Mike Kueber's Blog

January 25, 2012

Double taxation

Filed under: Business,Issues,Politics — Mike Kueber @ 4:44 am
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I confess that because I was preoccupied with a Happy Hour, I missed President Obama’s State of the Union address.  But prior to the address, I heard that a major part of the address was the so-called Buffett rule, which focuses on the fact that some secretaries paid taxes at a higher rate than their bosses.  I agree with this criticism of the American tax code.

Mitt Romney recently disclosed that his tax obligation was less than 14% even though he made about $20 million a year.  Based on news reports, President Obama was prepared to highlight that many secretaries not only paid taxes at a higher rate than 14%, but also had to pay social-security taxes of more than 7%, which the multimillionaires were not required to pay on the bulk of their income.

I agree that rich people should not be allowed to pay reduced income-tax rates simply because their income comes from capital gains.  The argument that such a tax amounts to double taxation doesn’t make sense.  Just because someone pays taxes on earned income doesn’t mean that additional income earned on that income shouldn’t be taxed.  America’s tax system is based on levying a tax on each transaction (e.g., sales tax is assessed every time your car is sold), and that is completely consistent with taxing a person on earned income and then taxing them again when those assets are used to generate capital gains.  The tax rate on capital gains should be at least at much, if not more, than the tax rate on earned income.  This concept would also work with estate taxes, where there is a tax on income earned and then another tax on the assets when they are tranferred to a beneficiary.  

To suggest that people will be reluctant to invest their capital because capital gains will be fully taxed is ludicrous.  That’s like saying you will decide to stop earning income above $250k just because the marginal rate on income over $250k is increased to 40%.

October 13, 2011

The Buffett Rule – a Republican version

Filed under: Issues,Politics — Mike Kueber @ 5:33 pm
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Senator John Thune of South Dakota has been one of my favorite politicians in Washington.  Like people from my native state of North Dakota, people from South Dakota and the Great Plains tend to be thoughtful and modest.  (Sarah Palin is a glaring exception.)  Through the years, Senator Thune seemed to be a good reflection of Great Plains values, until last night.

Last night, Thune appeared on On the Record with Greta van Susteren to announce the introduction of a bill to enact the Buffett Rule.  As you may recall, Buffett thinks there should be an alternative minimum tax rate on the mega-rich so that the investors who live off capital gains and the hedge-fund managers who live off “carried interest” pay at a rate higher than their current rate of 15%, but less than the current maximum rate of 35% on regular salaries/earned income.  (Twenty-five percent has been informally suggested).  President Obama has informally endorsed the Buffett Rule.

I blogged about the Buffett Rule a few weeks ago, and suggested that it would be a good idea, especially in the context of comprehensive tax reform.  Any attempt to adopt the Rule on its own, however, would be doomed because both sides had already shifted into their demagoguery of a good idea – the Republicans claimed that it was class warfare while the Democrats claimed that the rich were getting off easy.

Because of my pessimism, I was mildly surprised to see Thune moving forward with the Buffett Rule.  Thune has become a player in the Senate, not by showboating, but by being a good team player.  Thune didn’t get very far into his interview with Greta, however, before he disabused me of any notion that he might be above petty politics.

Thune explained to Greta that his Buffett Rule wouldn’t accomplish what Buffett wanted, but rather it would accomplish what Mitch McConnell and several other demagogues wanted – i.e., it gave Buffett and any other mega-rich, if they thought there should be a minimum tax rate on the mega-rich, a streamlined process for voluntarily donating cash to the federal government.

Such a proposal, which fits the classic definition of demagoguery, makes no sense.  Under the Thune thought-process, legislators would never be able to require anything of the public because opponents of the requirements would simply argue that those who support the requirements should voluntarily comply while leaving everyone else alone.  You think the speed limit should be 55 mph?  Go ahead and comply, but leave me alone.  You think the sales tax should be raised to 9%?  Go ahead and pay it, but leave me alone.  You think we should re-institute the draft?  Go ahead, but leave me alone.

But that’s not the way government works.  Buffett wasn’t saying that he wanted to give more of his money to the government; he was making a policy argument that there should be a minimum tax rate that prevented his office staff from having a higher effective tax rate than many of the mega-rich.  Buffett’s argument is not demagoguery – instead of appealing to one’s baser side, it appeals to one’s higher side.

A blog posting in The Hill this week describes Thune’s proposal.  The title of the posting is “Thune introduces own version of ‘Buffett rule’, mockingly solicits donations from wealthy.”

Senator Thune, you may disagree with the Buffett Rule, but you should have better things to do that mock it.

Btw – the NY Times had an article today on the Buffett Rule and another Republican congressman from the Midwest, Tim Huelskamp of Kansas, who wants some time in the spotlight.  Ever since Buffett proposed his rule, Huelskamp has been demanding that Buffett release his tax return.  Is that the sort of harassment that concerned citizens are supposed to be subjected to?

Although Buffett decline to provide his tax return to Huelskamp, he did send him a letter stating that he paid $6.9 million in federal income taxes in 2010 and this amounts to 17.4 percent of his $39.8 million in taxable income.  According to the NY Times article, “Mr. Huelskamp, in a statement Wednesday, slammed Mr. Buffett’s letter as inadequate and again called on him to either release his full returns or voluntarily give more tax money to the federal government.”

Thune and Huelskamp are Midwestern Republicans from states that border Buffett’s Nebraska.  This week, they have not done their state, their region, their political party, or America proud.

September 30, 2011

Buffett’s perspective

Filed under: Economics,Issues,Politics — Mike Kueber @ 11:04 pm
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This morning, while watching Imus in the Morning on the FOX Business channel, I learned that Warren Buffett was going to be interviewed on the floor of the stock exchange by a FOX correspondent in a few minutes.  What a pleasant way to start the day!

The ten-minute interview reminded me why I like Buffett so much.  Most of the interview focused on the Buffett Rule, which has been proposed by President Obama.  The rule is really nothing more than a minimum income-tax rate (probably 25%) for people who make more than $1 million a year.  As Buffett pointed out, hundreds of these people currently pay less than 25% because the bulk of their earnings are taxed at the 15% rate for long-term capital gains.  This new minimum rate seems perfectly fair, and it does not raise the specter of a rate so high that it discourages entrepreneurs.

The other major issue discussed by Buffett was the lagging economy.  Buffett said that that things were improving, with most of Berkshire’s operational companies on schedule for record profits, except for his homebuilding companies.  When the FOX correspondent wondered what could be done to revive homebuilding, Buffett sagely told her that nothing needed to be done – i.e., he didn’t want to see more houses being built now.  He went on to explain that the bubble caused America to build more houses than it had households, and that resulted in an excess inventory of houses.  Today, America was creating more households than houses and this was slowly reducing the excess inventory.  It’s just a matter of time before homebuilding picks up.

When asked what American government should do from a macro-economic perspective, Buffett said that fiscal or monetary policy cannot supply the answer.  When pressed for an answer, Buffett said that we have already done as much as we can with fiscal and monetary policy, and that we need to give the economy some time.  Ultimately, the “natural regenerative juices of capitalism” will prevail.

What did Buffet think about stock market prices?  Berkshire was buying stocks every day, and in the 2nd quarter they had a net increase of $4 billion in the market.  Talk is cheap, but that’s his money talking.  I wish I had $4 billion to put in today’s market.

Regarding the recent retirement planning going on at Bershire, Buffett claimed that he was merely making sound precautions “should he drop dead tonight.”  But he had no plans to retire or slow down.

Long live Buffett.

 

 

 

 

 

September 18, 2011

The Buffett rule

Filed under: Issues,Politics — Mike Kueber @ 9:29 pm
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According to an article in the Washington Post, President Obama is planning on Monday to propose a new minimum tax rate for millionaires – a so-called Buffett rule because Warren Buffet recently said that the American tax system should ask more from the mega-rich.   The Post reports that, based on appearances by Lindsey Graham and Paul Ryan on Sunday talk shows, Republicans are expected to be united against the proposal.  They will argue that this is more class warfare by President Obama and that Americans are Taxed Enough Already.

Although I didn’t see Graham or Ryan on the Sunday talk shows, I did see Senate Majority Leader Mitch McConnel on Face the Nation.  Ever since McConnel was a stick-in-the-mud obstructionist during the Bush administration, I have disliked this dour sourpuss, and my dislike grew today with his silly argument against the Buffett rule – i.e., if Buffett thinks the rich should pay more in taxes, there is nothing stopping them from sending personal checks to the federal government.  That is as nonsensical as a criticism I heard last week to the effect that Buffett’s company, Bershire Hathaway, shouldn’t be contesting an IRS tax ruling because Buffett thinks the rich should pay more in taxes.  What does one have to do with the other?

Remember that McConnell was the king of earmarks for years and was one of the last holdouts to capitulate to the TEA Party on this issue.  The next time he proposes spending money for some Kentucky boondoogle, we should ask him to fund it either with his millions or with the millions that his campaign has accepted from people and companies trying to bribe him.

Getting back to class warfare – last Tuesday, I blogged a suggestion to the Democrats about their continual class warfare – i.e., give it a rest.  In a response to a commentator, however, I agreed that higher rates for those who make $1 million or $10 million would be fair.  I also suggested that it was not fair that half of all Americans pay no income tax and that everyone who makes an income should pay some income tax.

Because of the partisanship in Washington, these changes can’t be implemented in a piecemeal fashion.  Fortunately, there is bipartisan agreement that comprehensive tax reform, which was last done in during the Reagan administration, is overdue and there appears to be reason for optimism that it can be accomplished before the 2012 election.  I’m keeping my fingers crossed.