One of the more sickening aspects of the ongoing budget debate has been the griping of millionaires and billionaires that they’re not paying enough taxes. As if they can’t fork over more because Treasury won’t take their check.
One in particular, Warren Buffett, says he pays taxes at a lower rate than his secretary. This has become a cherished anecdote for President Obama, which the president uses to make his pitch for soaking the rich some more.
And it has led to the egregious and misnamed “Buffet Rule,” which is actually the “Buffet tax.”
Under the Buffett tax, people making $1 million or more a year would have to pay taxes at the same rate or more as those in the middle class.
Now, as you might expect, this would put a significant dent in our federal deficit.
If by “dent” you mean ERASABLE PAINT SCRATCH.
That this is a political stunt and class warfare at its finest is evident from a piece in the New York Times – no foe of Obama’s – which states that the Buffett tax will collect about $13 billion over ten years.
The Obama administration expects the ten-year deficit accumulation to total $9 trillion.
But the Buffett tax will have real world NEGATIVE effects.
Many well off people, even those far poorer than Mr. Buffett, earn much of their income from capital gains, which is taxed at 15 percent, below the “middle class” income tax rate. That’s why the Oracle of Omaha is taxed at a lower rate than his secretary. Who, BTW, probably makes more than you or I do. I’d like to be Warren Buffett’s secretary, as a matter of fact.
Now, Obama speaks often about how this country needs innovation, that new businesses are the future, and blah blah blah.
Who does he think invests in startups? Venture capitalists who make a high risk investment hoping to recoup a Facebook-style reward one day. Start threatening to tax their hoped-for capital gains at the top income rates of 28-35 percent – or up to nearly 40 percent if Obama gets to do away with the Bush tax cuts – and watch investors put their money instead in safe bets like, you know, Berkshire Hathaway.
A recent piece in the Washington Post makes the point about now this would particularly harm high-tech startups.
The “Buffett Rule” is effectively an increase in the capital gains tax rate that early stage tech investors would pay when one of their investments hits it big. And this is bad news for tech start-ups for several reasons:
It guarantees that investors will have a lower rate of return. A capital gains tax increase automatically lowers how much an investor can hope to make from the handful of winners in their portfolio. Given how risky tech investments are already, this makes the asset class relatively less attractive.
Technology is one of the few bright areas of our moribund economy. Why lessen this advantage with taxes that chip away at start-up capital?
Because Obama needs to stoke the fires of class resentment to get himself reelected. It’s already too late for him to try to improve the economy significantly before Election Day.