The expected proposal by the President to tax annual income above a million dollars may be too cute by half. It clearly looks like a “populist” initiative and clever political maneuver. By setting the threshold at $1,000,000 it boxes out almost all the Republican allusions to small business entrepreneurs and hits a number associated with wealth in popular culture (“So You Want To Be A Millionaire”, etc).
But, it looks so much like an “in your face” political challenge to his opponents, that may have evaporated all that talk about “constructive compromise” that popped up after the disgraceful debt ceiling debate. Markets sold off after the debt debate on fears that if a real national crisis were to erupt, both parties would continue to posture in partisan acrimony as the situation worsened. We’ll see if the new tax proposal re-ignites those fears.
Secondly, the tax proposal is being dubbed the Buffett tax since Mr. Buffett has long proclaimed that it is unfair and embarrassing that he pays taxes at a lower rate than his secretary. That could be instantly remedied by Mr. Buffett (or one of his accountants) by listing his income as ordinary income on his 1040A. Then he would be taxed at a rate equal to, or, more likely, higher than his hard working assistant.
Third, the proposal flies in the face of the lessons of history. According to the Tax Foundation, after the 1929 crash, Congress proceeded to raise the top marginal tax rate from 25% to 63% by the end of Hoover’s term (hat tip to the sharpeyed Mike Higley’s “By the Numbers”). As you may recall, hiking those rates may have made folks feel that rates were more equitable but it sure didn’t help the economy. Just a few thoughts.
It is perhaps no surprise that I disagree with the commentator, but I’d like to focus on the following paragraph for great justice:
Secondly, the tax proposal is being dubbed the Buffett tax since Mr. Buffett has long proclaimed that it is unfair and embarrassing that he pays taxes at a lower rate than his secretary. That could be instantly remedied by Mr. Buffett (or one of his accountants) by listing his income as ordinary income on his 1040A. Then he would be taxed at a rate equal to, or, more likely, higher than his hard working assistant.
Emphasis added. I find this criticism of Buffet’s position to be extremely annoying because it’s intellectually dishonest to the point of being glib (no offense to Logicallypositve, for whom I would give my first born son and the right of Prima Nocta/Droit du Seigneur in event of marriage).
Commentators who criticize Buffet on this ground are completely missing the point (knowingly, I suspect) of why Buffet criticizes America’s tax system. He’s not arguing that it’s *personally* unfair for him to pay lower rates while his secretary pays more. He’s arguing that it’s unfair that people who are rich enough, as a class of taxpayers, to make their money largely through the vehicle of Capital Gains have the option of paying a substantially lower rate than people who make their money largely through labor hour wages. The system, as it is set up, rewards wealth over work. If Buffet changed his personal filing methods, it wouldn’t make the system any more fair because 99% of taxpayers in his income bracket would still opt to pay a lower rate than their secretaries. That defeats the purpose of why he criticizes the tax code.
If the tax code was amended so that people in Buffet’s tax bracket had to list their Capital Gains as ordinary income on their 1040A, Buffet would almost certainly support that reform. He would also support a reform that, say, taxed all Net Capital Gains above a reasonable threshold as ordinary income. But again, he’s not just talking about himself. He’s using himself as an example of a larger class of taxpayers, not simply making a personal observation about his tax situation.
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