Posted 12:58 am Thursday, February 02, 2012
Soaking The Rich Never Really Works
What better day than Groundhog Day to revisit the “soak the rich” plans that come up every election year?
This year, of course, it’s called the “Buffett Rule,” after gazillionaire Warren Buffett, who claims to pay a lower tax rate than his secretary does.
The Obama administration would like to enact the Buffett Rule into law; in his State of the Union speech, President Barack Obama proposed a new minimum 30 percent tax on incomes over $1 million.
It sounds good — at least to those of us who aren’t millionaires. And it allows administrations to make grandiose promises, in effect to write checks on an illusory new bank account.
Why illusory? Because even the rule’s supporters admit it won’t do much at all to effect the nation’s bottom line.
“The Congressional Research Service estimates that the Buffett Rule, requiring millionaires to pay at least the same rate as most middle-income taxpayers, would affect about a quarter of all millionaires, or 94,500 taxpayers,” the New York Times wrote in an editorial endorsing the idea. “Citizens for Tax Justice, a liberal policy group, says the bill’s 30 percent rate would bring in about $50 billion a year.”
This year, of course, it’s called the “Buffett Rule,” after gazillionaire Warren Buffett, who claims to pay a lower tax rate than his secretary does.
The Obama administration would like to enact the Buffett Rule into law; in his State of the Union speech, President Barack Obama proposed a new minimum 30 percent tax on incomes over $1 million.
It sounds good — at least to those of us who aren’t millionaires. And it allows administrations to make grandiose promises, in effect to write checks on an illusory new bank account.
Why illusory? Because even the rule’s supporters admit it won’t do much at all to effect the nation’s bottom line.
“The Congressional Research Service estimates that the Buffett Rule, requiring millionaires to pay at least the same rate as most middle-income taxpayers, would affect about a quarter of all millionaires, or 94,500 taxpayers,” the New York Times wrote in an editorial endorsing the idea. “Citizens for Tax Justice, a liberal policy group, says the bill’s 30 percent rate would bring in about $50 billion a year.”
Think about that; $50 billion per year. Other estimates put it closer to $35 billion. The nation’s yearly budget is (for now, at least) $1.3 trillion. With a “t.”
Economist Arthur Laffer says history has demonstrated how well “soak the rich” schemes work.
Buffett himself points out that that the 1980s and ‘90s were times when more than 40 million jobs were created and the economy grew tremendously.
“But the facts reveal that the 1980s and ‘90s should be used as Exhibit A for why Mr. Buffett’s proposals are dead wrong,” Laffer wrote for the Wall Street Journal. “Between 1980 and 2000, the top marginal income tax rate was slashed to 39.6 percent from 70 percent, and between 1977 and 1997 the capital gains tax rate was cut to 20 percent from 39.9 percent.”
That’s where the growth came from; people had more of their own money to invest and spend.
Another point Laffer likes to make is that millionaires, in general, aren’t stupid. They’re at least smart enough to hire clever accountants. Millionaires and their money are inherently mobile. It can be from state to state; it can be from country to country.
Last year, Oregon hiked the state income tax on the richest 2 percent of its residents, in a typical “soak the rich” scheme to plug a budget hole, but it soon found that its revenue estimates were off by more than a third. Where did that money go? Away. Some of it went out of state, with its owners, some of it went offshore.
You see, without real tax reform, loopholes will still exist that will allow millionaires to dodge much of the taxation Obama intends.
That certainly includes Buffett himself. That’s because the rule (soon to be presented in the Senate as a bill) won’t do away with charitable deductions (where Buffett sends about half his income).
Writing in “Forbes,” CPA Robert A. Green says, “If the president wants billionaires like Mr. Buffett to pay more taxes, he should ask his friend to give the government more money, rather than fork over half his net worth to charity. President Obama needs to close the tax loophole for the double-dip charity tax break.”
There’s no doubt at all that real tax reform is needed. Real reform — not this annual reappearance of a bewildered economic failure.
Economist Arthur Laffer says history has demonstrated how well “soak the rich” schemes work.
Buffett himself points out that that the 1980s and ‘90s were times when more than 40 million jobs were created and the economy grew tremendously.
“But the facts reveal that the 1980s and ‘90s should be used as Exhibit A for why Mr. Buffett’s proposals are dead wrong,” Laffer wrote for the Wall Street Journal. “Between 1980 and 2000, the top marginal income tax rate was slashed to 39.6 percent from 70 percent, and between 1977 and 1997 the capital gains tax rate was cut to 20 percent from 39.9 percent.”
That’s where the growth came from; people had more of their own money to invest and spend.
Another point Laffer likes to make is that millionaires, in general, aren’t stupid. They’re at least smart enough to hire clever accountants. Millionaires and their money are inherently mobile. It can be from state to state; it can be from country to country.
Last year, Oregon hiked the state income tax on the richest 2 percent of its residents, in a typical “soak the rich” scheme to plug a budget hole, but it soon found that its revenue estimates were off by more than a third. Where did that money go? Away. Some of it went out of state, with its owners, some of it went offshore.
You see, without real tax reform, loopholes will still exist that will allow millionaires to dodge much of the taxation Obama intends.
That certainly includes Buffett himself. That’s because the rule (soon to be presented in the Senate as a bill) won’t do away with charitable deductions (where Buffett sends about half his income).
Writing in “Forbes,” CPA Robert A. Green says, “If the president wants billionaires like Mr. Buffett to pay more taxes, he should ask his friend to give the government more money, rather than fork over half his net worth to charity. President Obama needs to close the tax loophole for the double-dip charity tax break.”
There’s no doubt at all that real tax reform is needed. Real reform — not this annual reappearance of a bewildered economic failure.
