By way of Paul Caron, Liz Peek of Fiscal Times explains why the Buffett Rule is pile of propagandistic nonsense (emphasis added):
Fiscal Times, Obama’s ‘Buffett Rule’ Fails the Tax Reform Test, by Liz Peek:
President Obama has a new favorite possession – the “Buffett Rule.” Like a poodle with a new chew-toy, Mr. Obama can’t leave the Buffett Rule alone; he takes it everywhere. For the president, the proposal that everyone earning over one million dollars should pay at least 30% of that in income in taxes is satisfying on many fronts. …
[But] the Buffett Rule is an empty shell. We need serious and fair-minded reform of our tax code, not another gimmicky fix. We need to analyze whether the deductions and loopholes that cost Uncle Sam nearly a trillion dollars per year in lost revenues are appropriate and effective, whether the goals of prior generations are still relevant and — yes — whether our system is fair.
There is a reason why rich people sometimes end up with lower tax rates. It is not because the tax code is regressive; on the contrary, the top one percent of filers pays nearly 40 percent of the total.
Messrs. Buffett, Gates, Romney and other tycoons pay a lower overall rate because policy makers have wanted to spur investment, and decided to do so by taxing long-term capital gains (and certain other investment rewards) at a lower rate than income. This advantage accrues mainly to the wealthy, the investing class.
The goal of encouraging entrepreneurs and risk-takers through favorable taxation was adopted in 1921; the rules have changed from time to time, but the philosophy has been nearly a constant.
The question today should not be: “has this approach favored the wealthy?” This is a given. Instead, we should ask: has the policy worked? If not, is this Buffett Rule the best way to fix what is broken?
For Obama and congressional Democrats the Buffett Rule has never been about policy, but rather about convincing the have-nots that they are getting screwed by the haves so they will support tax increases on the rich. Obama and his crew know that if they can get the public to go along with tax increases on the rich, they will be able to avoid having to make those politically damaging cuts in spending that would otherwise benecessary to balance the budget and reduce the deficit.
Related Posts:
- Double Taxation, Capital Gains and Cynicism
- Romney’s Effective Tax Rate Closer to 45%
- Why Capital Gains Income is Taxed at a Lower Rate than Ordinary Income
- Lower Capital Gains Rates Stimulate Investment
- Gingrich has Highter Tax Rate than Buffett Secretary
- I Am Spartacus: MoveOn.Org Perpetuates Buffett Tax Lie
7 responses so far ↓
1 Allan // Feb 13, 2012 at 5:59 pm
Ah. A reason for taxing long term capital gains at a lower rate: you want to encourage long term investments. Otherwise, people might cut and run earlier. This makes sense if you want to increase long term investments. But, then again, would you not have the same result by taxing short term capital gains at 60% and long term capital gains at the ordinary income tax rate?
2 Peter // Feb 14, 2012 at 12:06 am
Allan,
I don’t understand your point.
3 Allan // Feb 14, 2012 at 9:44 am
My first point is that there is a good policy reason for having lower LTCG rates that STCG rates because of a preference that investors invest in the long term.
My second point is that I do not see any policy reasons to tie either STCG rates or LTCG rates to tax rates for earned income.
I think the policy goal could be achieved with: STCG rates at 60% and LTCG and earned income rates at (for instance) 30%.
4 Peter // Feb 14, 2012 at 1:01 pm
Allan,
I agree that there should be a lower rate for sales of long term capital investments. 30% is much too high. Not much of a preference at all.
I assume you want a 60% rate on short term gains for punitive purposes? I disagree with that, also. Some folks might have compelling reasons to sell before they reach the one year long term period. Taxing STCG’s at the ordinary rate makes sense.
5 Allan // Feb 14, 2012 at 1:24 pm
Peter,
I think we should tax LTCG at the ordinary rate and set a higher rate for STCG. This preserves the priority for LTCG over STCG AND puts LTCG on equal footing with ordinary income.
Would the STCG rates be punitive? Perhaps. However, that is not what I would want. But I willing to go with that. I do not want to punish STCG, but reward LTCG and ordinary income.
6 Peter // Feb 14, 2012 at 9:31 pm
Allan, but taxing LTCG’s at the same rate you tax ordinary income doesn’t reward LTCGs.
7 allan // Feb 15, 2012 at 10:31 am
Peter,
You are right.
In my view LTCG and ordinary income are totally separate, but equal (sorry, a bit politically incorrect). So, the rates for the two have no correlation. That is, the only incentive to keep investments long term is when LTCG > STCG. Once that happens it makes no difference what the ordinary income rates are.
I don’t see any benefit to rewarding LTCG more than ordinary income.
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