Friday, June 29, 2007

Hilldawg and W-Buff pining away for higher taxes

Thanks to KG for passing this on. During the Shrillary fundraiser last night:
Just in time for the Fourth of July holiday, Sen. Hillary Clinton (D.-N.Y) equated higher taxes with patriotism during the third nationally-televised Democratic Presidential debate Thursday evening.

When asked if she believed Americans were paying enough taxes, Clinton praised billionaire U.S. investor Warren Buffett because, as she said, “He’s honest enough to say, look, tax me because I’m a patriotic American.”

She went on, “We have to change the tax system and we’ve got to get back to having those with the most contribute to this country.”

According to Her Highness' logic, Dick Cheney is more patriotic than she is, since he pays more in taxes. What an imbecile.

Billionaire Warren Buffet decided to chime in on some economic dishonesty:
Buffett said: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 percent.”

That gives the impression that his secretary, surely a middle-class mother of modest means trying to make ends meet, is not being handsomely the point where her tax rate is 30%! Quick show of hands here: who wouldn't like to be a receptionist for THAT kind of jack?

Obviously, Buffett is no idiot. He is, however, incredibly misleading, as noted by Harvard economics prof Greg Mankiw:
You might wonder how Mr Buffett managed such a low tax rate. Most likely, it arose because corporate dividends and capital gains are taxed at only 15 percent. But the corporate income that funded those returns was already taxed at the corporate level, where the tax rate is 35 percent. Mr Buffett seems to be ignoring the first round of taxation. Is it possible that the world's most successful has failed to pierce the corporate veil? (If you want to more reliable data on the progressivity of the tax code, see this old post for numbers from the CBO.)

Even more striking to me is a fact that Mr Buffett did not emphasize: how low his taxable income is. His income of $46 million represents a mere 0.1 percent of his reported net worth of over $50 billion. That is not an impressive rate of return!

Why is it so low? I can think of at least four possible ways investors like Mr Buffet can keep their taxable income, as opposed to their true income, low:

1. They hold stocks that pay minimal dividends.
2. They avoid realizing capital gains.
3. They hold some of their portfolios in tax-free municipal bonds.
4. They give appreciated assets to charity, getting a deduction for the current market value without ever having to realize and pay tax on the capital gain.

Notice that raising tax rates, as Mr Buffett seems to want to do, would not much affect any of these tax avoidance strategies. Even if tax rates were raised substantially, the tax savvy Mr Buffet probably wouldn't be paying much in taxes as a proportion of his wealth or as a proportion of his true income.

In other words, higher tax rates would have a minimal effect on Buffett, but a HUGE effect on others who don't earn their money the same way he does. How convenient!

Buffett still pays a gazillion bucks more in income tax than his secretary does, but he's misleading about the rate of taxation on income. Then again, the left usually does get Kerryesque about taxes and tax cuts. The tax rate was cut by a smaller percentage for rich folks than it was for everyone else, but the Dems still scream "Tax cuts for the rich" because the totals (not the rate) were higher. Example: a man paying $10,000/year in taxes gets a 50% cut, and thus pays $5,000/year in taxes; a rich man paying $1 million/year in taxes gets a 1% cut, and thus pays $990,000/year in taxes. The left bitches about the $10k cut the rich guy got when the poorer guy only got $5k...never mind that the poorer guy got a 49% bigger tax cut and the rich guy still paid damned near a cool million in taxes.

Yet all of a sudden, now they want to focus on rate when Warren Buffett wants to use his secretary in an example. Geez, guys, pick a talking point and stick to it!

Plus, if Buffett feels that he's not paying enough to Uncle Sam to grow the bloated imperial monster in DC, he is more than free to cut a check as big as he sees fit and feed the bureaucracy beast. But that would take the sport out of the class envy game, wouldn't it?

Concludes Her Highness:
"So, yes, we have to change the tax system. And we've got to get back to having those with the most contribute to this country."

Right...because they don't pay nearly enough in taxes, do they? Oh, wait... (click to enlarge)

Top 40% pays 3/4 of federal taxes. Shrillary et al say "That's not enough!"