Eat The Rich is the title of this post by Roger Simon. I guess the 15% capital gains on growth in the value of investments, which is only paid when and if the money is taken out, is just too much for decent people to stand. There's also a 15% tax rate for incentive stock options that make top execs rich. No payroll tax on any of it. Same situation for those those megabuck-earning hedge fund managers who take their compensation as investment income, rather than as managers who are providing a service, which is what they're really doing. So they all pay the long-term capital gains rate of 15%; no social security tax and no bracketed income taxes.
Some opponents of the Buffett Rule have made much of the 35% top marginal tax bracket when arguing that the rich are already being soaked. But taxpayers whose income reaches the 35% top marginal bracket have nothing to do with the Buffett Rule, unless they have such an extraordinary amount of tax deductions that they actually end up with a greatly reduced rate, down in one of the lower marginal brackets. The minimum tax under the Buffett rule would probably be somewhere around half of that 35% figure, and it would apply mostly to those who take their income as capital gains, those paying only the 15% rate or less with deductions--a rate lower than many Americans who earn considerably less money, a rate in the neighborhood proposed by conservative, flat tax advocates like Steve Forbes.
My SS payroll tax alone is 13.5 percent. Because I pay the employee side and the employer side, the employer side is not hidden from view for me. This tax doesn't apply to those who pay the capital gains rate because they don't have payroll tax on their gains. On top of that 13.5% payroll tax, I pay income tax, the tax that is calculated based on progressive marginal brackets, again a tax not paid by those who pay the flat, 15% capital gains rate.
Politifact offers a more detailed explanation than I've offered, but it boils down to the fact that Buffett is telling the truth, and the other side is creating smokescreens for a public that largely doesn't understand that many of the rich are not taxed the same way they are.
Now let's also consider that there are state, county and city sales taxes, as well as substantial federal surcharges and sales taxes on certain products such as gasoline. The lowest income wage earners almost always pay the highest percentage of their income in these sales taxes because, less rent, they must spend all or close to all the rest of their earnings on taxable items. High earners typically have earnings far above and beyond what they spend on personal consumption, so the percentage of their income going to sales taxes ends up being considerably lower.
But there is another very important category of money-making that is entirely ignored in these discussions: accumulating wealth that isn't taxed at all as grows. For example, Bill Gates built a fortune that has in recent years floated around 50 billion and was around 80 billion dollars at its peak. Gates actually paid a minuscule effective tax rate on this astronomical wealth accumulation. He paid tax on what he took out as capital gains, and on the money he took out as his CEO compensation. The latter, never rose above $1 million in a year; the former was greater, but still a minuscule part of the wealth he accumulated.
So all the talk about soaking the rich always seems to ignore the fact that great wealth is built and untaxed, often being taxed for the first time as inheritance tax. That's right, the so-called death tax on the rich is not, as some have purported, a double tax on the super-rich who've accumulated fortunes in the way Gates or Buffett has. The opponents of inheritance taxes ignore the fact that many of these fortunes are built without paying any tax at all until inheritance time. Buffett has also pointed this out, noting that his own fortune has, for the most part, never been taxed.
So if Roger Simon and the tax double-talkers think we're eating the rich, I want to be the main course at the next banquet.
Now I don't begrudge the wealthy their money. And I don't think accumulating wealth should be taxed unless or until it is taken out as capital gains or passed on to heirs. Taxing accumulating wealth would interfere with investment and business growth, which are engines of employment. And actually, I don't even care if the Buffett rule is instituted at this time. But, in the long run, taxes need to rise across the board, for all who pay taxes, and spending needs to be reduced. Right now, we're in desperate need of economic growth. When growth happens--when people are put back to work--we'll collect more taxes. Raising everyone's taxes and cutting spending at this time would be contractionary, and we cannot afford that at the moment. All of that said, this baloney about class warfare and eating the rich is based on ignorance and lies.
And as I mentioned in another post, I don't think this is really about class warfare on the wealthy. I don't believe that the wealthy generally feel that they're victims of the mob. The wealthy are serving as proxy victims for others who are the real mob, and the real victimizers in this story. I'm still planning to get to that subject in a future post.
Yesterday, I heard Mexican billionaire and richest man on the planet, Carlos Slim, discussing the Buffett Rule. He agreed with Buffett, but went much further, stating that he doesn't believe that there should be any difference at all between capital gains rates and bracketed tax rates, whatever the bracket rates happen to be. I don't know Slim's tax situation. I'm sure it's complicated as a Mexican citizen-resident with interests all over the world. But he was quite clear on this issue and thinks the opposition arguments are self-serving nonsense.
I do know that Slim doesn't have a residence outside of Mexico (he always stays in hotels when he travels), so if he's paying Mexican taxes, he's paying the Mexican bracket rates on what would be called capital gains in the U.S. In Mexico there is no capital gains tax. The same bracket system applies to all; no special discounts for the mega-wealthy.