Wednesday, September 21, 2011

Inconvenient Facts

The president’s “Warren Buffet plan" is based on the idea that rich people pay a lower income tax rate than ordinary people, because Warren Buffet said he pays a lower rate than his secretary does, and this societal horror needs to be redressed. So the Wall Street Journal looked it up, and it turns out that in 2008 millionaires paid an average of 23.3% income tax, while someone making $50K paid 8.9% income tax. Things may be quite different when other taxes are factored in, but the issue is specifically income tax in discussion of the so-called “Warren Buffet” tax rule.

Some of the richest people derive much of their income from investment, which is taxed at 15%, and certainly that needs to be looked at, but sweeping charges about the “rich paying less than their secretaries” which sound dramatic and probative, are simply inconsistent with the facts.

The reaction of the ivory tower crowd has been to get really selective and decide that we are really talking only the top 400 richest, one of whom is Warren Buffet, and it turns out they can be used to prove the point. Well, maybe. They said that “millionaires and billionaires” proved the point until somebody looked up the facts. Even if it’s true, that’s 400 people out of 330 million, or about one ten-thousandth of one percent of the population.

Notice that Krugman throws in something about payroll taxes and “other taxes,” but that is a smokescreen. The discussion is about the federal deficit, federal income taxes, and the impact on the deficit made by income taxes paid by “the rich.” It’s not about tax burden overall, so other taxes are relevant to some discussions, but not to this one.

Aside from the silly length to which some people will go to prove their point, how much good is it going to do to impose a tax on 400 people? We have a deficit of $1.3 trillion, and these people are nowhere near that rich. Obama could tax those 400 people at a 100% rate and it would not come close to closing that budget gap.

Obama’s style of leadership is to look for a parade to form and get in front of it, and the crowd has started chanting “tax the rich” so here he is with his “line in the sand” about taxing the rich. It isn’t going to happen and it would neither create any jobs or repair the deficit if it did. It would be pretty much entirely useless actually, but the crowd wants it.

He even says that he is doing it because “the American people have made it clear that this is what they want." Right, this is the same American people who think that we spend 18% of our budget on foreign aid, who think that 58% of government spending is wasted, who think al Queda is a threat to our freedom, who believe that Saddam Hussein was involved in the 9/11 plot, and who think that the planet is not changing.

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