Dissecting The Buffett Rule Farce

courtesy of New York Magazine

Warren Buffett, Liar

Since the advent of the Occupy Wall Street movement and its related actions, a longstanding rhetorical distractor of class warfare has resurfaced in the taxation debate. The goal of those on the left who sympathize with Occupy is to achieve what they call economic fairness by dividing Americans into two distinct groups—the “99 percent” and the “1 percent”—and legislating their version of social justice through the Internal Revenue Service via these monikers.

As such, they rally around the issue of how billionaire investor Warren Buffett is taxed compared to his secretary. They claim that the federal tax code is so infiltrated by the influences of the affluent that Buffett’s secretary Debbie Bosanek pays more than Buffett does, and they demand that Congress take action to resolve the discrepancy.

This suggestion is patently false. Not only that, but Buffett is using his clout in the political world to manipulate the debate to his own ends. We can avoid the class warfare and taxation debates altogether by revamping the entire tax code by making it simpler and fairer for all, not just for the “99 percent” or the “1 percent.” Those involved in the Occupy movement and on the left need to come to terms with several logical, economic, and sociopolitical facts if they wish to encourage individual freedom, prosperity, and justice.

The premise upon which the left and Occupy sympathizers base their argument upon is very misleading. Warren Buffett penned an op-ed in the New York Times titled “Stop Coddling The Super-Rich” on August 14, 2011 where he claims that he is paying far more in federal income taxes than his employees who make far less than him. He writes:

“Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent. If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.”

This is how the argument is formed—it seems on face value that Buffet’s employees in his office pay more in federal income taxes than he does, so it is hard to deny without the facts readily available.

If they were to claim that Buffett’s employees pay a higher federal income tax rate than Buffet does, they would be partially correct. What Buffett won’t tell you is his adjusted gross income from 2010 was $62,855,038, and his taxable income $39,814,874. This is how Buffett can say that he paid only 17.4 percent in federal taxes and point the finger. Buffett pays a myriad of taxes, which include income, corporate, capital gains, payroll, and local taxes. All of these taxes have different rates depending on the income level. For him to separate his federal income tax payment from the rest of the taxes he paid is disingenuous and hypocritical because it is comparing apples and oranges. While there is no way to know exactly what his total effective tax rate was in 2011, it is surely not 17.4 percent.

This is forgoing the fact that Buffett’s secretary Debbie Bosanek probably doesn’t make enough income to pay the top income tax rate to begin with. For someone to pay 36 percent in federal income taxes, their adjusted gross income would have to be somewhere in the range of $200,000 to $500,000. The problem is that neither Buffett nor Bosanek will publically release how much she makes in salary, so there is no honest way to verify Buffett’s statements even if his effective tax rate were to be lower than expected.

President Obama is a supporter of what has come to be called the “Buffett Rule.” In addition to requesting Congress to raise the capital gains rate from 15 percent to 23.8 percent and the dividends rate from 15 percent to 43.4 percent, he suggests that the “Buffett Rule”—a minimum federal income tax of 30 percent on the “rich”—be placed on those who make over $1 million a year. (It went up for a vote in the Senate on April 16 but failed along party lines 51-45. It needed 60 votes to pass.)

Clearly, these kinds of tax rates on the investors and job creators that are the foundation of the American economy will only stifle prosperity. Rodger Hedgecock, a writer for Human Events magazine, shows this by example of the state of California. He writes:

“The Los Angeles Times reported that California’s March tax receipts were 4.2 percent lower than the Governor’s budget estimate. Just over half of the shortfall came from falling corporate tax receipts. The reality for California government is much worse than reported. While the March 2012 state revenues were down 4.2 percent from estimates, the March 2012 revenues were down 10.9 percent from March 2011. And while the March 2012 corporate tax revenues were down 8.2 percent from the governor’s estimates, March 2012 corporate revenues were down 10.8 percent from March 2011.”

The evidence shows that when a government tries to raise taxes on job creators, they either move their business to where tax rates are lower, or they grin and bear it and cut costs—and that means jobs lost.

If we granted Buffett and his supporters the benefit of the doubt and agreed that the “super-rich” need to pay more in federal taxes as a matter of economic fairness, the argument would still falter under the heavy burden of fact. As of 2009, the bottom 47 percent of income earners paid nothing in federal income taxes and the bottom 50 percent of income earners paid only 2.3 percent of the share of federal income taxes, while the top 1 percent of income earners paid 36.7 percent of the share of federal income taxes. It begs the question: Is it unfair for nearly half of able Americans to pay nothing to the federal government in income taxes while the successful are picking up the slack? If there were to be any tax reform in the name of “economic fairness,” it would be more logical to look at the half that pays nothing rather than the sliver that pays a lot.

Would the Buffett Rule help reduce the federal budget deficit? The federal government is nearly $16 trillion in debt, with almost $9 trillion of that coming from the past twelve years. There needs to be reform in regards to the federal budget, but tax increases on the “super-rich” won’t do any good. If the Buffett Rule were to go into effect, it would only raise $5.1 billion a year. Comparatively, if there were to be a 1 percent across-the-board spending cut from the federal budget, it would generate $33.6 billion in savings, six times more than the Buffett Rule would. The only thing that the Buffett Rule will do is appease left-wing ideologues (like Buffett himself) and Occupy movement sympathizers who are demanding a redistribution of wealth from the haves to the have-nots, while curbing potential economic growth at a time when the anemic American economy needs a boost of confidence and investment. As talk radio co-host and conservative pundit Stu Burguiere puts it, “[W]e are basing US tax policy on what is happening to the top 0.0000006 percent of people. Does that seem sensible?”

Supporters of the Buffett Rule and the class warfare rhetoric of the left and the Occupy movement are ignorant of these facts—or in denial of them. With all this evidence on the table, it is impossible to deny that the logic, economics, and sociopolitical truths behind a limited federal government. This ought to be a strategy that everyone can support, “1 percenters” and “99 percenters” alike.

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One comment

  1. Jeff Luecke

    Something big has to happen. It can either be the government realizing their spending cannot continue thus shutting down a number of buearacracies and unconstitutional wars, thus cutting off the welfare hammock and the warfare windfalls. Or, the economy will collapse on its own. Either way it’s going to hurt…a lot. Start preparing to take care of yourself and your family for when this inevitability happens. Don’t be caught with your pants down.

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