Obama and the Super-Rich

Most Blogged About Stories at NYT.

While I thought my title, Win the Nows, was original (and it was), the article it quoted was blogged by everybody and their sister. It was the #2 most blogged about story in the last seven days1 from the New York Times when this was posted.

NYT Most Blogged ArticlesThe left dimension of the blogosphere rightly ridiculed it, with one prominent blogger, Marcy Wheeler, basically writing the same thing that I did. Some other good posts from people I regularly read:
  • From economic and media criticism star Dean Baker, President Obama's re-election economic policy. Too bad he needs to go to the UK's Guardian to carry his weekly column on a major newspaper's website.
  • From the often just-wrong-enough-to-be-entertaining John Cassidy, Wrong-Way Corrigans in Charge at White House. He does well here, highlighting a key passage that I skipped. "Several of his political advisers are skeptical about the merits of stimulus spending, and they are certain about the politics: voters do not like it." The point being that it is Obama and his advisers' fault that the public doesn't like something that prevented a depression. Cool Flash graphic from Real Clear Politics, too.
  • From the the Beard of Actually Understanding and Explaining Too, Paul Krugman, Little or Nothing. This is from his blog, which I don't regularly read. (Inside joke reference)
Moving on to the #1 most blogged article, Stop Coddling the Super-Rich, by Warren Buffett. When we last read Buffett in the pages of the NYT, we were not impressed, to say the least. Nine months later, he does better, but he is still too white-bread for my tastes. The worst he does in this installment:
These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.
For somebody who has tremendous credibility, it is extremely frustrating that he deliberately obscures the politics. (No, I don't buy the average old guy schtick. He's sharp as a diamond drill bit.) Legislators protect the rich because the rich pay them to. And I'm not just talking about campaign contributions. Actual pay through expense accounts, speech honorarium, bulk book orders, employment for relatives, and post-Congressional careers. If a Senator or a House leader doesn't eventually become a millionaire, they are either a fool or remarkably still have a scrap of integrity left.

Click here to skip the following digression of two general pet peeves of mine about taxes. Not paying them, but the press talking about them. The first is the failure to spell out the difference between total income and taxable income. Buffett uses taxable income in all numbers in his piece. It's easy to assume that the taxable income cited is the total income, but total income is always higher, sometimes very much higher. For instance, the seemingly magical threshold of $250,000 in taxable income per year (for married people) translates to a total income that is probably well over $300,000. Whenever you hear the words "tax loophole," that means dollars are subtracted from total income to get taxable income. So your total income remains the same, while your tax bill goes down. Taking all deductions into account - standard, mortgage interest and the pure tax dodges - would lower all of the percentages that Buffett states.

The other point is that what really matters to people is the effective tax rate - the amount paid in taxes divided by total income. This isn't very different than the marginal tax rate for the super-rich like Buffett, because carried interest and capital gains (taxed at 15%) apply to all income from dollar one to dollar one bazillion. But for the office workers at Berkshire Hathaway, while their marginal federal income tax rate might be in the 30's, their effective tax rate will be far lower. That is the effect of having tax brackets, which are below.

2010 Tax BracketsLet's say you're a big shot and make $450,000 in salary. You're married and your taxable income is $400,000. (I don't know how realistic that is, but I think it is conservative, meaning on the higher side for taxable income). Totaling tax owed up the brackets gives you $114,317 in federal tax owed. (Source) That's 25% of your total income. It's still ten points higher than the super-rich, but it's also ten points lower than the 35% marginal tax bracket you are in.

If you're a lowly clerk, making $80,000 a year, your taxable income will be around $68,000 and your federal income tax bill will be $9,362 - an effective federal income tax rate of 11.7%. Whoo-hoo! That means considering just people making under $100,000 and the super-rich, the federal income tax system is progressive. Wait, we aren't considering payroll taxes. Damn. Taking payroll taxes into account (6.2% for taxable income from 0 to $106,800 for Social Security2 and 1.45% of all taxable income for Medicare), this person pays $5,202 in payroll taxes, for an effective federal tax rate of 18.2%. Whoops. The federal tax system isn't even progressive just considering working stiffs and the super-rich. (End digression)

I will give Buffett credit for highlighting payroll taxes, which are actually higher for most Americans than federal income taxes. And big props for this:
I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.
However, I would note that "those who argue that higher rates hurt job creation" includes the entire Republican Party and a lot of Democrats, including President Obama.3 If Buffett really wanted to make this specific point, he would have to name names instead of deriding "those people." For instance, Buffett's own Senators, Ben Nelson, a Democrat, and Mike Johanns, a Republican, should be called to account. I can guarantee Buffett will never do this. Meanwhile, it only takes him two paragraphs to get back to the home-spun hokum:
I know well many of the mega-rich and, by and large, they the ones I socialize with are very decent people. They love America and appreciate the opportunity this country has given them. Many A drop in the bucket have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most Only a few wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.
I've edited the original to be more accurate. For all the credit Buffett is getting for these nice words, the bottom line of the piece is this:
Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here.
That means big cuts to Social Security and Medicare. I'm glad he didn't use "entitlements," which has become a dirty word to some, but I'm not sure "future promises" is any better. It seems almost reasonable to welch on a future promise. Only after calling for big cuts, oh I mean, big savings, does he say raise rates on millionaires and ten-millionaires. But he doesn't say how much, he doesn't say how it would apply to the carried interest and capital gains rates and most importantly, he doesn't say how much revenue would be raised by his idea. With the big money cuts to Social Security and Medicare, it is likely to dwarf the increased revenue.

My bottom line is that Buffett is not being serious. The only serious budget proposal so far is the People's Budget, offered by the Congressional Progressive Caucus. When Buffett is ready to endorse it, let me know.

1 You can see the popularity lists for the online Times. Click the "Go to complete list" link at the bottom of each one for more info.

2 It's actually 4.2% for the employee's side of the SS tax right now due to the Obama tax cuts, but I'll use 6.2% for this example.

3 Obama doesn't hammer the point home like GOP leaders, but he backed off his promise to end the high income tax cuts because the economy couldn't take it right now. That means he believes higher tax rates on rich people hurts job creation.