of Marxists) and his disciples wanted you to know -- and maybe less, but certainly not more.
By offering "everything for everyone for free" (a slogan I actually saw on a 20-foot wide banner during the 2008 Democratic National Convention in Denver), Democrats -- with the unforgiveable passivity of decades of Republicans -- are creating the political nightmare foreseen in a quote usually attributed to Alexander Tytler: "A democracy…can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits…with the result that a democracy always collapses…."
A Gallup poll released on Friday suggest that a majority of Americans favor the thinking behind "Buffett Rule," including nearly 63 percent of independent voters (with only 33 percent of independents opposing it.)
While Karl Marx smiles, Tytler nods grimly, thinking "I told you so."
Another Gallup poll asked people whether they thought their tax bills were too high, too low, or about right. At 47 percent, the "about right" response matched its high for the past decade, and at 46 percent, the "too high" contingent was on the low end of its range. This is, of course, following the Bush tax cuts and before the implementation of the massive Obamacare tax hikes we're soon to be hit with. For the left, if 47 percent think that tax rates are about right -- and especially if the "rich" think so, which the poll suggests -- they must be far too low.
If there is a true warning sign in this second poll, however, and a message likely to keep Democrats going all-in with the class warfare rhetoric, it is that the income group most likely to say that the tax code is "unfair" and that their own taxes are too high is the lowest income group, those earning less than $30,000 per year.
2012 marked the first time since Gallup began asking the question that those who pay the least in tax had the strongest opinion that the tax code is "unfair." It is safe to assume that the unfairness they refer to is not that they are not paying enough in tax, or that the current system is the most "progressive" in our nation's recent history (in terms of what income groups pay what percentage of income taxes), or that their votes are being bought with other people's money, or that perhaps they should also share some of the cost of our national defense.
Yes, those Americans who pay almost nothing in federal income taxes are the most likely to think that they should pay even less and that those who already shoulder nearly the entire burden should shoulder more.
According to the National Taxpayers Union, in 2009, those Americans who earned under $32,396 comprised the bottom 50 percent of taxpayers ranked by Adjusted Gross Income. As a group, that 50 percent of taxpayers paid 2.25 percent of all federal income taxes. Their share of taxes has been steadily dropping, going from 4 percent in 1999 to 3 percent in 2005 to 2.25 percent in 2009. In 2009, there were 59 million tax returns filed which either had zero federal tax liability or which resulted in a net tax refund. And this only includes those who file tax returns; millions of low-income Americans file no tax returns. I wonder how many of these people were counted in Gallup's survey.
The fact that these are the people who are most upset about their tax bills -- while the top 1 percent of American earners pay more federal income tax than the bottom 90 percent, and the top 0.1 percent pay more than the bottom 75 percent -- says all you need to know about how close we are to losing our country.
With the ongoing failure of their "Republican war on women" theme (thanks in part to Hilary Rosen and Bill Maher making clear what Democrats actually think of women), the Obama administration aims to win reelection by returning to the left's longest-running strategy: pitting Americans against each other with beggar-thy-neighbor class-based jealousy.
Politicians, including Democrats, of years past have understood the danger of raising taxes, and the benefits of cutting them. John F. Kennedy understood: "The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital from static to more dynamic situations, the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy."
Or, if you don't want JFK, how about this ultra-conservative quote: "Next year's tax bill should reduce personal as well as corporate income taxes, for those in the lower brackets, who are certain to spend their additional take-home pay, and for those in the middle and upper brackets, who can thereby be encouraged to undertake additional efforts and enabled to invest more capital… I am confident that the enactment of the right bill next year will in due course increase our gross national product by several times the amount of taxes actually cut."
Reagan? Goldwater? Thatcher? Coolidge? Romney?
Actually, that's JFK too.
Quoting John F. Kennedy's many pro-growth tax policy views should become part of Republican talking points each and every day, reminding independent voters just which party has really become "extreme" on the economic issues that trouble Americans each and every day.
The class warfare -- which JFK would disdain -- embodied by the "Fair Share Act" is transparent. It is reprehensible. It is un-American. And the bill itself failed in the Senate.
But politically, thanks to ignorant voters who know exactly what the left wants them to know, it just might work.
To read another article by Ross Kaminsky, click here.
Posted by Brett at 12:09 PM