Obama to unveil new "Millionaire Tax"

Next week will be yet another unveiling of another plan full of promises to shore up Americas ailing financial woes.  Obama is ratcheting up the populist rhetoric sharply by first presenting a false choice during his "jobs bill" by suggesting that either the wealthy get tax breaks or teachers get to work and now by going directly after the richest of the rich.  According to the New York Times who I am sure are devastated by this proposal: 

Mr. Obama, in a bit of political salesmanship, will call his proposal the “Buffett Rule,” in a reference to Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate than wages. 

Mr. Obama will not specify a rate or other details, and it is unclear how much revenue his plan would raise. But his idea of a millionaires’ minimum tax will be prominent in the broad plan for long-term deficit reduction that he will outline at the White House on Monday.

How cute.  Buffet rule.  Of course in typical Obama fashion none of the details are specified because that would require actual responsibility and a commitment, much easier to just stir the pot of an increasingly divided country and kick the entire boondoggle over to Congress where their approval rating is attempting to answer Ludacris's all important question.  

Buffet who has long been an inspiration to investors and businessmen has turned into quite a disgusting individual.   While nobody can take away from him the success that he has built with his own hands it is becoming quite apparent that crony capitalism is alive and well in America.   For starters, Buffet's desperate pleas to "raise my taxes" are nauseating, but they get downright vomit-inducing when we learn that Buffet's lawyers have accumulated over one billion dollars of back taxes by fighting the IRS since 2002!  From the NewsMax:

But it turns out that Buffett’s own company, Berkshire Hathaway, has had every opportunity to pay more taxes over the last decade. Instead, it’s been mired in a protracted legal battle with the Internal Revenue Service over a bill that one analyst estimates may total $1 billion.

The story of Berkshire's years-long tax battle, which is generally known in business circles, took on new life this week when a group called Americans for Limited Government (ALG) reported that, according to Berkshire Hathaway’s own annual report, the company is embroiled in an ongoing standoff over its tax bills

Isn't that special?  Except that it gets worse, because Buffet gets his income from the investments he makes and then sicks his army of lawyers to insure that the IRS does not get the bulk of what his company owes thus making his "effective rate" lower than his secretary's - a "fact" he has claimed for years.  But as the New York Post suggests there is more to his claim than meets the eye:

Fact is, unlike most other folks, Warren Buffett gets most of his income from dividends and capital gains, which are nominally taxed at 15 percent.

Left unsaid is that much of that is taxed at 35 percent (via the corporate income tax) before he even gets his hands on it. So in effect, he’s paying taxes twice (that is, when his companies actually pay, anyway).

It has been well understood that in his country the biggest taxpayers are the middle class, because the middle class cannot afford the lawyers and accountants that shield the wealthy and powerful from paying their taxes.  So while Buffet shrieks for higher taxes in the NYT with one hand he is dispatching an army of lawyers to avoid paying taxes with the other.  Since Buffet's friendship with Obama is well known, his op-ed in the New York Times appears to be nothing short of a propaganda move engineered by the White House,  what remains unclear as to who actually came up with the plan.

From a pure economic standpoint, this idea by Obama, just like most of his ideas simply does not make any sense.  For starters, if he really intends to go after millionaires and not "millionaires" then he is going after a very small pool of people.  WSJ reports:

In 2007, 390,000 tax filers reported adjusted gross income of $1 million or more and paid $309 billion in taxes. In 2009, there were only 237,000 such filers, a decline of 39%. Almost four of 10 millionaires vanished in two years, and the total taxes they paid in 2009 declined to $178 billion, a drop of 42%

Not only does that negate the "rich are getting richer" mantra, but as of now we are looking at a combined income of 178 billion.  If we raise their income taxes by an additional 10% or maybe even a prohibitive 20%, then we are looking at 17 to 34 Billion extra in revenue on a linear statistical projection.  That is, if we assume that they will not change their behavior one iota.  History suggests otherwise.

Most of these people are desperately trying to make *some* kind of money with their capital and in an era of zero percent interest rates courtesy of the Bernank, it has become virtually impossible.  So these evil rich people park their money into investments.  If Obama's plan becomes law (unlikely given the GOP House), then we can confidently expect money to promptly exit the markets which will damage a wide swath of the population who hold their money in their 401K Investment portfolios.   So while I do not subscribe to the talking points that "raising taxes, hurts jobs",  raising taxes on the rich does very little economically and can often have detrimental effects.   

Those that point out that Clinton raised taxes and the economy boomed are confusing causation and correlation.  In other words, had Clinton not raised taxes perhaps there would be more jobs, but more importantly the mechanism that drives job creation in America is first and foremost the monetary policy and not taxes.  A chart of interest rates set by the Federal Reserve and a chart of employment make far more sense than dubious claims about taxation/employment (See my piece about Reagan).

So it is entirely appropriate and not altogether amusing to find that Obama's class warfare plan will be called the Buffet Rule.  Nothing like naming one's flagship populist legislative propaganda after a corrupt and crony capitalist like Buffet.