Can we please knock off the nonsense of this "Buffett secretary" talking point? Debbie Bosanke is estimated to make north of $200k per year, while Buffet is paying capital gains rates. Of course her rate is higher.
I think the vast majority of people would expect a billionaire to pay a higher tax rate than an upper middle class person. I wouldn't call that nonsense.
Depends. The entire quip plays on peoples assumption they're both employees taking a standard wage and are "equal" besides the amounts. Unless I'm mistaken, Warren Buffet makes money from the ownership he holds, not as a salary, so the assumption people make ("of course he pays more", "what, he doesn't?!") is because they assume he's an employee and equal in everything but the amount, which isn't the case. He makes his money (a variable amount) from ownership, not work. If you prefaced the statement with an explanation of how he pays capital gains and not income tax because of the different types of money nobody would be confused / surprised.
I know you just want to make the case for a more differentiated view here, but what you are in fact doing is defending a higher tax rate on work than for capital gains through mere ownership.
Well, there are lots of reasons as to why capital gains are taxed at a lower rate than ordinary income. I'm not advocating that any of them are correct (and, obviously, many countries tax capital gains and ordinary income at the same rate, or possibly capital gains at a higher rate), but you could argue that a lower tax rate on capital gains offsets the impact of double taxation (corporation is taxed on the income, then you are taxed on your income), or offsets inflation, or, probably most prominently, encourages investment which in turn can encourage innovation, and so on.
There presumably are other ways to reach these same results, but that's the policy choice we have made. I don't see it as much as valuing "mere" ownership over labor, just that we've made certain policy choices as to what incentives we want in our economy.
I'm sure that you're right, but then the vast majority of people are easily swayed by cheap political rhetoric. If they're playing by the same rules, which it appears that they are, then what's the problem? It's not like he hasn't already paid income tax on that money the first time he earned it, and his absolute tax bill is vastly larger than hers is.
If not being jealous and covetous of those who make more than I do puts me in the minority, then I guess that's where I'm at. Sadly, I believe that to be the case.
The capital gains rate & structure is a legit policy question. Talking about flag burning laws, who wears a flag pin or not, those are cheap political squabbles.
Keep in mind, capital gains haven't always had a lower tax rate than ordinary income. There is no rule of nature that says it has to be that way. We could make the capital gains rate 0%, or 0% up to $200,000 and then 40% for everything over $200,000. Or we could make more than simply 2 rates based on the length of time it took for the gain. Or we could make it any number of other options.
Which one of these is preferable for economic or philisophical reasons is a good question. Warren's Buffet's secretary is no different than Joe the Plumber - they are a personification of the policy. It's hard to latch on to abstract reasoning but easy to see when presented as a comparison of two people.
Thinking that a progressive tax system is a good idea has nothing to do with being jealous and covetous of those who make more than you. If you disagree with a progressive tax system go right ahead and support your case, but you're not going to do that with bs arguments nobody is making.
Capital gains are not really double taxation. Sure he paid tax, but then he earned more. Many countries charge income and capital gains at exactly the same rate, eg the UK does now.
How are they not being taxed twice? A company (which has owners) pays income tax on their profits, so the company and therefore, owners, have less capital remaining. Then, if the owners want to cash out anything from the post-income-taxed margin, they'll have to pay capital gains as well.
It's not that simple. One could just as easily make the case that workers get a lower salary due to higher corporate taxes, therefore they should pay a lower tax rate than owners. In short, it's not at all clear that a higher corporate tax rate is purely a tax on owners, and nothing else.
I pay state income tax on my paycheck, and then I take that money and buy a new computer and have to pay state sales tax too!
And where I live, I pay state income tax, buy a car and buy sales tax, and then every year after that I pay property tax on the value of the car. It's a triple tax!
I'm not really sure why capital gains is such a problem. And truthfully a lot of capital gains (maybe even most?) are not doubled taxed. If you buy stock with after-income-tax money, then yes you pay that tax twice. But if the capital gain is derived from equity compensation a lot of times you don't pay income tax so it is only a single tax. That is what the Buffett rule is all about (and this article as well).
We're off the original topic now, but I've never understood why the US doesn't enact a dividend imputation scheme, which nicely solves the double taxation problem on dividend income by giving the recipient of a dividend a credit for the corporate tax paid on that dividend. Australia has such a system.
If they're playing by the same rules, which it appears that they are...
Of course they are playing by the same rules. Rich and poor alike get preferential tax rates on capital gains income the same way that rich and poor alike get tax breaks on private jet ownership depreciation. Anything else would be class warfare.
"Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration." - Abe Lincoln
There's actually some serious questions about that. In interviews, Bosanke has claimed to be paying a 35.8% tax rate. She's been a little coy about her income, but in one interview she claimed to only make $60,000 a year.
Anyone with even a passing familiarity with the US tax code will quickly understand that this is not possible. Seriously. So we know that at least some of what she's claimed in wrong. And since Bosanke won't release her tax returns, that's really as far as we can go.
In short, the "Buffet secretary" talking point really has no evidentiary value for either side. We simply have no idea what she makes or what she pays; all we know is what she's publically claimed is wrong.
That specific example may have no evidentiary value, but if you simply take it as being a symbolic name for the general phenomenon of millionaires/billionaires paying a lower tax rate than regular working folk, it's pretty obvious that this not only can happen, but that it's not all that uncommon. And in fact, nobody disputes that it happens. The only dispute is over whether it should.
Actually, it's very uncommon. Keep in mind, we have IRS data that shows the average rate paid by different groups, we know that most of the 1% is paying MUCH higher tax rates than the 99%. And should be make public policy based on the extremely rare edge cases, or the overwhelmingly common case?
Also, this debate really depends what you mean by "millionaires/billionaires". And "taxes". And "tax rates". And "working folk". Being a billionaire is a measure of wealth; your tax bracket is based on income in a single year. Are we talking about marginal rates or average rates? Federal income taxes? All federal taxes? All taxes? How do we impute the corporate income tax (knowing, as we do, that it is paid by both employees and investors)? How do we impute the corporate half of the payroll tax (ditto)? How should we handle cases where someone is in the "1%" for a single year due to the sale of a single large asset they've been working on for decades (family farm, small business, IPO, or the like)? Does it truly make sense that someone who makes $50k/year for 10 years, then sells his start-up for $100m should be in the same tax bracket in that 11th year as an investment banker who makes $100m/year every single year?
This is not an area with easy answers, and the tax code looks the way it does due to a long series of hard-fought struggles and difficult compromises. It's easy to look at Romney at say "he paid 14%", but it's less clear what rate is "right". Capital gains is fundamentally not normal income, and there's no reason it should be taxed at any given rate, much less whatever rate normal income would be taxed at. Some very socialist and egalitarian places have no capital gains tax at all. :)
Edit: My initial post had some silly errors of fact. Mike Ash was quite polite in pointing them out. :) Thanks.
Mitt Romney paid about 14% last year. I paid more than that, as did a whole lot of other common folk. That seems fairly conclusive that it's not impossible.
We can just look at income in a single year for the comparisons. Total wealth isn't really relevant to the question, aside from the fact that it's strongly correlated with yearly income.
Your other points are astute, but I'm just pointing out that this phenomenon does in fact happen, and isn't even disputed. Only whether and how to change things is in question.
I think the vast majority of people would expect a billionaire to pay a higher tax rate than an upper middle class person. I wouldn't call that nonsense.