Tuesday, September 20, 2011

Obama's Misinformed Policy

Democrats like to call Republicans "the stupid party" often because conservative politicians refuse to accept controverted propositions - the efficacy of Keynesian economics, the existential nature of global warming - that Democrats want to regard as "settled." Sometimes, however, conservative politicians do make claims that are not true as all human beings tend to do.

But President Obama is making policy based on assertions of a fact - the rich pay less in income taxes than ordinary Americans - that does not bear the slightest scrutiny. It is simply not true.

Perhaps our tax system is not progressive enough. Try to make that case, but at least get the data right.

Of course, it is true that capital gains rates are taxed at a lower rate than ordinary income - this is the source of the tax break for those dread "hedge fund managers" - all 193 of them. There is economic theory justifying differential treatment of capital gains. I tend not to buy it. I think that all income should be taxed when it is realized and at the same rate regardless of source. But even under my view you have to adjust the basis so that only "real" gain is taxed. But the idea that our tax system "favors" wealthy people is not rooted in reality.

Having established that, the proposal to raise taxes on higher income earners in order to avoid reductuins in entitlements reduces to the argument that they can "afford" to give the rest of us some money. Why isn't that class warfare? It is nothing more than the assertion that some people have more than they need and rather than appeal to their charitable impulses, the "excess" should be taken from them by legal compulsion which, of course, ultimately reduces to threat of force.

The moral superiority of this position - supposedly reflected in Wolf Blitzer's "gotcha" question to Ron Paul - is not self evident. Christians certainly are charged with concern for the poor but one cannot discharge that moral obligation with other people's money.

Having said that, unlike Paul, I am not a libertarian and I think that, if for pragmatic reasons alone, a social safety net supported by moderately progressive taxation is appropriate. But no one really disputes that.


Dad29 said...

Someone made the point that cap-gains are taxed at 15% BUT cap-loss writeoffs are limited to $3K.

Not sure if that's a complete and accurate representation, but if so, then, following your theory, all cap-losses should be deductible before the applicable marginal rate gets applied, no?

Rick Esenberg said...


Anonymous said...

I'll rely on Warren Buffet's calculations over yours or any other partisan hacks, thank you.

It's not "class warfare". That's an emotion-based, partisan term that has no real meaning, kind of like "strict constructionist" or "progressive". It's a label used to get people to develop an emotional reaction and support ideologues with their votes and their pocketbooks.

As a famous bank robber once said, you tax the rich more because that's where the money is. Last I checked they own just about everything. That means they benefit the most from a lot that the government provides, like national defense, the interstate highway system, education, and gobs upon gobs of corporate welfare.

It's really not a value-laden decision, it's math, as the President says. We as a society have decided we like to have social security and Medicare. We've decided we're not going to let poor kids and disabled people roll the dice with charity, or die, and so we fund Medicaid. We've also decided we like lots of other spending. So, we have to tax. That's called math. I'm sure you've used it when balancing your checkbook, or at least you have help with it.

Can the rich foot the whole bill? No, of course not. Should the rates be as low as possible and the base as wide as possible? Yes, obviously it should. There are economic issues to consider; we can't tax the rich 100% but we also can't tax someone who makes $9 an hour a whole lot either, so we have to find the coin as best we can.

Tom said...

Anon, Warren Buffet's "calculation" was comparing his own tax rate to his secretary's. I'm not convinced he actually asked his secretary what his or her tax rate was, even, but the point is he found one anecdotal example of an anomaly.

Don't take our word for it, check out the IRS's own statistics, which show that those making over $1 million pay a total tax rate that's twice as high as the upper middle class ($50k-$100k) and three times higher than the lower middle class and poor (<$50k).

The problem with your 4th and 5th paragraphs is that you keep saying "we've decided this, we've decided that" - you've left out that "we" have decided to pay for the vast majority of that by taking the money from a tiny minority. I can't think of any system of morals that would allow that as a "fair" result.