Tag Archives: Warren Buffett

Fiscal Cliff Notes: The Truth About Taxes

5 Dec
Warren Buffett: A Sensible BIllionaire

Warren Buffett: A Sensible BIllionaire

Almost as soon as the 2012 Presidential election was called for Barack Obama, the media and collective punditry turned their attention to another issue, the so-called “Fiscal Cliff.” (Sounds scary, doesn’t it? Picture Harry Reid and John Boehner driving a convertible armored car, Thelma and Louise style….) It’s important to dial back the drama and look at what’s really going on with the Federal budget. The current situation is called a cliff because of the steep reductions in the deficit that will be triggered if no other action is taken before December 31. Am I the only experiencing déjà vu here caused by obstructionist Republicans? Many automatic spending cuts will begin; various safety net and stimulus funds will diminish or end (such as unemployment benefits); tax rates for all Americans will go up.

Taxation is the issue which will matter the soonest and has become the sticking point in the current debate. The other issues ease in over the year with plenty of time for Congress to (re)consider them. Tax rates will go up on January paychecks.

President Obama campaigned — and WON — on a promise to keep taxes low for poor and middle class Americans and to restore slightly higher rates for the wealthiest 2% (albeit we still do not address those living in poverty the way we should, but I shall save that for another soap box opportunity). Under his plan, nearly $1 TRILLION in additional revenue would be realized by increasing the top rate by about 4% and the dividends rate by 5%. This will happen automatically when the Bush tax cuts end at the close of the year. Unfortunately, so will tax cuts for the other 98%, resulting in a relatively more painful income reduction for most families.

Sadly, because of the way the tax code is structured, the overall impact of the change is much worse the less you make. The New York Times has some wonderfully detailed charts that explain how this happens. It boils down to three things:

  • In general, higher earners rely less on wages and more on investments which are taxed at a lower level, so raising income taxes hits lower earners harder.
  • Payroll taxes are capped at about $100,000 of income, so earning more than that does not result in higher levels of these taxes, making the overall rate lower.
  • Corporate taxes, which are disproportionately borne by higher bracket payers (and then passed along to their customers…) are also historically low and are not even on the bargaining table.tax-rates

Teapublicans and Weeper In Chief Boehner whine that taxes are too high as it is and that raising them will hurt small businesses and job creation. The facts — and a little history — call them liars. Independent analysts note that less than 8% of small businesses would pay the higher tax rates. Even more significantly, a majority of small business owners in a recent poll expressed little concern over the tax rates. They are much more worried about changes in Medicare, which is a central element in the Republican plan.

The Times site mentioned above shows that taxes are lower than they’ve been in 30 years. In fact, as this handy chart demonstrates, Republican president Eisenhower left office with tax rates significantly higher and a booming economy. Tax reform is important, but it should heed the advice of Warren Buffett: a millionaire should pay a higher rate than should his or her (mostly his, by the way) employees.

Boehner can complain all he likes, but if he does nothing, everyone’s taxes will go up. The Senate passed a fair bill months ago that is languishing in the House. Minority Leader Nancy Pelosi, demonstrating true leadership again, is working on an administrative process to force it to a vote so that 98% of American’s can get the fairness they deserve. President Obama has made it clear that he’ll support the bill. Will the lame duck House allow petulance to trump action? It remains to be seen. One thing they should note: the majority of Americans will hold the GOP accountable if we start heading over the cliff.

Buffett Rule or Reagan Rule: U.S. Senate refuses to even vote on tax fairness…

17 Apr

You mean I got one right?

Today is the day that most Americans are required to file their taxes. (Not Mitt Romney, of course, who has filed for an extension…) Thanks to President Obama and a strong push from fair-minded progressives, this requirement has sparked a lot of conversation about tax fairness and tax rates. Billionaire Warren Buffett also helped lead the charge, making a recommendation which has come to bear his name: The Buffett Rule. This would require that anyone making more that $1Million in a year would be required to pay a minimum tax rate of 30%. This proposal is wildly popular, polling at over 70% approval, including support from many of the people who would be required to pay the higher rate. Senate leader Harry Reid brought forward the Buffett Rule for a vote yesterday. It was denied cloture along mostly party lines missing the 60 votes required to move to a vote on the matter itself.

Why is the Buffett rule necessary? Sadly, the complex tax laws make it easier for people with large incomes to shelter money, engage in deductions, and take advantage of loopholes. A typical one- or two-income family making $60,000 or less per year simply doesn’t have the fiscal diversity to make the most aggressive use of the tax code. As President Obama noted this weekend, his secretary, whose income is less that 12% of the Obamas’ income for 2011, pays a higher tax rate because of the way the code works. This is wrong.

Why else is it necessary? It is, as the wonderful Elizabeth Warren reminds up, part of the social contract. Making vast sums of money requires the support (willing, intentional, or otherwise) of the whole of society. Paying that back is a reasonable request. It is also true that income inequity forces a larger tax burden on households headed by women and people of color. Of course the loudest voices in the Republican party disagree. The Ryan budget does nothing to address this inequity. Candidate Romney, who refuses to share more than one year’s worth of his tax papers with the country he wants to lead, is also a vocal opponent. Anti-tax goblin Grover Norquist, of whom many Republican legislators live in fear, is adamant in his opposition.

Ironically, as the President has pointed out, this isn’t a new plan:

I’m not the first President to call for this idea that everybody has got to do their fair share. Some years ago, one of my predecessors traveled across the country pushing for the same concept… So this President gave another speech where he said it was “crazy” — that’s a quote — that certain tax loopholes make it possible for multimillionaires to pay nothing, while a bus driver was paying 10 percent of his salary. That wild-eyed, socialist, tax-hiking class warrior was Ronald Reagan.

But of course 21st Century Republicans in Congress can’t be bothered with inconvenient things like history, or facts…

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