The rich, Obama insists, aren't paying their "fair share." This by itself seems odd given that the top 1% of Americans pay 40% of all federal income taxes;
the next 9% of income earners pay another 30%. So the top 10% pays 70% of the taxes; the bottom 50% pays close to nothing and in some cases receives a rebate on
taxes not paid. Does this indeed seem unfair--to the rich.
As we will defined Fairness in Chapter 3, it is about being fair to all. So what is fair share and what are the unintended consequences of raising tax rates?
Do we need tax reform? Yes. The flat tax is a concept that
seems good for all generations while promoting economic growth.
Even the sentiments in Obama's State of the Union Address (SOTU link)
cares the emotion of unfairness to an extent that ethics seem to be in
question here. Obama has raised the notion that Buffet's
secretary pays a higher tax rate. Is this true? The answer is not
likely, unless she makes a lot of money.
Today, top earners—the 250,000 people who earn $1 million or
more—pay 20% of all income taxes, and the 3% who earn more than $200,000
pay almost half. Almost half of all filers pay no income taxes at all.
Clearly they earn less and should pay less.
There's one small problem: The entire Buffett Rule premise is false,
as the table below 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% the
near highest percentage.
The basic assumption that taxing the rich more will significantly
reduce the deficit while not affecting the middle class or economic
growth is simple wrong. It seems to be more of a political
strategy than a fairness or financial one. The negative impact of
a Buffet tax could be quite worse.
Imagine a policy that is so unfair it is being sold on the notion of fairness. Imagine such an insane attempt to fuel class warfare that all lose. Imagine a diabolical plot to prove history
incorrect. Just imagine the proposal of the Buffet Rule by Obama.
It is all about punitive policies against the rich for the express
purpose of gaining more central power.
Don't we have a spending problem and not a tax
Chapter 7: Buffet Rule fair?
Laffer on Buffet Rule and we keep learning this lesson over and over
The recent news on the Buffet and Obama Rule is nothing more than the
class warfare described here. In
the news is that Obama pays a lower rate than his secretary, who
apparently makes a good deal of money. Along with the
supposed higher rate for Buffet's secretary this can only lead us to
several conclusions: the high paying secretaries do not give much
money to charity and that Obama and Buffet are good at reducing their
In addition, the case for the Buffet rule is eroding.
WSJ, the overall tax policy is becoming more clear. With
the modifications in the AMT, the original Buffet Tax, being reduced
the deficit will increase not decrease with this overall policy.
When President Obama announced the idea, he said it would help
"stabilize our debt and deficits over the next decade." Then came
the inconvenient revelation that the new 30% millionaire's tax would
raise only $46.7 billion over 10 years, and would leave about 99.5%
of the deficit intact in 2013. It was a far cry from "stabilizing
The Joint Tax Committee—the official scoring referee on tax
bills—calculates that the combination of AMT repeal for the middle
class and the Buffett tax would add $793.3 billion to the debt over
the next decade. As Mr. Obama has said, "This isn't politics, this
What would the Buffet Rule do to raise taxes?
Raising the rates as Buffet proposes would raise by several estimates up to $36
- 50B over a 10 year period, which would fund the deficit alone for 12 days.
This is not overall spending just the deficit spending. With the top 10%
covering a huge percentage of the total tax revenue from income taxes,
and the bottom 50% of tax filers paying close to zero, what is the
concept at work here? Is it fairness or an attempt to increase
government spending while reducing the income distribution?
Excerpts from the other links below:
One implication of the Buffett rule is that all millionaire
investment income would be taxed at the shareholder level at a minimum
rate of 30%, up from 15% today. The tax rate on investment income from
corporations would rise to 54.5% from 44.75%, a punitive tax on start-up
or expanding businesses.
The new 30% capital gains rate would be the developed world's third
highest behind only Denmark and Chile
A decade later Bill Clinton agreed to cut the rate back to 20% as
part of the balanced-budget deal with Newt Gingrich. Capital gains
revenues soared, helping to balance the federal budget.
Mr. Buffett stated in his op-ed that he paid $6,938,744 in total
income and payroll taxes in 2010, representing 17.4% of his taxable
income, which puts his taxable income just under $40 million. Although
certainly a fantastic sum, $40 million actually understates Mr.
Buffett's income in 2010 by more than 250-fold.
To define the tax rate being proposed under the Buffet rule: (this
The tax rate would increase a large amount.
A White House statement released in January 2012 defined the rule as
part of "measures to ensure everyone making over a million dollars a
year pays a minimum effective tax rate of at least 30%... implemented in
a way that is equitable, including not disadvantaging individuals who
make large charitable contributions."
A report by the Congressional Budget Office in 2007 is widely used as
a source of data for conservative arguments against the 'Buffet Rule.'
According a January 20, 2012 Wall Street Journal editorial, the CBO
report states that in 2007 "the average income tax rate paid by the top
1% was 18.8%, compared to 4.2% for Americans in a broadly defined middle
class from the 21st to 80th income percentiles." It goes on to quote the
report as saying, "
As for all federal taxes, CBO found that in 2007 the
top 1% paid an average rate of a little under 30%, compared to 15.1% for
The graph below shows the percent of the total taxes paid by various income groups.
The tax share graph at left indicates also how the share of taxes is
broken down for various fractiles.
Income Tax Share by Fractile
The top curve is the % share of the top 1%. The only other
positive slope curve (meaning that the percent share was increasing over
time) is the segment from 1 - 5%.
With the bottom curve
sloping downward the bottom 50% paid around 3% of the total taxes,
nearly half of the share paid in the late 60's.
Clearly when the %
share of taxes is a fraction of the income share for most of the income
distribution, it is very difficult to assume that the top 1% is not
caring their share.
However, more liberal commentators like NY Times columnist Paul
Krugman tend to cite the statistics on the top 400 income earners. In a
January 20, 2012 Op Ed he wrote, "Since 1992, the I.R.S. has been
releasing income and tax data for the 400 highest-income filers. In
2008, the most recent year available, these filers paid only 18.1
percent of their income in federal income taxes; in 2007, they paid only
If enacted, the rule change would result in $36.7 billion ($0.0367
trillion) per year in additional revenue, according to a January 2012
analysis by the Tax Foundation, a conservative think tank. An
alternative study released that same month by the Citizens for Tax
Justice, a progressive think tank which favors the change, stated that
the change would add $50 billion ($0.050 trillion) per year in
Income Tax Rate by Fractile
In comparison, the 2011 U.S. federal budget request by President
Obama had a requested $1,560 billion ($1.56 trillion) deficit.
Mathematically, $36.7 billion is 2.4 percent of that amount while $50
billion is 3.2 percent.
As one can see in the table above, the deficit is growing
while the receipts are not increasing. This would normally be
called a spending issue and not a revenue issue.
The taxes gathered as a result amount to close to 9 days of financing just the annual
deficit. So can we agree that the real issue is spending?
So perhaps it is not true that Buffet's secretary
pays a higher tax rate.
The tax rate at the high-end is still larger than in any other group. Since the income is also higher it should be no surprise that the tax
burden does fall on the rich.
They show that taxpayers earning an adjusted gross income between
$100,000 and $200,000 pay an average rate of twelve percent. This is
below Buffet’s rate; so she must earn more than that. Taxpayers earning
adjusted gross incomes of $200,000 to $500,000, pay an average tax rate
of nineteen percent. Therefore Buffet must pay Debbie Bosanke a salary
above two hundred thousand.
This would put her in the top one percent of all wage earners. Paul
Roderick Gregory writes: “I have nothing against Debbie Bosanke earning
a half million or even more. Buffet is a major player in the world
economy. His secretary deserves good compensation. At her income,
however, she is scarcely the symbol of injustice that Obama wishes her
the table at right shows the tax rate at for the different income
levels for 2008. The graph at left shows how the tax share paid by
the top 1% of income earners has risen, in generally in near
opposite fashion to the marginal tax rate. The tax rate
is higher and the taxes paid are much higher than the percent
This data has been presented by a wide number of presenters in a
wide number of media. Why is this question so difficult for
the general public to discuss. The proposed version of
taxes paid by this Administration is simple mistaken.
The Treasury Director happened to say that the rich should pay more
for the privilege of being an American. Clearly there is a
distinction between a right and a privilege. The confusion is
quite hard for any good student of this issue to either defend or
strong reactions to being mislead by Obama on this question.:
Here’s something from “The Smoking Gun” website: “Despite a heavy tax burden, Warren Buffett’s secretary last year
was able to purchase a second home in Arizona, a residence complete with
a swimming pool and a ‘professional PGA putting green,’ according to
real estate records.”
Poor thing. She’s destitute!
In a word, President Obama lied. He used Warren Buffett and his
secretary as props to support his continued class warfare rhetoric.
Please make it stop!
The question of not telling the truth further clouds the issue.
The core issue is what do the rich pay and how do we define what is fair.
The irony for rich is often that ducking is more productive than
fighting. It is good do not risk it.
On tax Rates: Income-tax rates for top earners will rise to 39.6 percent from 35
percent in 2013 and rates on capital gains and dividends also may rise,
unless Congress acts.
The survey didn’t ask what level of income or assets should trigger
higher taxes, according to Alan Aldinger, a PNC spokesman. About 41
percent of those surveyed said they would change their investment
strategy in response to an increase in taxes, and 24 percent said they
would reduce commitments to philanthropy.
Almost 70 percent said they plan to increase charitable giving or
give the same amount, and about 22 percent have cut back or plan to
donate less. About 27 percent of respondents, who were surveyed in
September and October, said they gave more than $25,000 to charity in
2010, up from 9 percent who reported donations of that size three years
Nevertheless do taxes still need to be raised?
The video details why this issue can best be framed as a spending
problem and not a tax problem.
Since the very rich pay a great deal of the total tax revenue,
there never seems to be a definitive statement about how much is too
much as far as taxes paid are concerned.
The deficit as is shown will not be covered by the Buffet Tax,
despite all of the rhetoric or posturing. The annual fed
revenue gain by the Buffet tax is in the range of mid-30 billions of
dollars to low 50's.
This does not even cover 2 weeks of the current annual deficit,
leaving 50 more weeks to be covered by today's children.
So the question of fairness rises again. Is the
notion of the Buffet tax fair to your kids or is a spending
reduction and a flat tax more fair to all generations?