The Buffett Tax Defeated in the Senate -or- How They Learned Not To Love Eleven Hours of Tax Revenue

"Buffett Tax Baloney - So the Buffett tax ruse is finally dead.

The millionaire tax—named for financier Warren Buffett and designed to ensure that high earners pay at least 30% in federal income tax—failed to get the 60 Senate votes necessary and went down 51 to 45.

The Senate's class warfare champion, Democrat Sheldon Whitehouse of Rhode Island, even acknowledged that this is not about growth or deficit reduction or raising tax revenues. Rather, it's about "tax fairness." Republican presidential candidate Mitt Romney noted that the plan "would pay for government for less than 11 hours. This isn't a grand idea." But President Obama thinks it is. Mr. Obama wasted no time blasting Republicans for "spending money" on tax cuts for the "wealthy that they don't need."

Only one Republican senator, Susan Collins of Maine, supported the tax. Mark Pryor, a Democrat from Arkansas voted no. Democrats thought that this issue was solid political gold, and polling seemed to show that two of three Americans supported the tax hike on "millionaires and billionaires." But what this exercise has accomplished for the Democrats is an open question. Sen. Chuck Schumer of New York promised after the vote to bring the issue up again and again. The party now appears to be more obsessed with socking it to the rich than with creating jobs, growing the economy, or solving the middle-class squeeze." - Stephen Moore, The Wall Street Journal, Political Diary, 04/17/2012

The Buffett Tax: Ops! Buffett being sued by the government to pay more taxes? No way! Way!

"Legendary investor Warren Buffett, who grabbed headlines and ruffled feathers by saying that the rich don't pay enough in taxes, is being sued by the government to pay more taxes, the New York Times reports.

Or at least one of his companies is.

The government has filed a lawsuit against a unit of Buffett’s investment vehicle Berkshire Hathaway, seeking $366 million in unpaid taxes and penalties, the newspaper reports.

The unit in question is NetJets, a private aircraft company that caters to the wealthy, the very people riled by Buffett's tax proposals.

The company and the government are at odds over whether a certain tax applies to NetJets users." - Government Sues Warren Buffett Firm Over Taxes, Forest Jones, 03/27/2012, money news.com

Link to the entire article appears below:

http://www.moneynews.com/StreetTalk/buffett-tax-netjets/2012/03/27/id/433991?s=al&promo_code=E893-1

Upon Further Review: Buffett Tax Math

"As anyone with at least a passing familiarity with tax-policy analysis would know, Buffett was leaving out a critical piece of information. The very reason that dividends and capital gains bear a lower tax rate than wage income is that, unlike wages, they are not deductible from corporate income taxes.

That is, if you receive income from owning or selling corporate stock, that income has already been taxed at the corporate level. The same is not true for wages. So unless you make dividends and capital gains deductible to some entity – either the corporation or the shareholder – investment income is double-taxed.

Under the current system, which levies a lower personal tax rate on investment income but not a zero rate as tax neutrality would require, most of Buffett’s income is taxed at a higher effective tax rate than his secretary’s wages. He may not be writing a personal check for all those taxes, but he bears their cost in the form of lower returns". (1)

HT: B. Kavanaugh

(1) Carolina Journal, 09/21/2011  http://www.carolinajournal.com/jhdailyjournal/index.html

“Buffett Effect” leading to the “Buffett Tax”.

 

Assume for a moment we have a butcher, a baker, and a candlestick maker. We will confine our discussion to financial success [vs. other types of “success”]. The three, one way or another, become owners of businesses. These businesses grow. Hence the three go through all phase of being broke, to being risk takers, to becoming successful.

Let us further assume that over time the butcher and baker are successful to the tune of $750,000 per year in income whereas the candlestick maker earns $10,000,000 per year in income. Along the way the three amass wealth but the candlestick maker has ten times the wealth of each the butcher and baker. All are financially successful merely to differing degrees.

Now let us focus on the “Buffett Effect” leading to the “Buffett Tax”. For one reason or another some people that reach the candlestick maker’s level of financial success (in the above example) feel the need to “give back”. Milton Friedman stated :


“So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no they do not”. (1)

"...there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." (2)

Friedman was eluding to executives and owners of firms create social value by providing current and future employment and creating current and future wealth. That the social value of employment is generally over looked. That the social value of employment is what executives and owners of firms are best at doing and what they should concentrate upon.

However, rather than concentrating on their first and best recourse, the need to "give back" appears. The need to “give back” is focused upon on an exogenous area other than what Friedman eluded to above. Hence "give back" comes in the form of charitable giving which creates libraries, museums, foundations, etc.

Moreover, at some unknown but certain point, surrounding the concept of the “give back” mind set, a disconnect occurs where the giver thinks all should be like him/her. That his/her “give back” should be the norm for all. That is, the give back mind set morphs into Thomas Sowell’s explanation of notional propositions [visions of the anointed], based on the way things ought to be, argued through verbal virtuosity, merely ending in the person painting the world in her/her own self image. One might refer to the above phenomena as the "Buffet Effect". (3) (4) (5)

If one steps back for a moment and returns to Friedman, if the want-to-be “give backer” had taken his/her “social responsibility” as concentrating on what they do best, creating more and better jobs, would society be better off? If Jane and James Goodfellow have more and better jobs would that in and of itself solve more societal needs than merely “giving back” charitably?

At some point the “Buffett Effect” spills over from charitable giving to “state giving“. Some wider omni-giving mind set. That somehow philanthropy morphs into social welfare. Hence the "Buffett Tax".

Note: one would have to assume a social welfare state already exists in the background as how could the once charitable “give backer” morph into “state giving” without the social welfare outlet existing in the first place. Which then leads back to executives and owners of firms creating social value by providing current and future employment. That is, does a portion of the existing social welfare state exist do to the failure to create jobs with wealth rather than giving away wealth?

Therefore the “Buffett Effect” and the “Buffett Tax” may well be circular when a social welfare state exists. The would be job creator decides "giving back" is more valuable than his/her first and best skill as job creator. Charity is produced but less than optimal jobs are produced. The less than optimal job creation enhances the need, perpetuation, and existence of the social welfare state. The "Buffett Effect" morphs into "state giving" as an omni-giving exercise with wealth bestowed upon the welfare state. The social welfare state bloats, the charitable giving continues, optimal job creation is not produced, leading to more "state giving", and so goes the circle.

Notes:

(1) Interview "Milton Friedman Responds" in Chemtech (February 1974) p. 72.

(2) Rethinking the Social Responsibility of Business, http://reason.com/archives/2005/10/01/rethinking-the-social-responsi

(3) Thomas Sowell, Visions of the Annionted

(4) Thomas Sowell, Intellectuals and Society

(5) Thomas Sowell, A Conflict of Visions

Buffett Tax: “This is not class warfare, it’s math.”

'This is not class warfare, it's math,' challenges the president. (1)  

Obama loves class warfare. He has played the class warfare card over and over again to the point of a broken record. Obama frames the class warfare argument with the answer to the argument being tax increases.

Keep the above in mind for a moment.

FDR loved class warfare. He played the class warfare card over and over again to the point of a broken record. FDR framed the class warfare argument and answered the argument with multiple tax increases.

In Jim Powell’s book FDR’s Folly he points out the following:

(a) during and after the 1937 “recession within a depression” FDR continued to bang the drum of class warfare rhetoric,

(b) after the 1937 the real live, real time people living in the depression began to reject FDR’s class warfare rhetoric as FDR had been banging the drum for years [the depression was the doing of “rich” people] yet the depression lingered on and got worse [1937 recession].

(c) after 1937 congress began passing tax decreases and that congress became more and more Republican (voters electing those representing the opposite argument to FDR’s class warfare/tax argument). (2)

 


Notes:

(1) Obama proposes $1.5 trillion in new taxes        http://www.msnbc.msn.com/id/44578820/ns/politics-white_house/

(2) FDR's Folly, How Roosevelt and His New Deal Prolonged the Great Depression, Three Rivers Press, NY, NY 2003

Buffett Tax Translation

'Obama added, "I’m proposing real cuts to spending. These would be among the biggest cuts in our history ... This plan eliminates tax loopholes that primarily go to the largest corporations."

"We can’t afford these special lower rates for the wealthy — rates, by the way, that were meant to be temporary." ' (1)

Observation: the tax code is a political creation or an economic creation? The loop holes and tax rates are a political creation or an economic creation? 

In Action: does economic man, faced with politico man's tax code, act rationally to reduce tax to the maximum extent? 


Translation: the ultimate "creator" [politicos] want to merely recreate in their own [new, newest] self image. Its not about economics, its all about politics.

Notes:

(1)
http://themoderatevoice.com/122763/obama-on-proposed-1-5-trillion-in-new-taxes-this-is-not-class-warfare-its-math/

Harvey Golub on Warren Buffett

"Governments have an obligation to spend our tax money on programs that work. They fail at this fundamental task. Do we really need dozens of retraining programs with no measure of performance or results? Do we really need to spend money on solar panels, windmills and battery-operated cars when we have ample energy supplies in this country? Do we really need all the regulations that put an estimated $2 trillion burden on our economy by raising the price of things we buy? Do we really need subsidies for domestic sugar farmers and ethanol producers?

Why do we require that public projects pay above-market labor costs? Why do we spend billions on trains that no one will ride? Why do we keep post offices open in places no one lives? Why do we subsidize small airports in communities close to larger ones? Why do we pay government workers above-market rates and outlandish benefits? Do we really need an energy department or an education department at all?

Here's my message: Before you "ask" for more tax money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely. Then you'll need less of my money." -  Harvey Golub American Enterprise Institute

The entire Wall Street Journal op-ed is at the link below:

http://online.wsj.com/article/SB10001424053111903639404576516724218259688.html?mod=WSJ_Opinion_LEADTop