The Buffett Rule and the GOP's War on Firefighters

    Back in the fall of 2011 when Warren of Buffett Rule fame first began angling for a positive Wikipedia entry by insisting he wasn't paying enough taxes, Gene Sperling, the Director of the National Economic Council, wrote an article on the White House blog awkwardly titled "Buffett Rule Facts and Fictions."  If Buffett himself was guilty of comparing apples and oranges as I wrote about in January, Mr. Sperling grabbed an armful of fruit and began throwing it up in the air with a blur of numbers creating a bewildering illusion of fiscal expertise.  In the midst of his statistical juggling act appears this whiplash-inducing, grammatically-challenged non sequitur:

Does it seem right that an American who makes over $110 million pays an effective tax rate of about 18 percent, but if they had a fire at their house, those who would be risking their lives to put the fire out, could be seeing far more taken out of their every additional dollar earned while they are risking their lives?  

 For crying out loud, what does public safety have to do with personal tax rates?  Are there not other groups who would be far less worthy than millionaires?  What about child molesters and other criminals? Should firefighters risk their lives to save their burning houses?  And what about those citizens whose effective tax rate is zero?  Is it "right" for firefighters to risk death or injury for someone who contributes nothing toward their salary?   If this is not class warfare, then I have never seen it.  What's next?  Means testing for 9-1-1 calls?
    In the olden days in England, building owners posted plaques on their properties signifying which fire insurance company they used so the firefighters would know whether or not to extinguish the blaze.  Instead of a plaque, perhaps the modern day equivalent would be a laminated Form 1040 on the front door.  But today in England and America, virtually everyone find public safety and emergency services to be legitimate domains for government involvement.  It is bizarre that the White House would choose to bolster its argument with a Monty-Pythonesque, "Nice house (and nice low tax rate) you got here.  It'd be a shame if  something were to happen to it."

UPDATE: The White House must think they have a winning issue in the GOP's War on Firefighters.  Look what the White House just tweeted Friday morning:

By the way, thanks to HotAir for the link to my post.

This post (before the update) was originally published on April 12, 2012 at Blogger News Network.

The Doctrine of "Fair" (No, Not the FCC One)

   Addressing his fellow Democrats at a retreat on Maryland's Eastern Shore in January, President Obama fought back against the class warfare charge that has dogged him since the 2008 campaign:

"This is one of the biggest things I'm going to be pushing back on this year, this notion that this is somehow class warfare, that we're trying to stir up envy," Obama said. "Nobody envies rich people, everybody wants to be rich. Everybody aspires to be rich, and everybody understands you've got work hard to be successful. That's the American way."

Has an American president ever expressed the American ideal in words that were at once so crass and largely inaccurate?  Even if one generously interprets the president's description of "the American way" as only consisting of the last phrase ("everybody understands you've got work hard to be successful"), a perusal of the Occupy Wall Street website quickly dispels the notion that "everybody understands" the American work ethic.  But more likely the President also intended "...everybody wants to be rich. Everybody aspires to be rich..." to be included in his read on the American way.  What a cynical  rephrasing of "life, liberty, and the pursuit of happiness"!  Given that a Google search for "Obama's soaring rhetoric" returns 59,800 results, one would have thought that this modern day Abraham Lincoln could have found a more eloquent way to capture the essence of his country.
   And what of the president's assertion that "[n]obody envies rich people?"  If taken literally, this could lead to a 20% reduction in the Ten Commandments, as "Thou shalt not steal" and "Thou shalt not covet" would fade into obsolescence.  The Founders of this country were not as sanguine in this regard.  As Ben Franklin is reputed to have said, "When the people find that they can vote themselves money, that will herald the end of the republic."  The Constitution severely limited Congress's power to tax for this very reason, a limitation that required the 16th Amendment to overcome it.
   The president went on to reiterate his plans to call for Congress to pass the so-called Buffett Rule.  This plan to make sure anyone earning one million dollars or more per year does not pay a lower tax than those with lower earnings.  His reason?   "[A] sense of fairness and a sense of mutual responsibility and a sense of commitment for the country's future[.]"  Fairness?  Currently, our culture is involved in an epic battle over the definition of the word "marriage," a word that has had a concrete, unambiguous meaning for millennia.  How on earth will we even begin to agree on a definition of "fairness" concerning income and taxation?
   At its most basic level, "fair" would seem to mean everyone is treated equally.  But even most proposed variations of a "flat tax" have various exclusions, exemptions, and even multiple rates.  As paradoxical as it may seem, even the FairTax incorporates an "annual consumption allowance" that inserts a backdoor progressiveness to that tax system.
   So how does the president's latest incarnation of "fairness," this alternative alternative minimum tax (AAMT?), measure up?  The trouble with fairness is that it's a moving target.  Buffett's argument has been that he should not be paying a "lower tax rate" than his secretary.  But what about other secretaries?  Or other millionaires or billionaires that have not structured their compensation as effectively as Buffett and already pay a higher rate?  It is already well established that on average, those making over $1 million already pay more than everyone else.  Must we compare individuals within companies or industries to determine fair rates on a case by case basis?
   To complicate things further, is it only unfairness in the income tax rates (wages versus capital gains) we are concerned about?  If so, then why use Buffett as the marquee example?  It is not the fact that he pays the capital gains tax rate on most of his income that reduces his tax burden compared to that of his secretary, but rather his low payroll taxes (Social Security and Medicare.)  His $15,300 in payroll taxes amounts to only .04% of his taxable income versus the 15.3% most people pay.
   As any elementary school teacher, or parent for that matter, can tell you that fairness has as many definitions are there are persons who are calling for it.  But a common thread among those who complain about the rich "paying their fair share" is that they are less concerned about how much the rich are paying in taxes and more concerned about how much money they have left.

Politifact Fact-Check Bounces

   Back in August, Politifact gave Warren Buffett a “true” on his New York Times op-ed where he compared his 17% rate to his employees’ much higher rates.  Much of this difference, as Buffett himself makes plain, is due to payroll taxes.  In September, Buffett even spelled this out more clearly, pegging the rate this his employees pay in payroll taxes at 15.3%:

 And that tax hits the people in my office very, very hard. Often they have a spouse working, so they get taxed on up to $200,000 that payroll tax. And that’s at — this year we’ve had a waiver of two points but that’s normally at 15.3 percent. That alone is higher than the tax rate on capital gains or dividends.

However, in December, Herman Cain called attention to the same issue when plugging his 9-9-9 tax plan, and he cited the same 15.3% figure Buffett used.  His attempt, however, was classified by Politifact as “mostly false.”
   So, how long will it take for Politifact to catch up with Warren Buffett?  As of now, his Politifact scorecard is 100% True.  Or, better yet, when will Politifact’s apology to Herman Cain be issued?

Warren Buffett's Apples and His Secretary's Oranges

   Warren Buffett's claim that his secretary's tax rate is 35% and his only 17% is such an apples to oranges comparison that it would be worth your while to add the word "specious" to your vocabulary just so you can use it in this discussion.  It's difficult to even know where to begin.
   First, if Buffett's secretary truly makes $60,000 as he apparently stated, Buffett has rigged the results by adding her payroll taxes, even including the employer's "contribution" as he stated in this letter to Congressman Huelskamp.  The "tax holiday" has reduced this to 13.3% for 2011, but since Buffett is referring to 2010 in his letter, I'll use 15.3%.  This means Buffett is adding 15.3% of $60,000, or $9,180, to whatever his secretary's federal taxes are to come up with the 35% rate.
   Second, as he also stated in his letter to Huelskamp, he is using not adjusted gross income, but rather taxable income as a base figure.  This means that his secretary, filing as single (I do not know her status,) would have the standard deduction ($5,800) and one exemption ($3,700), reducing her taxable income to about $50,000.  This figure is probably high since it takes no other exemptions or deductions into account, but based on $50,000, her federal taxes would be $8,631 according to IRS tax tables.  This $8,631 plus the $9,180 in payroll taxes comes to about 35.6% of $50,000, not far from what Buffett said.  But, as I said, this assumes filing single, very minimal tax exemptions, not itemizing deductions, and also no tax credits.  This seems far from the "typical" tax payer and only gets to the 35% using some payroll tax gymnastics.
   Turning to Buffett's rate now, he states in his letter that his payroll taxes were $15,300 for the year.  This almost sounds like he is rounding off since 15.3% of $100,000 (the approximate cap for Social Security taxes was actually $106,800 in 2010) is exactly $15,300.  But perhaps Mr. Buffett has simply structured his compensation such that his income subject to payroll taxes is exactly $100,000.  If Buffett's entire income were subject to social security and medicare, of course his taxes would be astronomically higher.  We cannot truly know what that figure would be since his letter to Huelskamp reports only his adjusted gross income, not his total gross income (such as his secretary's $60,000) on which payroll taxes are calculated.  But even if we use adjusted gross income of $62,855,038 (less the $100,000 on which he did pay payroll taxes), his additional tax burden would be $9,601,520.  Added to his $6,923,494 in federal taxes, his total taxes would be $16,525,014.  Taken as a percentage of his taxable income of $39,814,784 (as Buffett did in calculating his secretary's 35% rate,) this comes to 41.5%.
   So Buffett's claims are... ready for it?... specious!  What he ends up arguing for is the lifting of the social security cap as well as the application of social security and medical taxes to non-wage income - and is anyone talking about that?  If politicians do take him seriously and make those changes, Mr. Buffett will get his apparent wish to pay much more to the government.  Then we'll get to see how he likes them apples.