Tuesday, September 20, 2011

Tax Rates, Rich, AMT, Buffett Rule, Obama

The case for the Buffett tax keeps eroding... the inconvenient revelation that the new 30% millionaire's tax would raise only $46.7 billion over 10 years, and would leave about 99.5% of the deficit intact in 2013...
Now we learn that the Buffett tax the Senate is expected to vote on early next week will make the deficit worse. That's because both Mr. Obama and Senate Democrats have made it clear that their new "fairness" tax is to offset the revenue loss from another provision related to the Alternative Minimum Tax.
That measure would exempt more than 20 million middle class Americans with incomes as low as $80,000 a year from getting nailed by the AMT...
The Joint Tax Committee—the official scoring referee on tax bills—calculates that the combination of AMT repeal for the middle class and the Buffett tax would add $793.3 billion to the debt over the next decade...
The Buffett tax is losing any serious rationale by the day. Mr. Obama's position now is that we need a new fairness tax, because the old AMT fairness tax that was targeted at millionaires and billionaires isn't raising much money from the Warren Buffetts of the world... So they argue it's time for a new Buffett rule, that is almost identical to the old Buffett rule, and no doubt in time will have the same unintended consequences.
-Wall Street Journal 4/13/2012

Let’s do the math. The Joint Committee on Taxation estimates this new tax would yield between $4 billion and $5 billion a year. If we collect the Buffett tax for the next 250 years — a span longer than the life of this republic — it would not cover the Obama deficit for 2011 alone....
The reason Buffett and Mitt Romney pay roughly 15 percent in taxes is that their income is principally capital gains.
The Buffett Rule is, in fact, a disguised tax hike on capital gains.
But Obama prefers to present it as just an alternative minimum tax because
50 years of economic history show that raising the capital-gains tax backfires: It reduces federal revenues, while lowering the tax raises revenues...
-Krauthammer 4/12/2012

“There are others who are saying: ‘Well, this is just a gimmick. Just taxing millionaires and billionaires, just imposing the Buffett Rule, won’t do enough to close the deficit,’ ” Obama declared Wednesday. “Well, I agree.”
He gave his remarks in a room in the White House complex adorned with campaign-style photos of his factory tours. On stage with him were eight props: four millionaires, each paired with a middle-class assistant. The octet smiled and nodded so much as Obama made his case that it appeared the president was sharing the stage with eight bobbleheads...
A search of the White House Web site yields 17,400 mentions of the Buffett Rule — a proposal that would bring in $47 billion over 10 years, much of that from 22,000 wealthy households. By contrast, the alternative minimum tax gets fewer than 600 mentions on the site. The AMT, if not changed, will take about $1 trillion over a decade from millions of taxpayers, many of whom earn less than $200,000 a year.
-Dana Milbank 4/11/2012

Rick Santelli 4/11/2012:

Paying a Fair Share Act, bill is S. 2230.
Of the 217,000 households that would be affected by the Buffett rule, 4,000 will have incomes exceeding $1 million and tax rates lower than 15 percent, under slightly different measures of income and taxes by the center...
The bill would raise U.S. tax revenue by $47 billion over the next decade [$4.7 B a year]...
Obama has framed his push for the Buffett rule as a fairness issue...
-Bloomberg 4/10/2012

Introducing a minimum 30 percent income tax on millionaires “was never our plan to bring the deficit down and get the debt under control,” Jason Furman, the principal deputy director of the White House National Economic Council, told reporters on a conference call Monday afternoon...
President Barack Obama said in the State of the Union address in January that paying the “fair share of taxes” was necessary for a “sense of shared responsibility. That’s how we’ll reduce our deficit.”
-Politico 4/10/2012

A bill designed to enact President Barack Obama's plan for a "Buffett rule" tax on people earning more than $1 million a year would rake in just $31 billion over the next 11 years, according to an estimate by Congress' official tax analysts obtained by The Associated Press. That would be a drop in the bucket of the over $7 trillion in federal budget deficits projected during that period.
The figure is also miniscule compared to the many hundreds of billions the government earns from the alternative minimum tax, which Obama's budget last month said he would replace with the Buffett rule tax.
The alternative minimum tax, originally aimed at ensuring that wealthy Americans pay taxes despite deductions and other breaks, has begun affecting upper middle-class families, and Congress acts every year to minimize its impact.
In an analysis provided to The AP on Tuesday, Congress' Joint Committee on Taxation estimated that a bill introduced last month by Sen. Sheldon Whitehouse, D-R.I., enshrining Obama's proposal into law would collect $31 billion over the coming 11 years.
Obama has proposed requiring that people earning at least $1 million annually pay at least 30 percent of their income in taxes.
The plan is named for billionaire investor Warren Buffett, who has said that taxes on the wealthy are not high enough.
"Most important: It's simply the right thing to do," Sen. Whitehouse said in a statement.
Whitehouse's bill would require people making at least $2 million a year pay at least 30 percent of their earnings in taxes, though they could deduct certain amounts for their charitable contributions. The tax would be phased in for people earning at least $1 million annually.
Obama has not spelled out details of how his proposal would work.
- excerpts from a 3/20/2012 AP article by Alan Fram

[A Buffett Rule based on his secretary's tax rate] shows how unwise it is to legislate from anecdotal evidence. The U.S. tax code overall is amazingly progressive. The rich pay much higher average effective rates than middle- or low-income folks. According to the Tax Policy Center, in 2010:
*the top 0.1 percent paid an average tax rate — including income and payroll taxes — of 30.7 percent, right at the Buffett Rule level.
*By contrast, middle-income voters — defined as those in the middle fifth of income distribution — paid just 12.8 percent.
*The bottom 40 percent of taxpayers had an average total tax rate of even less, just about 3 percent when you take into account various tax credits.
And if you look at the tax burden by amounts paid rather than tax rates, the system looks even more lopsided. In 2009:
*the top 1 percent paid 36.7 percent of federal income taxes as they earned 16.9 percent of adjusted gross income.
*And the richest of the rich, the top 0.1 percent, paid 17.1 percent of income taxes while earning 7.8 percent of adjusted gross income, according to the Tax Foundation.
*The bottom 50 percent pays just 2.3 percent of income taxes.
Obama should review the findings of his own debt commission. It recommended lowering tax rates while getting rid of tax breaks. This would simplify the tax code and improve efficiency. But the Buffett Rule does just the opposite. It adds a new layer of complexity and raises tax rates. Obama should go back and embrace what his own panel recommended. He could even call it the Obama Rule.
-excerpts from a 1/30/2012 The Daily article by James Pethokoukis 

Joe Barr, as LBJ's last Treasury Secretary—he served only 30 days— became famous for his January 1969 testimony before Congress that 21 millionaires and 115 tax returns reporting income above $200,000 had paid no income tax in 1967.
Washington proceeded to bend tax policy to chase those 21 millionaires, and so we got the Minimum Tax of 1969 that later became the Alternative Minimum Tax. The AMT now hits some four million taxpayers, and 27% of households that paid the ATM in 2008 had adjusted gross income of $200,000 or less.
Congress keeps passing an annual reprieve to prevent the AMT from hitting another 20 million or so taxpayers, most of whom are far from millionaires.
President Obama's complaint, echoing billionaire Warren Buffett, is that too many billionaires pay a lower rate than regular salary earners.
Mr. Obama insisted that one of his reform "principles" is that people who make more than $1 million must pay a higher tax rate than middle-class earners.
There's one small problem:
The entire Buffett Rule premise is false...
The IRS reports that:
Those who made more than $1 million in adjusted gross income paid an average income tax rate of 23.3%.  
Those making between $500,000 and $1 million paid a rate of 24.1% 
Those earning between $50,000 and $100,000 paid a rate of 8.9%
Those earning less than $50,000 paid a rate of 7.2%.
The larger point is that the claim that CEOs are routinely paying lower tax rates than their secretaries is Omaha hokum.
If Mr. Obama really wants all of these people to pay even more in taxes, there are only two ways to do so. One is to raise tax rates on capital gains, dividends and other investment income that is taxed at 15%...
The problem is that this is a tax increase on capital investment, which the U.S. already taxes at prohibitive rates thanks to our high corporate tax rate of 35%. Capital gains and dividends are taxed twice, first as corporate profits and then as payouts to individuals. Their real capital gains tax rate is closer to 45% than 15%...
The other way to raise taxes on the rare Buffett is with a new Minimum Tax...
The plan Mr. Obama unveiled yesterday along with his Buffett Rule would sock the economy with $1.5 trillion in new taxes over 10 years, or about 1% of GDP. This includes the tax increases built into the 2013 expiration of the Bush-era tax rates but not those of ObamaCare.
-Excerpts from a 9/20/2011 WSJ editorial by Paul Gigot

President Barack Obama makes it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries.
The data tell a different story. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.
In his White House address Monday, Obama called on Congress to increase taxes by $1.5 trillion as part of a 10-year deficit reduction package totaling more than $3 trillion. He proposed that Congress overhaul the tax code and impose what he called the "Buffett rule," named for billionaire investor Warren Buffett.
The rule says, "People making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay."
According to the Tax Policy Center:
In 2011:
Households making more than $1 million will pay an average of 29.1 % of their income in federal taxes, including income taxes and payroll taxes.
Households making between $50,000 and $75,000 will pay 15 % of their income in federal taxes.
Households making between $40,000 and $50,000 will pay an average of 12.5 % of their income in federal taxes.
Households making between $20,000 and $30,000 will pay 5.7 %.
IRS figures (limited to federal income taxes): 
In 2009:
Taxpayers who made $1 million or more paid on average 24.4 % of their income in federal income taxes.
Those making $100,000 to $125,000 paid on average 9.9 % in federal income taxes.
Those making $50,000 to $60,000 paid an average of 6.3 %.
Obama's claim hinges on the fact that, for high-income families and individuals, investment income is often taxed at a lower rate than wages. The top tax rate for dividends and capital gains is 15 percent. The top marginal tax rate for wages is 35 percent, though that is reserved for taxable income above $379,150.
The Tax Policy Center estimates that 46 percent of households, mostly low- and medium-income households, will pay no federal income taxes this year. Most, however, will pay other taxes, including Social Security payroll taxes.
-Excerpts from a 9/20/2011 AP article by Stephen Ohlemacher

Billionaire investor Warren Buffett isn’t as undertaxed as he and President Obama seem to think.
Buffett recently said that he paid only $6.9 million in taxes last year -- just 17.4 percent of his earnings, compared to an income tax rate of about 36 percent paid by his employees.
Obama invoked Buffett’s name again in his case for imposing higher taxes on the wealthy, when he said: “Middle-class families shouldn’t pay higher taxes than millionaires and billionaires.’’
Buffett actually was taxed twice on his investment income.
First, Buffett had to make the money he invested. Those earnings were taxed as corporate income, at about a 35-percent rate.
Then, Uncle Sam took another cut when Buffett invested the money and earned a profit. That’s when Buffett paid the 15 percent capital-gains tax rate.
All told, after combining corporate taxes and capital gains taxes, Buffett forked over about 45 percent of his earnings.
-Excerpts from 9/20/2011 NY Post article by S.A. Miller

Using 2009 IRS tax return data (a generous year to consider the Buffet Rule; the S&P Stock Index increased 24% in 2009):

If you put a floor at their current marginal tax rate of 35%, the government would obtain $37 billion more dollars, just 2.5% of the 2009 $1.5 trillion deficit.
If you increase the floor to the pre-Bush-tax-cut marginal rate of 39.6%, the additional revenue grows to $66 billion, or 4.5% of the year's deficit.
Even a tax floor for these individuals at 75% would cover less than 20% of the year's deficit.
Even most populist among us probably worries that a tax rate that high could do more harm to the U.S. economy than good.
-Excerpts from a 9/20/2011 Atlantic article by Daniel Indiviglio