WASHINGTON, August 19, 2011 - Warren Buffett and Ben Stein, two rich Americans, have recently said “the rich” are not taxed enough. Does this mean they agree with the New York Times statement that “There is no economically sensible or politically honest way to address the deficit without also increasing revenues and reforming the tax code.”
Barak Obama has said, “We are told that the market will correct all of our problems. And that there is no problem that cannot be solved by another tax break that the wealthy didn’t need, and half the time didn’t ask for. We have tried that way for the last six years — we are ready to try something new.”
Buffett, Stein and Obama may as well be speaking in tongues because to most Americans, taxes (that’s what revenue means in political speak) are plenty high on every thing from consumer goods to income. The issue is whether or not tax increases are the solution to reducing the national debt and a return to prosperity.
Underlying the debate around taxes is the question: Is everyone paying their fair share toward the fine government benefits we all receive?
The Tax Foundation says that roughly 50 percent of American households pay no incom tax at all, but the IRS will give out roughly $110 billion in “refundable” tax credits this year to households that pay no income taxes.
IRS data compiled by the Tax Foundation for 2009 shows that taxpayers earning over $200,000 paid 50 percent of the $866 billion in total income taxes paid that year, or $434 billion. These taxpayers earned 25 percent of the $7.6 trillion in total adjusted gross income in the country that year.
In 2009 a great deal of “revenue” was distributed: 21 million households who paid zero taxes received $27.5 billion in refundable credits from the child credit; Obama’s Making Work Pay program gave out $12.8 billion in refundable credits to 32 million filers; The Earned Income Tax Credit program doled out $54 billion in refundable credits to 24.9 million filers; and, nearly 5 million filers received $3.9 billion in refundable Education Credits and roughly 1 million filers got $4.65 billion in refundable credits under the First Time Homebuyers credit program.
Buffett feels he and his friends are not paying enough in taxes and in his August 14 Opinion Editorial in the New York Times, Stop Coddling the Super-Rich, Buffett said, “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… 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.”
Buffett believes that taxes should be raised immediately for those making more than $1 million (236,883 households), including dividends and capital gains as well as those making in excess of $10 million (8,274 households) all for 2009.
That sounds reasonable, but how to write such precision tax laws?
Mr. Buffett didn’t mention the fact that capital gains and dividends taxes are a double tax on corporate income. Before dividends are distributed, U.S. corporations must first pay a 35 percent federal corporate income tax.
Then, shareholders pay the individual tax rate of 15 percent on their dividend income or the gains from appreciated stock. As a result, the combined tax rate of 50 percent is the 4th highest combined dividend rate in the industrialized world, argues the Tax Foundation.
Additionally, in 2008, the roughly 1,900 largest corporations paid $152 billion in income taxes. This amounted to 67 percent of the $227 billion in total corporate income taxes paid that year.
Reagan tax cuts helped the economy through George H. Bush and Clinton years. When Reagan took office in 1981, the top marginal income tax rate was 70 percent and the rich paid 20 percent of all income taxes. He got it cut in half to a 35 percent marginal rate and now the rich pay twice that.
In 1980 the economy was described in terms of the “misery index” and the
mantra was “anybody but Carter.”
According to Russ Paielli: “Reagan eliminated many tax shelters that the rich routinely relied on to avoid paying taxes altogether, forcing them to invest in the free market and actually pay taxes. Shortly after the tax cuts were enacted, the economy took off for an unprecedented period of peacetime growth. The misery index plummeted as unemployment fell, inflation slowed, and interest rates dropped, leading to a seven-year boom that the liberal media cynically dubbed “the decade of greed.”
Will more taxes help the deficit?
According to a Congressional Budget Office memo, “if all of the President’s budgetary proposals were enacted, they would add $26 billion to the baseline deficit for 2011. As a result, the 2011 deficit would total $1.43 trillion, or 9.5 percent of gross domestic product (GDP).”
In August of 2010, The New York times said that extending for another ten years the tax cuts passed during 2001 and 2003 and renewed by the Obama administration “would add about $3.8 trillion to a growing national debt that is already the largest since World War II. About $700 billion of that reflects the projected costs of tax cuts for those in the top 2 percent of income-earners.”
Assuming you agree that the money other people are expected to earn, even rich people, belongs to the government, the $700 billion lost is only about 0.3 percent of GDP or one out of fifteen dollars in deficit spending.
Remembering who we are
While we all should in fact pay our fair share of what it takes to reasonably run the country that has been a blessing to not only her citizens but to the world, this argument about more taxes on the proverbial rich always prompts a reminder of a Margaret Thatcher quote:
“The problem with socialism is that you eventually run out of other people’s money.”
The New York Times writers, Barak Obama and others may be well-meaning in their attempts to redistribute wealth, but it still looks, smells and tastes a lot like socialism. That is not who we are.
Most Americans would rather let Buffett give his billions to the Bill and Melinda Gates Foundation than to the U.S. Treasury, if that’s what he wants to do with it.
Carla Garrison follows current events with one eye on history and the other on the future. Her goal is to encourage people to know the truth and use it as a call to personal action.
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