Monday, September 19, 2011
The Big Four accounting firm Deloitte has produced a fairly accessible summary of President Obama's tax proposals, most of which involve substantial increases. Some of them are quite reasonable notwithstanding their populist appeal -- even I do not understand the rationale for depreciating private passenger jets over five years but commercial jets over seven -- and others are asinine and destructive (see, e.g., the proposals for limiting the value of deferrals for foreign corporate taxes paid). I have no idea what to make of the energy tax proposals, which I do not understand, except that they seem calculated to raise energy prices, which Barack Obama seems to think is a good thing.
Now for the rant part.
The personal income tax items are well-telegraphed and unsurprising, but for the bolted-on "Buffett rule" proposal, which seems "fair" and is therefore a potential trap for Republicans. I myself am sympathetic to the idea -- virtually all of my income is taxed as employment compensation, so I naturally find it irritating to be lumped in with the self-hating richies who derive most of their income from dividends, capital gains, or "carried interest." My federal and state marginal rate (including Medicare tax) is 42% even before the expiration of the "Bush tax cuts" and the already-locked Obama hikes, so I do not consider myself lightly taxed. My marginal rate will be 49% to 50% if Obama passes his proposals, and the effective rate will not be far behind. Of course, none of that includes property taxes, sales and consumption taxes, regulatory fees, and my fully-burdened share of corporation taxes. Yeah, yeah, cry me a river, I know. But I refuse to believe I am a churl because I do not join the pro-tax chorus.
Point is, even if Obama gets his "Buffett rule," my marginal and effective rates will be a lot higher than Warren's. Warren says that he his "friends" should pay more taxes, and the president then uses the point to propose a policy that ropes in highly paid employees, virtually none of whom are (still) Buffett's "friends." The president and the Sage of
Douchebaggery Omaha are disingenuously beating highly compensated (and therefore highly taxed) employees over the head with a straw man argument that the press does not understand, or chooses to elide. Either way, pardon me for resenting the intellectual dishonesty (and political ingenuity) of the "Buffett rule."
You're still missing half the picture. Wally Buffett does not pay capital gains: he never sells his stock, offers dividends nor splits it, which is why a share of Berkshire Hathaway costs $160,000.00+.
He probably makes some nominal sum as CEO or Chair of BH, but basically, I'd bet he pays taxes on hundreds of thousands, while making tens of millions each year.
tl;dr He's lying.
I just can't get too exercised at this latest craziness. If the President cannot get these proposals through a Senate dominated by his own party, and he can't, then he obviously proposed this for no reason other than reassuring progressives, by way of election preparation. None of this will ever be enacted unless the country gives Democrats a majority in both houses of Congress while also reelecting the President. Just the opposite is what is more likely.
Despite this, I appreciate the need to file these sorts of pro-forma objections, lest the progressive idiots who support Democrats confuse a lack of response from the intelligent people in society with an acquiescence to irrational thought being back in fashion.
The Buffet Rule is just more demagoguery. O&Co won't put out specific numbers for it, because if they did it'd be exposed as just another twist on the Alternative Minimum Tax, and one that wouldn't raise much revenue. That's because most income millionaires already pay a higher average tax rate than that paid by the mythical middle American family. When Buffet says his secretary pays a higher tax rate than he does, if true, it just shows what an oddball freak miser Buffett really is.
But it sure makes for a great campaign talking point, doesn't it? Some of the things that Obama proposes are hard not to agree with in principle (e.g, taxing some "carried interest" as ordinary income), but they'd raise little money. Obama wants to use Republican "no tax increase" absolutism as a distraction from his not dealing with the broader problems.
Obama isn't governing anymore -- he's just campaigning. His recent antics are undermining the slim hope that the Gang of 12 Supercommittee might do something useful. This isn't the first time that Obama has undercut efforts to address our fiscal problems. It's happened so often before that I'm led to conclude that it's deliberate. Am I wrong?
I forget what happens if the Supercommittee fails to agree. Whatever it is, expect it to happen. A Moody's downgrade?
The consistent pattern to Obama's calls for "balance" is that no one will bear any near-term pain except for those who Obama doesn't like.
The only thing saving us right now is that most of the rest of the World sucks even more than we do. But that's not a long-term answer.
I was driving through Omaha on a trip west a while back listening to the afternoon drivetime talk radio.
They were very critical of Buffet over a variety of topics, but it seemed that this "Sage of Omaha" has wandered off into areas he has no expertise in.
The local conservative talk radio was not very fond of Ol' Warren.
Raising the capital gains is going to be brutal for entrepreneurs like myself.
Yeah, I may not be that sympathetic to "carried interest" and private equity ... but I pay myself a way-below-market salary as CEO. It forces fiscal discipline on myself (living within very modest means). All the other cash flow gets reinvested in the company.
Why sacrifice and scrimp like this? For the lower tax rate if I eventually sell the company, which is a long-term capital gain. If you taxed LTC gains as ordinary income, you more than double the hurdle rate on my investing in growing the business.
I can't think of anything more detrimental and stupid to growing small businesses. I will no longer have as much of an incentive to save and invest vs. just pay myself a salary. I will become more short-term oriented, and less focused on building a great business.
Everyone who says that tax rates don't matter is full of bunkum. Including Buffett. They do. Raise mine a whole lot, and I'll pick the ease of a corporate job over the never-ending pain of trying to make payroll and deal with regulatory issues, employee lawsuits, and everything else on my nickel.
My NJ accountant says all his biggest clients (he serves low 8-figure to 7-figure revenue companies), including 3 of his 4 biggest, moved to Florida and were planning to sell their businesses in 2010. I am considering the same (I've already moved to Florida).
People not in the shoes of business creaters can opine all they want. My meaningful anecdotal data says those who actually are in those shoes think differently.
My attitude is a big "atlas shrug" to the media and liberals and class-warfare types. (actually, its something else, but I'll keep this post family friendly). I can't respect those who won't respect those who lay it all on the line, all their life savings, to make a company succeed only to be demagogued for living the American Dream.
Call me what you will ... but socialist class-warfare pigs don't make my day.
A cogent and persuasive broadside at the "Buffet Plan."