Progressive Economists Refute AP, Defend The Buffett Rule #p2 #tcot

Progressive Economists Refute AP, Defend The Buffett Rule http://mediamatters.org/research/201109210019 The conservative media have echoed the criticisms made by a misleading Associated Press "fact check" of President Obama's statements about taxation and the Buffett Rule he has been promoting. Progressive economists have rebutted the AP's criticisms and lent support to his proposals. AP: Millionaires Already Taxed More Than Their Secretaries AP: "The Data Say" Millionaires "Are Already Taxed At Higher Rates Than Their Secretaries." From an Associated Press "fact check" by Stephen Ohlemacher: President Barack Obama says he wants to make sure millionaires are taxed at higher rates than their secretaries. The data say they already are. "Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett. There is no justification for it," Obama said as he announced his deficit-reduction plan this week. "It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million." 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. The 10 percent of households with the highest incomes pay more than half of all federal taxes. They pay more than 70 percent of federal income taxes, according to the Congressional Budget Office. [Associated Press, 9/20/11] Progressive Economists Back The Buffett Rule, Refute AP Krugman: "The Obama/Buffett Claim Is Absolutely, Totally True." From Nobel laureate Paul Krugman's New York Times blog: Well, it seems as if a number of people in the media have decided that Obama was fibbing when he said that some millionaires pay lower tax rates than their secretaries -- because, as the usual suspects triumphantly declare, on average millionaires pay higher average taxes than middle-income Americans. This is, of course, stupid: the operative word is SOME. And we're not talking about one or two exceptional guys, either. Look at the IRS data on returns for the 400 highest incomes in America (pdf) -- specifically, Table 3. If you look at the numbers since 2004, you'll see that in a typical year between 30 and 40 percent of those super-high-income players paid an average tax rate of less than 15 percent; most of them paid less than 20 percent. Bear in mind that for the very wealthy the payroll tax -- the main burden on working-class Americans -- is trivial, because of the cap on Social Security and the fact that it only applies to earned income. And what becomes clear is that the Obama/Buffet claim is absolutely, totally true. So why the attack? Probably because it's such an effective line. And we can't have populism that actually strikes a chord with the public, can we? [The Conscience of a Liberal, The New York Times, 9/21/11] CEPR's Dean Baker: Obama "Made A Simple And True Statement In His Speech On The Budget."From Dean Baker, co-director of the Center for Economic and Policy Research: President Obama made a simple and true statement in his speech on the budget Monday. He said that there were millionaires and billionaires who pay tax at a lower rate than middle income families. Many news outlets went to town to point out that on average millionaires and billionaires pay tax at a higher rate than middle income families. Of course this is not what Obama said. He was pointing out that some of the richest people in the country (Warren Buffet was his model), get most or all of their income as capital gains and therefore only pay taxes at the 15 percent capital gains rate. The NYT gets this right today. Other outlets could have saved a lot of trees and better served their readers if they didn't work so hard trying to refute something that President Obama did not say. [Beat the Press, Center for Economic and Policy Research, 9/21/11] Jared Bernstein: Buffett Rule Is A "Principle," A "Guideline For Tax Reform." From Jared Bernstein, Senior Fellow at the Center on Budget and Policy Priorities: Actually, let's look at this principle for a moment, for "principle" it is--in fact, it doesn't factor at all in the $1.5 trillion in revenue raised in the President's budget plan.   The administration laid it out as a guideline for tax reform, a kind of tripwire in the tax code to avoid the problem identified by billionaire Warren Buffet: because much of his income gets special treatment in the tax code, he faces a smaller effective tax rate than many in the middle class. [...] Now, it's not the case that every millionaire pays a smaller share in taxes compared to middle class families.  But, as my colleague Chuck Marr points out on the CBPP blog, if much of their income derives from non-labor earnings, like capital gains and dividend payouts from their equities, then they likely do pay less as a share of their income. And in fact, Chuck features a graph showing that the effective tax rate (taxes paid as a share of income) on income and payroll taxes are about 15% for a middle-class family with mostly earned income, compared to 12% for a millionaire (or higher) household with at least 2/3 investment income. Here's another look at the same data from the Tax Policy Center.  This figure shows the effective tax by share of investment income.  The effective rate drops by half going from left (more labor income) to right (more capital income). Source: Tax Policy Center, link above. Is there a rationale for such favorable, and potentially distortionary, tax treatment?  As noted here, I don't see it, and the research is supportive of that view.  It's just another loophole (and another victory for the winning side in the class war, but that's another issue...) [On the Economy, 9/20/11] CBPP's Tax Policy Director Chuck Marr: "A Significant Group Of Very Wealthy People Pay A Smaller Share Of Their Incomes In Federal Income And Payroll Taxes Than Large Swaths Of The Middle Class." From Off The Charts, a blog of the Center on Budget and Policy Priorities: This chart, based on data from the Tax Policy Center  (TPC), sums up the case for the President's proposed "Buffett Rule":  a significant group of very wealthy people pay a smaller share of their incomes in federal income and payroll taxes than large swaths of the middle class.  There are two reasons why:  the capital gains and dividends rate is so low, and wealthy people pay payroll taxes at a much lower rate than middle-class Americans. The President has called on Congress, as part of comprehensive tax reform, to make sure that no American making more than $1 million a year pays at a lower rate than middle-income families. [...] The gap in effective tax rates between millionaires and middle-income people is even bigger if you also count state and local taxes, which tend to be regressive. This dynamic is at odds with the widely accepted notion that higher-income people should pay a larger share of their income in taxes than middle- and lower-income people do.  It's particularly troubling given the stunning rise in inequality over the past several decades.  Incomes have skyrocketed for those at the very top while stagnating for lower- and middle-income families, especially for people without a college degree. [Off The Charts, Center on Budget and Policy Priorities, 9/20/11] Center For American Progress' Seth Hanlon: Even The "Strange" AP Article "Confirm[s] The Compelling Need For A Buffett Rule." From the Center for American Progress: The Associated Press today published a strange "fact check" of the "Buffett rule," the principle articulated yesterday by President Barack Obama that no household making more than $1 million annually should pay a smaller share of its income in taxes than middle-class families pay. The AP's fact check faults President Obama for "mak[ing] it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries," and states that "[t]he data tell a different story." In fact, tons of data--including data cited in the AP article itself--confirm the compelling need for a Buffett rule because large numbers of super-rich individuals are indeed paying lower taxes than middle-class families. Consider: 1,470 households reported income of more than $1 million in 2009 but paid zero federal income tax on it. The average federal income tax rate of the richest 400 people in the country in 2008 was 18.11 percent. In 2007 it was 16.62 percent. That is only a little more than just the payroll tax on wages--normally 15.3 percent on a worker's first $106,800 in wages, counting both the share that workers pay directly and the share their employers pay, which comes out of their wages--let alone the federal income tax on those wages. The tax rates paid by the "Fortunate 400" have plummeted since the mid-1990s, when their average effective rates were about 30 percent. According to the Congressional Budget Office, the richest 0.01 percent (those with incomes of $8.6 million and above) paid a combined 17.5 percent in individual income and payroll taxes in 2005, the last year for which such data are available. The group of households with incomes ranging from $45,200-$92,400 paid only a little less on average, at 15.7 percent. The group of households with incomes ranging from $30,500-$45,200 paid 12.5 percent. Of course, there are wide variations within those income ranges, meaning that many middle-class families paid much more than the 17.5 percent average paid by the very rich, while many in the top 0.01 percent paid less than that. Due to the so-called carried interest loophole, managers of hedge funds and private equity funds pay 15 percent capital gains rates, and no payroll taxes, on their profits from managing other people's money. That's less than what middle-class families pay just in payroll taxes on their wages--let alone what they pay in income taxes. An important part of President Obama's deficit reduction plan unveiled yesterday is closing the carried interest loophole. The upshot: AP's "fact check" misses the point of the Buffett rule. The point is not to ensure that rich people on average pay higher taxes than middle-class people on average. Of course they do, and of course they should! The point is to ensure that all households with incomes above $1 million pay at least what middle-class families are paying. [Center for American Progress, 9/20/11] EPI: Buffett Rule "Could Not Come At A More Appropriate Time," Because "The Highest Income Households Are Enjoying Some Of The Lowest Taxes In Generations." From Rebecca Thiess of the Economic Policy Institute: The Buffett rule is less a specific policy and more of a guiding principal, the concept of which could not come at a more appropriate time. While our income tax code includes six marginal tax rate percentages, the highest-income taxpayers often end up paying lower marginal rates than those in the middle class, because 1) tax subsidies tend to disproportionately benefit high-earners, and 2) the rate at which capital gains and dividends are taxed is much lower than the rate at which wage income is taxed. This is why Warren Buffett pays a lower tax rate than his secretary. In fact, the highest income households are enjoying some of the lowest taxes in generations. Since 1979, our overall average tax rate has fallen slightly, but for those at the top of the income ladder, the rate has fallen dramatically. While average tax rates went from 22.2 percent of income in 1979 to 20.4 percent of income, for the top 1 percent of households the rate has fallen from 37 percent of income to 29.5 percent of income, a reduction of over a fifth. It's even more pronounced for the highest income earners: the tax rate for the top 400 households (average income $350 million!) fell from 26.4 percent in 1992 to 16.6 percent 15 years later, a nearly 40 percent reduction. The diminished tax burden on high income earners has both expanded our deficit and helped make us a more unequal society. The Buffett rule is long overdue. [EPI.org, 9/19/11] Conservatives Have Attacked The Buffett Rule John Lott: Buffett Rule "Is Wrong On The Numbers." From John Lott, writing at FoxNews.com: The justification for President Obama's new proposed tax on the wealthy is wrong on the numbers. Despite the president's claims, millionaires don't pay lower tax rates than middle class workers. His proposed surcharge on capital gains and dividend taxes will raise already high tax rates on high income individuals and force even more investment outside the United States. The so-called "Buffett rule" is based on Warren Buffett's claim: "The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you're in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent." It is true that the 15 percent capital gains and dividend tax rates are lower than the marginal income tax rate paid by a lot of workers. Of course, this ignores that because of deductions the average tax rate for the middle class is much lower than the marginal rate. [FoxNews.com, 9/19/11] NRO's Stiles: Obama "Would Establish Some Sort Of Minimum Tax Standard." From a post by Andrew Stiles at National Review Online's blog The Corner: President Obama announced today that he wants to raise taxes on America's millionaires. As I explain on the homepage, this is hardly a novel concept. Obama's so-called "Buffett Rule," named for billionaire investor and tax enthusiast Warren Buffett, would establish some sort of minimum tax standard stipulating that "no household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay." Beyond that, the administration offered few details as to how the "rule" would be enforced, or how much they plan to raise in new tax revenue. Of course, the president insists "this isn't class warfare, this is simple math." A look at some of that "math": Millionaires accounted for just 0.17 percent (236,883) of the more than 140 million tax returns filed in 2009, and reported income totaling $727 billion. The federal government will spend about $3.6 trillion this year (a rate of $300 billion per month), running an annual deficit of about $1.3 trillion. So, even if the IRS decided to confiscate every cent earned by millionaires in a given year, it would amount to less than half of the new debt we are taking on each year, and would barely be enough to fund the government for two months. According to Forbes, the 400 wealthiest individuals in the U.S. are worth a combined $1.37 trillion. Confiscating all their wealth (not just annual earnings) would buy us another 4.5 months. The top 1 percent of income earners (just a quarter of which are millionaires) earn just 20 percent of the country's personal income, yet pay 38 percent of federal income taxes. For the top 10 percent of earners, those figures rise to 46 percent and 70 percent, respectively. Obama says he wants a "fairer, more progressive tax system." But given that "the rich" already pay a disproportionate share of income taxes, one wonders if it will ever be "fair" and "progressive" enough to satisfy the Left. [The Corner, National Review Online, 9/19/11] Hot Air's Ed Morrissey: Buffett/Obama Claims Are "Flat Out Wrong." From a post at the Hot Air blog citing AP's "fact check": Even when talking rates rather than aggregate payments, the claims made by Buffett and Obama are nothing more than an urban legend: This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank. Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes. Lower-income households will pay less. For example, households making between $40,000 and $50,000 will pay an average of 12.5 percent of their income in federal taxes. Households making between $20,000 and $30,000 will pay 5.7 percent. That has been true ever since the US went to a progressive income tax.  It was true decades ago, it was true a few years ago, and it remains true today.  Those with higher incomes pay more taxes at higher rates that those with lower incomes.  So unless Buffett's paying his secretary a million dollars a year, the notion that we're burying secretaries in higher taxes while letting millionaires and billionaires off the hook is flat-out false. Buffett should know better than to make that kind of claim without checking his facts first, but no one elected Buffett to be in charge of anything, either.  The President of the United States has vast resources at his command to get the facts straight before speaking to the American people, especially before pushing a divisive and destructive policy like his tax plan with class-warfare rhetoric designed to gin up demand for government to start seizing more from the successful than they already do.  Either Obama doesn't bother to do his homework, or he doesn't care whether he's passing along myths rather than facts. [Hot Air, 9/20/11] Limbaugh: "I Would Be Embarrassed ... If Someone Wanted To Name A Tax Increase After Me."During his radio show, Rush Limbaugh stated: LIMBAUGH: Mr. Buffett -- and I've met Warren Buffett twice at his golf tournament, although I didn't play with him. He wouldn't play at his charity golf tournament. He's very nice. He's a funny individual. At the time I met him he was on this big estate tax kick, and he's still on it. And Mr. Buffett, I just have an observation, maybe a question. You've done very well. You are one of the wealthiest men in the world, and now look at the high honor that has been bestowed upon you: your name attached to a tax increase. That's -- I would be embarrassed. I would not allow it. I would disassociate my -- if someone wanted to name a tax increase after me, ain't no way, especially, Mr. Buffett, this tax increase is on people that are not millionaires, and they're not billionaires. And you're going to be remembered as much for this as anything else -- the Buffett Tax Increase, the Buffett Rule. And all this happens while you still owe the federal government a billion dollars you're still haggling over. [Premiere Radio Networks, The Rush Limbaugh Show, 9/19/11, via Fox Nation]

You can help support our work: donate to Media Matters for America.