Make it Hurt

Unlike the traditional Buffet line rule about tasting and putting food back, the Warren Buffet rule would encourage double dipping. Warren (and his poor secretary) certainly knows this, but yet he continues to argue that he’s taxed at an unfairly lower level. Apparently, his corporate taxes are too high for his liking, since Berkshire Hathaway likely paid too little in taxes for years.

This goes back to the fact that different money is taxed differently. Capital gains are considered one-time income adjustments and are taxed at the low rate of 15%. This is great if you sell a house. Would you really want to pay 35% income tax because a house you sold increased your income by 400% in one year? The problem comes in when capital gains are abused with annual disbursements that effectively become a salary. This is outrageous and must be stopped!

Well, hold on there. People like Warren Buffet are provided these gains by investments and investment firms. Since it represents the increased revenue of a corporation, that profit is taxed at the current corporate income tax rate of 35%. People like Buffet get what’s left after the taxes. Then he pays 15% taxes on that.

Look at it this way. If you make less than $100,000 per year, 12% of your income goes to Social Security taxes. Usually, your employer pays 6.2% before your salary. That means you don’t even see this on your paycheck. You pay the other 6% (or 4% while Obama de-funds Social Security). If you are a private contractor and fill out a 1099, then you get the privilege of paying 15% out of your income by yourself. So, the employee who makes $50,000 a year saves $3,000 compared to the independent contractor. The government gets the same amount, but the screw job is redistributed.

Some people like Bill Clinton have proposed lowering the tax on job creating corporations while increasing it on the less job creating billionaires. Billionaires could potentially pay the same amount if capital gains were 35% and corporate tax rates were 15%. It would be about the same amount going to the government, but it would hurt them more.

About 1539days

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38 Responses to Make it Hurt

  1. yttik says:

    You know Days, I no longer believe in the whole “tax billionaires and millionaires” thing. We have at least 15 trillion dollars in debt. In order to pay that off you’d have to seize all the assets and income from 15,000 billionaires. You know how many billionaires there are in the US? About 412.

    • 1539days says:

      People get very caught up in the disparity of a country where a person can be worth billions of dollars and other people are flat broke. The response by some is to keep increasing the tax rate on “the rich.” Some people need $250,000 to live on? Then create a “millionaire’s” tax bracket. NY did this on people who earned around $400,000 or more. Many left the state.

      It’s not the rate that’s the problem, it’s the fraft. If the tax code were 10 pages long, no one could get away with paying $0 taxes on $1 billion in income. You can make the tax rate 200%, but some people will just buy the influence they need and hide it in 1000 pages of jargon.

    • 1539days says:

      HBO doesn’t collect ratings. They just need a crazy clown to being attention to their dwindling channel of third run movies and Real Sex 100.

    • ralphb says:

      Just one of the reasons I don’t subscribe to premium channels like HBO.

      • Lola-at-Large says:

        Showtime is where it’s at anyway. 75% of their series projects are about women or have lead characters that are women. I will never in my life subscribe to HBO, unless they fire Bill Maher and stop creating sexist pieces of shit series and get more women friendly.

  2. yttik says:

    The problem with people like Warren Buffet and Bill Gates is that they know perfectly well they can advocate that we “tax the rich” because they’ll never have to pay it, I will. We could tax them at 40% and by the time they’re finished they’ll owe about 15 grand. So will I. I will get to “feel the hurt” so people like Buffet can ease their conscience about their own wealth.

    The more money you have, the easier it is to use the tax code to your benefit. I can’t put 10 grand in a tax free retirement account because I haven’t got an extra 10 grand laying around. I actually have to pay taxes on that money because I had to use it for groceries and utilities.

    I hate to watch poor people get on the “tax the rich” bandwagon because what they’re really doing is advocating their own screwing over.

    • ralphb says:

      You’re right about that and it’s one reason I would prefer lower rates and many fewer deductions. I would favor no deductions but some are so embedded it would be very hard to get rid of them. Examples would be the child deduction and mortgage interest.

      • WMCB says:

        Yeah, I don’t want a flat rate, I still want a progressive tax structure.

        But people don’t realize that raising the upper rates never does jack squat to the truly idle rich. It hurts those who may be “wealthy”, but are employers and people who are actually doing useful things with the money. It never touches those who can hire 3 lawyers and accountants to “work” that tax code to their advantage, or even have loopholes written for their “class”. The problem isn’t really the rich. The problem is the favored and well-connected.

        You wanna hear squawking? Let a nationwide scrapping of the tax code gain traction, with lower simple rates and almost no exemptions or deductions. Because almost everyone will do better under that plan,
        rich or poor, except those who spend their lives gaming the system to their advantage with help from their pet legislators. It would bring in more revenue, too. But it would take away the power of the govt to use the tax code to reward and punish select persons or companies or industries for political ends.

        • Lola-at-Large says:

          What about a variable flat rate? Kinda like, if you make this amount of money, you pay this percentage, no deductions. Sort of like:

          You make 10 grand: no tax
          You make 25 grand: 5%
          You make $50 grand: 8%
          You make $100,000: 12%
          You make $200,000: 15%
          You make a million: 20%

          Make it about seven different levels, all flat, no deductions for anyone.Would you consider that a progressive, flat rate system?

        • WMCB says:

          Sure, Lola. I’m open to lots of simpler tax structure ideas, even the Fair Tax. I don’t mind Herman Cain’s 9 9 9 idea, either.

        • DeniseVB says:

          As one Fair Tax supporter explained to me…..it grabs the cottage industries, drug dealers, ladies of the night, puppy millers….have to buy toilet paper too.

    • catarina says:

      I hate to watch poor people get on the “tax the rich” bandwagon because what they’re really doing is advocating their own screwing over.

      You can tell them till your face turns blue. They won't believe you.
      When taxes are raised, hardworking families get screwed every time.

      Wait till the Bush tax cuts 'for the wealthy' expire..and the middle class find out that they are "the wealthy…"

  3. 1539days says:

    Just a clarification. I’m not advocating the hurting. I’m just saying the hurting part of it doesn’t mean any more revenue

  4. ralphb says:

    Anand Giridharads in the NYT: The Fraying of a Nation’s Decency

    This writer is rapidly becoming my favorite columnist.

    CAMBRIDGE, MASSACHUSETTS — Amazon.com, the books-to-diapers-to-machetes Internet superstore, is a perfect snapshot of the American Dream, circa 2011.
    (…)
    In a moment rife with talk of American decline, my Amazon experiences provide fleeting mood boosts. They remind me that, for now at least, this remains the most innovative society on earth.

    And then my bubble burst.

    Thanks to a methodical and haunting piece of journalism in The Morning Call, a newspaper published in Allentown, Pennsylvania, I now know why the boxes reach me so fast and the prices are so low. And what the story revealed about Amazon could be said of the country, too: that on the road to high and glorious things, it somehow let go of decency.
    (…)
    The more I travel, the more I observe that Americans are becoming foreigners to each other. People in Texas speak of people in New York the way certain Sunnis speak of Shiites, and vice versa in New York. Many liberals I know take for granted that anyone conservative is either racist or under-informed. People who run companies like Amazon operate as though it never occurred to them that it could have been them crawling through the aisles. And the people who run labor unions possess little empathy for how difficult and risky and remarkable it is to build something like Amazon.

    What is creeping into the culture is simple dehumanization, a failure to imagine the lives others lead. Fellow citizens become caricatures. People retreat into their own safe realms. And decency, that great American virtue, falls away.

    • Lola-at-Large says:

      Nice. Shared.

    • votermom says:

      I rarely buy from amazon actually, but with borders closing there are less options. I was just debating whether to buy a book my kid wants from amazon (cheapest) or from a local warehouse club. I think I’ll go local from now on, whenever possible.
      (Ironic because the amazon warehouse practically is local since it’s in-state)

  5. r u reddy says:

    We should just let the income tax rates return to what they were during the Clinton Administration. I didn’t feel that much poorer under the Clinton-era income tax rates, and I don’t feel that much richer under the BushCobama tax rates. My tax cut under the BushCobama is/was merely a generous pittance . . . but 150 million such generous pittances made a large part of the difference between deficits and debt falling under Clinton as against deficits and debt rising under BushCobama. And the BushCobama tax cuts were engineered deliberately on purpose preCISEly in ORder to expand the National Debt and deficits to “crisis” dimension to as to use the “crisis” to lever and extort various shock-doctrine disaster-capitalism goals such as privately profitising Social Security. Obama fully supports those goals which is why he co-conspired with McConnell to derail the natural sunsetting of the BushCobama tax cuts with diversionary bait about “taxing the rich more”. It was/is an apple of discord designed to energise the Republicans into extending the BushCobama tax cuts enough times to make them permanent. (That’s the sort of thing that may have gotten me banned at Hullabaloo).

    If we drove income tax bracket progressivity all the way back to where it was during the Eisenhower Administration, we might drive the pay-difference between executives and workers back down to the 40 times spread that it was during the Eisenhower Administration. (I read the very interesting theory that if income above a certain level were taxed at rates approaching 100 per cent, Corporate Boards and decision makers would not pay executives amounts of money at the level where it would merely transfer over to the Treasury through high marginal tax rates. Corporate boards and leaders would spend that money within the Corporation on various corporate goals instead. It made sense to me.)

    Addressing different rates for different kinds of income will be more difficult, but ought to be addressed.

  6. Three Wickets says:

    Helpful post Days, thx. Here’s CBOs breakdown of all federal projected receipts from this year. Pure individual income tax – 44%, payroll FICA tax – 34%, corporate tax – 10%, excise/sin tax – 6%, individual capital gains tax – 3%, customs duties – 2%, estate tax – 1%.

    Corporate and capital gains taxes are a relatively small part of the total pie. Cuts in payroll taxes do add up to a bigger number than we might think. I think Bill’s idea of lower corporate taxes (if they hire) in exchange for higher capital gains taxes (especially for shorter term trades and investments) is interesting.

    Of course imo, in this stalled and potentially contracting economy, we shouldn’t be obsessing about deficits or even tax hikes for that matter, not in the near term when treasury yields (govt borrowing rates are zero). We need investment to go up in the private sector, and if that’s not happening we need more effective stimulus from the public sector. Businesses will not invest if they don’t see growing demand, domestic consumption, export potential, confidence, and affordable lending in the marketplace. Effective stimulus and tax cuts can help make that happen. Better or less regulation may also help, but it is only one piece.

    • Three Wickets says:

      It should say real treasury yields (govt borrowing rates) are near zero or even negative, depending on the maturities.

    • ralphb says:

      Speaking of contractions this is interesting, if true.

      Multi-trillion plan to save the eurozone being prepared

      • Three Wickets says:

        The ECB (European Central Bank) gets its money including bailout money from two sources: deposits from national commercial banks in the region, and from national govt fiscal treasuries in the region. The EU does not have Eurobonds yet like our US treasury bills/bonds, they still don’t seem ready for a fiscal union to complement the monetary union which does exist in the form of the ECB. To have Eurobonds, they would have to form a United States of Europe, like we have here. But local taxpayers in the region are more and more reluctant to have their national govts send more bailout funds to the ECB. These taxpayers do not want to be used as collateral for these Eurobonds.

        The latest problem with Eurozone financing, in addition to all the other problem of debt, solvency, liquidity, growth is that because of regional risk the regional commercial banks have been moving their cash to the US and not to the ECB, and that money ends up being ultimately deposited at the Fed, about $500 billion at last count. That makes the ECB poorer and less able to continue bailing out the region. So our Fed is setting up to send that money which has arrived in the past six months from European commercial banks right back to the ECB, and we’ll earn a small interest. Same thing is expected from the Bank of Japan, from the Swiss National Bank, and from some other wealthier national banks and sovereign accounts, such as the BRICs. Middle Eastern sovereigns are not as wealthy these days (not making as much petrodollars), so probably won’t be able to help.

        • ralphb says:

          I think what Germany can do will be key. They seem to want assurances that Greece will stay in the EU and I don’t know if that can be realistically given now.

    • WMCB says:

      If you are going to raise capital gains taxes, I’d like to see it raised for only short term gains, and actually lower the long term rate, but make “long term” be really long – like 5 years, not the piddly 1 year it is now.

      IOW, hit the people who make money on trading a lot – which while it makes a pile of money, doesn’t really contribute anything to the overall productive economy. But investments held for 5 years or more are more likely to be investments in actual real startups or sound companies who do useful things, not speculating. THAT kind of investment we want to encourage.

      That’s my biggest beef with rhetoric that either denigrates and demonizes wealth, or says “it’s all good”. There are different kinds of wealth, different ways of amassing a fortune or getting rich, and different ways of using that money to make more. I have no problem whatsoever with someone being a gazillionaire, if they are innovating, and employing, and driving our economy. Let their stocks soar. Let them raise capital and expand. Have at it. I don’t want that punished. But we need to stop encouraging being a gazillionaire from merely churning the stock market with algorithms to no practical end.

      • Three Wickets says:

        Couldn’t agree more WMCB. Individuals, businesses, and corporations investing (true investing, not just trading in the capital markets casinos) represent the backbone of our economy. Wall Street trading does contribute to “frictionless market efficiency” to some degree, but too often that argument is used to justify casino like trading and arbitrage that only helps the traders make money and doesn’t contribute usefully to the general economy.

        • WMCB says:

          Yeah. Getting rich as God by coming up with the idea for the automobile and producing it is fine with me. That’s a net gain to the country, no matter HOW much money you made doing it. It adds economic value, which is how growth happens. Build your mansion and wallow in that money, Mr. Ford – fine by me.

          Getting rich by having your computer program watch the ticks up and down of the market, and jump in and out with trades at fraction-of-a-second speeds, adds nothing of real value to the economy, and in fact is often merely asset-stripping of the rest of us.

        • myiq2xu says:

          If you want to get rich quick you don’t add value, you extract it.

      • Speaking of the overall productive economy, of activity to no practical end. I tend to favor whatever tax requires the least amount of bookkeeping. Let the IRS accountants get more productive jobs. Instead of sales tax collected on each $10 widget over the counter, tax each million widgets on the factory invoice.

        • 1539days says:

          VAT is an option some conservatives like, but only if it replaces income tax. It works fine unless you buy overseas. Then you need tariffs. Any tax is easy without loopholes.

  7. WMCB says:

    OT, and I know it’s not very likely, but I would love for Herman to win the FL straw poll, just to watch Morgan Freeman’s head explode.

    What seems to be happening is this: A lot of delegates came to Orlando planning to vote for Rick Perry. But Perry’s poor performance at Thursday night’s Fox News-Google debate gave them pause and re-opened the question of whom they will support. And many of the conservatives who were attracted to Perry will, when asked for a second choice, naturally gravitate to Cain, who, it just happens, had a particularly good debate on Thursday. So with Perry not commanding the loyalty he did just 48 hours ago, Cain appears to be picking up support.

    —-
    Could Cain actually win? It seems unlikely, but it’s an outside possibility. Cain’s fortunes depend on whether the delegates here decide to vote strategically — to support the candidate they consider the most likely to win the Republican nomination and go on to general-election victory — or to vote their principles and let practical matters work themselves out later. If the delegates go the latter route, a lot will choose Herman Cain.

    http://campaign2012.washingtonexaminer.com/blogs/beltway-confidential/fl-straw-poll-late-surge-herman-cain

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