"The welfare of humanity is always the alibi of tyrants" - Albert Camus

Monday, October 3, 2011

The Buffet Rule and Other Fiscal Fallacies (Updated)

What happens when you team up a crony capitalist with a Marxist radical?  You apparently end up with a fallacy and a deception.  Isn't it amazing how fast we've gone from "last thing you want to do is raise taxes in the middle of a recession" to "rich must pay their fair share"?! 

The latest "code word" to be introduced to our lexicon a couple of weeks ago was one with the sole purpose of shoring up support for the President within his own base.  Make no mistake, the so-called Buffet Rule, named after the hypocritical crony billionaire Warren Buffet, is the Administration's latest attempt to incite class warfare.  After all, class warfare is all that is left for this radical administration to hang their 2012 hopes on.  Their hope is that pitting the society against each other will wipe the memory slate clean come election time.  Once again, their political calculus is way off target.  Infact, if it wasn't for miscalculating, they wouldn't be calculating at all!

The whole premise that the rich do not pay their fair share (or for that matter the premise that tax increases as a rule increase revenues to the government) is a ruse.  It is an outright, boldfaced lie that is often repeated by progressives with the hope that enough sheeple will take it on its face value.  It is an easily demonstrable fib at that, which I will do at a later post as the purpose of this one is to point out the hypocrisy and possible crony shenanigans being played out.  For now, be it suffice to state that each higher income quartile pays a greater percentage of total taxes than the income they earned.

As we have heard over and over again from the so-called oracle of Omaha, the rich in this country are not paying their fair share.  Mr Buffet holds himself up as the example of how ordinary working people pay higher tax rates than he does.  The fact that Mr. Buffet makes his billions through capital gains, thus paying a lower effective tax rate than his secretary has nothing to do with the bigger issue of tax fairness.  It is a classic case of comparing apples to oranges in a pathetic attempt to create a fallacy. 

The wholly separate issue of capital gains rates, according to the left being as low as they are, needs to be confronted by proponents of true tax fairness and free markets.  Capital gains are taxed at a lower rate for excellent reasons.  They are: 
  • taxed at corporate level already.  Many economists conclude that it is a form of double taxation on capital formation. Economists Victor Canto and Harvey Hirschorn explained:
    A government can choose to tax either the value of an asset or its yield, but it should not tax both. Capital gains are literally the appreciation in the value of an existing asset. Any appreciation reflects merely an increase in the after-tax rate of return on the asset. The taxes implicit in the asset’s after-tax earnings are already fully reflected in the asset’s price or change in price. Any additional tax is strictly double taxation.                                                                That is why many tax analysts argue that the most equitable rate of tax on capital gains is zero as it is in many countries around the world (or at least strictly defined to exclude equities).
  • risk capital - just as you are limited to $3,000 in writing off your capital losses, it makes sense that taxes should be lower on non-ordinary income;
  • the life blood of a capitalist economy that requires free flow of capital
Mr. Buffet, on the other hand is a crony extraordinaire, a la Jeffrey Immelt and others the President has surrounded himself with.  Here are some handy tidbits about Warren:

Mr. Buffet portrays himself as a modest man who lives in the same small house he bought decades ago.  Little publicized are the facts that he owns a multi-million dollar vacation home in California and a $10 million private jet.
Mr Buffet and his company, Berkshire Hathaway, owes the IRS over a billion dollars which they have been litigating over for almost a decade.

Mr. Buffet is heavily invested in the life insurance business.  As such, he has been lobbying the Administration hard to do away with estate tax exemptions.  Without the exemptions, his life insurance companies stand to benefit to the tune of billions of dollars over the long term. 

Furthermore, hypocrisy of Buffet screams the loudest as it relates to his wealth.  He has given most of it to the Gates Foundation, thus avoiding federal estate taxes (as has Bill Gates).  If estate taxes should be retained, why avoid them?  Enough said about Warren.

When it comes to taxation, Washington works in mysterious ways.  Many of your utility bills, for example, are adorned with taxes which were supposed to be "temporary" but somehow outlived the events they were imposed for.  Another great example is the AMT.

The AMT (Alternative Minimum Tax) was introduced in to the tax code in 1970 as part of the Tax Reform Act of 1969 by Democrats just because there were 155 individual income tax returns showing incomes of over $200,000 and no tax liability thanks to tax loopholes.  You would think that smart governance would have reformed the tax code to make it flatter, fairer, and simpler; but not when lawyers run Washington!  Today, AMT affects over 4 million tax filers because AMT exemption, unlike regular income tax items, is not indexed to inflation.
In the name of fairness, the Democrat congress passed the AMT that now touches millions of Americans' lives, and even though the congress expresses its dismay over it, nothing changes. 

In other words, when politicians tell you that a particular tax is temporary, or it is earmarked for paying down the debt, do not believe them!  Handing Washington money and hoping they will do the responsible thing is akin to asking a drug addict to safe keep your marijuana stash.

This is so wrong on so many levels that it boggles the rational mind. What does cutting the deficit have to do with the rich paying their fair share? It is akin to blaming one's household budget shortfall on their income rather than their spending habits. It is the height of irresponsibility. No Mr. President, those who need to pay their fair share are the 45% of income earners who pay zero federal income taxes. In other words, those whom you and your party's ideology pander to.


Well, moving forward less than a week after the announcement of the Buffet Rule, Warren has apparently "not read the bill". In an interview last Thursday, he openly disagreed with the President's plan to tax ordinary millionaires at a higher rate. It seems that to Warren, rich means those earning over $50 million per year - not $250,000. Well, well..... now look who the useful idiot is! I hope he enjoys his name on the "rule"; actually he is in luck as the bill stands just about as much chance as that of a snowball in hell thanks to the Republicans.

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