Tax the Rich!

By Peter Galuszka

One the recurring themes of James A. Bacon, the Bacon-In-Chief, and his Baconauts, is that while the vast, unwashed masses of Americans must endure cutbacks in their lifestyles and spending to prevent “Boomergeddon,” the rich are strangely left out of the equation.

Keep in mind that in the past 30 years, the percentage of the super rich has risen dramatically, while the middle class, the backbone of America, has stagnated. So, as we face years of spending cuts and pressures, for better or worse, to rein in taxes, it is interesting what one of the richest man in the world has to say.

Writing in this morning’s New York Times, Warren Buffett, sage of Omaha and investment king, writes that the tax breaks for the super-rich have gotten way out of control. “While poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks,” he writes.

A few examples:

  • The billionaire last year had a tax bill of $6,938,744. As big as that may seem, it was only 17.4 percent of Buffett’s taxable income and significantly below what ordinary Americans pay percentagewise.
  • The rich are allowed to classify some of their income as “carried interest” taxable at a 15 percent rate.
  • If the rich trade stock futures for all of 15 minutes, some 60 percent of their gain can be taxed at the 15 percent rate.
  • Go back to 1976. Capital gains rates were 39.9 percent. Yet, in 1992,  the highest-earning individuals — and that must include income from investments — paid only 29.2 percent to the feds. By 2008, that rate had slipped to 21.5 percent.

Buffett’s not alone in pointing out the inequities with the Daddy Warbucks. Writing today in The Washington Post, economist Robert Samuelson notes that with capital gains at a paltry 15 percent, they represent the lowest tax rates of all. What’s more, two thirds of capital gains go to the wealthiest one percent of the population.

Now if you read this blog, you get a Fox News Warp of reality. The Baconauts and Boomergeddons out there will insist that even thinking about raising the tax rates for the ultra-rich is “redistribution of wealth” more suitable for mangy, flea-bitten Bolsheviks. They argue that the richest earned their wealth, a point that is Looney Tunes since the vast majority got it by being lucky enough to have been born into the right family. I am constantly amazed at the lengths these people go in apologizing for the rich since they, themselves, are not all that rich.

Anyway, when the Congressional Gang of 15 gets around to reviewing budget and debt cutting strategies, let’s hope they take a gander at the super rich. That’s what Warren Buffett would have them do, and he’s not often wrong.

19 Responses to Tax the Rich!

  1. Peter:

    Welcome back from vacation. I see you return well rested and calm.

    Perhaps you could help a “quant” such as myself with a quick definition of the “super-rich”. This will be particularly instructive to me as I consider how the vast majority of these people became super-rich by being lucky enough to be born into the right families. I suspect, at some definition of “super-rich”, that may be true. The Kennedys come immediately to mind.

    Let me help you with a definition of the capital gains tax. While it is 15% at the federal level, capital gains are taxed as ordinary income in Virginia. This means that a Virginia resident pays 20.75% assuming they are in Virginia’s top tax bracket, 15% federal and 5.75% state income tax. Perhaps that’s still not high enough for you. However, it is considerably higher than you describe.

    You also seem to be convinced that the shrinking American middle class is caused by tax breaks for the “super-rich”. At least that seems to be the thread which runs through your writing. I am not so sure. Automation has decimated industries which once were either good middle class positions or, at least, stepping stones to a middle class life. From robots in factories to internet-based travel reservations to voice recognition software used in lieu of unionized telephone operators. Reservation kiosks at airports instead of unionized airline personnel, the cockpit without a navigator, ATMs instead of bank tellers. The list goes on. Even the post office is seeing the bottom fall out of its 200+ year old business model.

    If you want to solve the issue of a shrinking middle class, you need to address the new world where software does many of the tasks which once were performed by people “on the way up the economic ladder”.

    Off-shoring is another practice which seems to get too little play on this blog. While you do write about it from time to time you rarely say much about how to address this middle class job killer. Unfortunately, off-shoring is more than a middle class job killer. It’s also starting to kill the jobs for the very rich people you hope to tax. Sending X-Rays of American patients to India to be examined by an Indian radiologist is but one example. There are only so many hedge fund managers in America. Even if you take all their money in taxes you will be far, far short of the deficit which off-shoring is creating.

    Finally, illegal immigration increases the supply of low skill labor in the United States. When supply increases faster than demand, prices fall. Americans with limited educations used to be able to get a start working in restaurants and holding jobs in construction. Working my way through college I used to earn three times the prevailing minimum wage as a waiter and twice the minimum as a construction worker. The jobs were available – even during the economic blight that was the Carter Administration. Not so much any more.

    I’ll take all this talk of taxing the super-rich seriously when I hear a full program of reform. I haven’t even touched on government incompetence and the utter failure of the American education system despite endlessly escalating costs.

    Until then, I consider it more liberal pap designed to divert attention from the latest failure of liberalism in America – Barack Obama.

  2. Peter, like so many liberals, seem to think that the surest way to close the wealth gap is to tax the wealthy. The trick is how. If you’re all upset about Warren Buffett getting taxed at the lower capital gains rate, the liberal’s answer would is to raise the tax on capital gains. The problem is that paying capital gains is highly discretionary. The higher you jack the rate, the greater the incentive for millionaires and billionaires to restructure their assets and compensation so as not to trigger the tax. The end result: (1) less tax revenue, and (2) capital allocated to less productive endeavors.

    I am not especially envious of the rich. In fact, I admire and appreciate rich people who have made their money by creating products and services that benefit the rest of society. They create jobs for people like me. I don’t especially admire trust fund babies, but I don’t envy them either. They do me no harm. I save my resentment for those who acquire their riches through rent seeking, harnessing the coercive power of government to gain subsidies, block competition, win tax breaks, receive preferential access to capital, and the like, with the consequence that (a) economic growth and opportunity slows, and (b) schlubs like me have to pick up more of the tax burden .

    My solution is not to raise rates, the knee-jerk instinct of people like Peter, but to level the playing field and broaden the tax base. Eliminate all the special exemptions, deductions, credits and other special favors in the tax code and then *lower* the top tax rate. The most effective way to treat Warren Buffett’s secretary fairly from a tax perspective is to lower her income tax bracket, not raise Buffett’s.

  3. While I am not a fan of Pat Buchanan, he did ask the right question. “Pat Buchanan Challenges Warren Buffett: ‘Set an Example and Send a Check for $5 Billion to the Federal Government’” http://newsbusters.org/blogs/noel-sheppard/2011/08/15/pat-buchanan-challenges-warren-buffett-set-example-and-send-check-5-b#ixzz1V6SASwqF
    This reminds me of an election many years ago when I lived in Iowa. Roxanne Conlin was the Democrats’ gubernatorial candidate and ran on a — guess what? — Iowa needs a income tax increase platform. She lost to Terry Branstad. But before election day, the media reported that Candidate Conlin and her spouse had not paid Iowa income tax (lawfully). When confronted, she said this was a terrible situation and Iowa needed laws to protect the citizens from this behavior.
    I suspect Buffet has figured out it is easier to take over companies when taxes are higher than when they are lower. Buffet is a very smart man, but he is acting quite hypocritical once again. Warren, take out your checkbook and help Obama.

  4. And how much did the Horse’s Ass of Omaha send in last year, or in any other one? Anyone? Bueller? Bueller? Surely, Buffett doesn’s favor us with that information in his article.

    And by the way, what does giving your wealth to charity do? AVOIDS THE INHERITANCE TAX!!!!

    Fact is, so far as we know, Buffett pays only what he’s FORCED to pay, and will do his level best to keep his accumulated wealth out of the hands of the Federal government when he croaks off.

    Money talks. Bullsh** walks.

  5. Jimmy Young,
    Using words such as “a–” straightaway shows a certain vulgarity on your part. Why not stick to your arguments?
    Peter Galuszka

  6. “I save my resentment for those who acquire their riches through rent seeking, harnessing the coercive power of government to gain subsidies, block competition, win tax breaks, receive preferential access to capital, and the like, with the consequence that (a) economic growth and opportunity slows, and (b) schlubs like me have to pick up more of the tax burden . ”

    Oh yeah, you mean all of these people;

    http://tinyurl.com/3p9doel

  7. I’m opposed to the rich vs poor middle class narrative but we took on two wars and have refused to pay for them and that’s irresponsible whether you are a liberal or a conservative and now .. instead of paying for them – like a class of kindergartners we are blaming each other for who pooped on the bathroom toilet seat.

    disgusting you say? Yes, I say.

    instead of paying the debt we owe.. we argue about who should.

    I have this theory about people. You can quickly determine what kind of person they are if you get a dinner together and then agree to all chip in their share.

    I have to tell you folks that in all my years of observing this – that’s it’s not the liberals in the group that short their share…

    I admit that this is not a valid scientific study but I know people and conservatives are tight sons of beaches… and will not pay their fair share unless you shame them into it ..and then they hate you.

  8. Here is my theory to explain part of the problem with a concentration of wealth. Government, which is necessary, of course, is an overhead cost to the nation. The legal incidence of that cost falls on the taxpayers as per any tax laws, but the economic incidence of that cost tends to fall on the less-educated, those without today’s skills, and, more recently, those whose job can be done overseas or by illegal immigrants.
    The cost of government really started to get out-of-control when Richard Nixon fell from power. In reaction to Tricky Dick, Congress became very liberal and started a spending spree at all levels of government. It has culminated with Obama, who has proven W to be a piker.
    Add in globalization, the Internet, massive improvements in technology, and we have a greater ability for those people who are in the right place at the right time, doing the right thing to make lots and lots of money, even as others begin making less. These “stars” are able to pass along the economic incidence of big government to those who are not stars.
    This situation was made worse by Bill Clinton’s 1993 tax increase. As an effort to showboat for the liberals, the tax code prohibit the deductibility of compensation to $1 M unless performance standards were met. Meeting those standards create executive compensation that has been outrageously high.
    This most recent recession has moved the vast majority of residents far from the top. Now only fewer and fewer people can pass along the economic incidence of the costs of government. And we have liberals who want to make it worse.
    So who is to blame — Tricky Dick for being a crook who enabled government to grow; technology; some conservatives’ desire to pay little or nothing as wages; some liberals’ desire to import a huge new class of impoverished people to keep Democrats in power; people who live in the D.C. area and truly believe they are better than those living in fly-over land; Bill Clinton for grandstanding on taxes; W for too damn much spending; and Obama for taking too damn much spending to infinity and beyond!

  9. Well, Clinton did pass on a “sort-of” surplus and a 5 trillion debt and there is little argument that 8 years later we had a 10 trillion debt and a 1.5 trillion structural deficit even before Obama did anything.

    Certainly Obama can be called to task for his part in this but he got an economy that not even economists agreed on how to proceed.

    he made a choice. it was not enough to get a recovery..

    but now.. we don’t want to pay the debt.

    we want to argue about who caused it and the feeling seems to be that if the folks we support did not cause it in our view – that we should not have to pay it.

    I find this really curious. Even if it were true that one side caused it .. it still doesn’t change the fact that we have it and it has to be dealt with.

    They say Washington is broken. That might be.

    But the country is broken also because when we can’t agree to pay the debt and instead want to continue the blame game then what else would we expect the Washington Pols to do other than reflect the views of the country.

    I mean … we have people that say that they don’t want to pay the debt because Obama caused PART of it…

    I mean.. REALLY?

    We have folks who say we need to cut – but they won’t say what.

    REALLY?

    or WORSE – we got folks that say we need to cut – but they want to cut the things that don’t have much at all to do with the current spending… and deficit.

    yes.. Washington is broke – but so are we.

  10. Groveton:

    How about a stat that show the total of all taxes actually paid divided by the growth in total wealth?

    Anybody want to bet that figure gets smaller as yougo up the income deciles?

    The wealthy get more net gain per tax dollar paid, more opportunity benefit for the tax bite paid. Whether they earned the money or inherited it is irrelavant.

    They are getting a better deal for each tax dollar paid, in terms of net results. That is one reason the income gap keeps growing: they have managed to negotiate a built in advantage. The first million is hard work, the second is inevitable.

  11. What is broken is Afghanistan, not Washington.

    We should have just bought the place, turned it into a county in Texas, and given them the religious government they want.

  12. Conservatives believe that corporations contribute to the public good through organization, planning, and economy of scale.

    They don’t believe that logic applies to unions or the government.

    Liberals believe that corporations contribute to the public good through organization, planning, and economy of scale. It is only that they are liberal enough to apply the reasoning universally.

  13. Obama does not make the economy, we do.

    Want to improve the economy? Go make or grow something and sell it. then take the money and go buy something.

  14. Every era has its rich people. Here is what our era has produced.

    http://www.washingtonpost.com/local/dc-enclaves-reap-rewards-of-contracting-boom-as-federal-dollars-fuel-wealth/2011/06/27/gIQAWQC5HJ_story.html?hpid=z2

    Government defense contractors.

    Maybe not what the right wing would have as its poster children for the job-creating private sector.

  15. “…five of the top 10 jurisdictions in America — Loudoun, Howard and Fairfax counties, and Falls Church and Fairfax City — are here, census data shows.”

    What? Not Fauquier and Spotsy?

    This is rich: conservatives claim gevernment employees are incompetent, and then complain about government contractors.

  16. Richard:

    I live in Great Falls and the company I run has done no work with the federal government. None.

    In the last 6 weeks my small software company has hired five people in Northern Virginia. None of them has ever worked for the federal government or for federal contractors.

    The Washington Post is an absurd newspaper full of absurd stories.

  17. ” I live in Great Falls and the company I run has done no work with the federal government. None.”

    how about work for contractors and companies that contractors buy from?

    Do you know how many licenses for MS Office or Oracle have been bought in the NoVa region by companies that are contractors or companies that contractors themselves sub-contract to?

    How many Toshiba and Dell laptops have been bought by companies directly providing services to the govt or by companies providing sub-contracting services to govt contractors?

  18. “how about work for contractors and companies that contractors buy from?”.

    Sorry to burst your bubble but none of my company’s customers are located in the Washington area. None are defense contractors. Why don’t you try reading the article:

    “Much of this inequity is driven by the fact that the region’s workforce is the best educated in the country, economists say. Many of the jobs both in and out of government require advanced or specialized degrees, which generally fetch hefty salaries.”.

    My company has operations in Washington because there are talented, well educated people in Washington.

    “Do you know how many licenses for MS Office or Oracle have been bought in the NoVa region by companies that are contractors or companies that contractors themselves sub-contract to?”.

    Microsoft and Oracle are more competitors than customers. However, the absurdity of your argument transcends its lack of factual base.

    Let me see if I get this right … any company which sells anything to any company which supports the federal government in any way is, in effect, a federal contractor. Needless to say, this would make all companies in all cities federal contractors. McDonald’s, for example, no doubt sell hamburgers to the children of employees of Lockheed Martin who can only pay for those hamburgers based on defense contracts which pay the salary of their mother.

    Hence, McDonald’s is a defense contractor. Maybe Bob McDonnell can convince McDonald’s to move their headquarters to NoVa.

    LarryG – have you ever applied to the state government for a position as Virginia’s jobs czar?

    Let me make a logical extension of your argument. Anybody drawing Social Security benefits today is taking those benefits at a rate which is unsustainable for Americans who are about age 40 and younger. Therefore, the excess money taken by today’s Social Security recipients is, in fact, a form of welfare. This makes all current Social Security beneficiaries welfare recipients.

    Now, Bacons Rebellion has people receiving Social Security benefits as readers and comment-ers. So, Bacons Rebellion is like Acorn, an entity supported by welfare.

    It must be interesting being you.

  19. ” Let me see if I get this right … any company which sells anything to any company which supports the federal government in any way is, in effect, a federal contractor. ”

    no.. they’re not defense contractors but there would be far less businesses if there were less Federal contractors.

    the economy and jobs in the economy of NoVa is driven by money the Federal govt spends in NoVa on ‘talented” help.

    Your own business benefits from the govt providing jobs that attracts well educated to those jobs.

    NoVa is not a tech area like Redmond, Washington or Mountain View, California are. Those areas are associated with the private economy whereas NoVa is a govt-centric economy.

    Without govt spending.. NoVa might be more like Roanoke or Richmond.

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