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I don’t have a huge problem with the Buffett rule, which will get a vote in the Senate and fail on Monday. But I do have a problem with the concept of a minimum tax based on adjusted gross income as a killer app in tax policy, rather than just raising rates and closing loopholes. To wit, high-income earners already have their tax avoidance strategies lined up:
The highest-earning U.S. households have ways to escape President Barack Obama’s Buffett rule with tax-planning techniques that would limit their liability and undermine the proposal’s purpose.
Those affected taxpayers — the fewer than 0.5 percent of Americans with annual incomes exceeding $1 million and tax rates of less than 30 percent — could take advantage of tax-free investments such as municipal bonds to escape the Buffett rule’s bite. They also could time asset sales for maximum tax benefits, engage in transactions that don’t result in taxable income and make charitable contributions that yield deductions [...]
“Largely, the Buffett rule is going to be manageable,” said David Miller, a partner at Cadwalader, Wickersham & Taft LLP in New York. “That is, with tax planning, people will be able to avoid it.”
For some reason, charitable deductions are exempt from the Buffett rule, which means that wealthy individuals can get below the 30% tax rate simply by giving a chunk of money to the opera or a new art center or really anything that falls within the range of charity.
The rest of this is simply a feature of the tax code. Capital gains aren’t taxed until the assets are sold. If you want to make them liquid, you then get taxed on them. The Buffett rule makes this worse than just raising the tax rate for capital gains. To avoid the Buffett rule penalty, you just time your sale of the assets until a year when you have losses to wipe out the gains. If you just raised the capital gains tax rate, you could still time the sale. But you’d pay 35% on a positive sale, rather than 15% under the Buffett rule, with that extra percentage to get to the minimum which may or may not get realized.
You can also “earn” income in ways that never show up as adjusted gross income, like interest on tax-free municipal bonds, for example, or health insurance provided by an employer. But again, that’s a feature of the current tax code, and has little to do with the Buffett rule. You always want to reduce your adjusted gross income. You can also become a shadow banker by taking out loans against your assets without selling them first. But again, the answer to that is regulating shadow banking.
The ways around the Buffett rule are the ways around the US tax system as a general rule. You can’t just layer on a minimum tax based on the same rules and expect it to work. You have to fix the system. And that’s possible as a theoretical matter. You raise the rates. You regulate and enforce against tax havens and shadow banking. You use the enforcement powers of the IRS to stop cheating. You close loopholes that allow untaxed income to flourish. You add a tax on personal wealth.
But all of these ideas assume that politicians actually want to fix the tax code in a way that would force everyone to contribute a fair share.
Taking this a step further, there are plenty of things that you can do pre-tax to reduce income inequality and promote prosperity. Many of them are discussed in Dean Baker’s book The End of Loser Liberalism. But that would once again presume a desire to ameliorate inequality.
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The ta-free aspect of municipal and state bonds is a difficult issue. Yes, it affords some people a way to avoid taxes on certain income. OTOH, it allows state and local government entities, including school districts, to pay lower bond rates and still attract buyers. (Without the income-offset, they would have to pay higher rates and compete head-to-head with commercial paper.) Combined with the very limited history of default on muni/state bonds, the tax-free element probably helps make them attractive to pension funds, insurance companies, etc. So it is somewhat of a trade-off.
Adding to my previous comment, in a perfect world, the real answer is probably a combination of fair taxation on the wealthy with real reform of runaway public pension costs so that state and muni entities could finance most of their expenditures from current revenues and not have to depend on bonds.
Make paying tax sexy.
Annual Top Ten lists of the most patriotic Americans because they have payed the most tax.
Wonderful Patriots, who, in this time of war, don’t look for the next tax loophole but fearlessly and nobly pay tax tax tax to support our troops troops troops, and support our country!!!… whatever laudable title it takes to make someone with the means compete against someone else with the means for the title.
Let’s use Madison Ave’s ability to create a craving for something that people don’t yet know they want.
Quote the Top Ten ceaselessly. Ask them their opinions about all topics. Fawn over them more than the richest men and women because to be a Top Ten taxpayer, money is no object!
Top Ten taxpayer. The only way to get there is to skip the loopholes and cough up the money.
It also assumes that the federal government has to tax (or borrow) to spend, in order to redress the evils of our pernicious form of capitalism. The most important insight of MMT is that neither is necessary.
As long as progressives think it is necessary to raise taxes on the rich — which will never happen, short of revolution — to achieve our goals, we’re fucked.
So you’re advocating the printing press ad infinitum? Works for me. I’ve got gold and real estate.
Oh please. We already have the most progressive tax system in the world. Half the country pays no income tax. The bottom quintile pay nearly no SS or Medicare tax. If you can’t achieve your goal with that setup, you will never get there at all.
http://washingtonexaminer.com/opinion/op-eds/2012/02/us-already-has-steeply-progressive-tax-system/213301
Ad infinitum? How about: “Futue te ipsum!?”
Both comments are spot on -
The meme that the rich will just avoid the Buffett Rule is nonsense sold by the rich to try to avoid having a tough version of the rule – or any rule at all.
Classic Hedge Fund owner discussion.
I spent more than 4 decades with the tax code at a professional level moving billions to effect tax savings – and the effort involved – needed – to avoid a tax is not easily – indeed can’t – be explained in some drive by slap at the muni interest deduction or a discussion of the value of not having capital gains income via offsetting looses with gain.
But the sales job by the rich and corporate – and the hedge fund kids – to reduce the effectiveness of Dodd-Frank by claiming we can get around whatever you do so don’t put any effort into the Buffet Rule – has begun.
But it is interesting that they pulled out at Bloomberg (where DDay’s quote comes from) a second rate firm IMHO (Cadwalader, Wickersham & Taft LLP) that I would never use in serious tax planning – or indeed use in any tax planning for a client that had more than a few hundred thousand of taxes to worry about. NYC and DC have some of the best tax lawyers who know their way around the world’s tax laws, but not all tax lawyers in those locations are at that level.
Fair taxation of the wealthy has absolutely nothing to do with achieving progressive goals.
On edit: The way you would know this is that Barry is for it!
Sigh – you were doing so well -
every dollar is taxed many times – and all those taxes make their way into government budgets – and much of those gov budgets for services/benefits are paid via the folks that do not pay “FIT” taxes but do pay other taxes.
Indeed even the statement that “Half the country pays no income tax.” is wrong – almost everyone pays an income tax as the payroll tax is based on income and indeed moves your money to Treasury. Then toss in the many states where the state income tax drops down much lower on the income level and the GOP’s “less than half pay income tax” becomes silly.
As to “most progressive in the world” – again not really. All of northern Europe – without exception – puts our progressiveness to shame. Even right wing Germany expects more of their rich, and the rich and corporations pay a higher percentage of government spending relative to income.
Now the single nation taxation rules that the rich and corporate have gotten through every country but the US does make tax avoidance by the uber-rich easy – so those stats are off because of hidden income. But the simply rich don’t do international tax planning so the comparison that shows us much less progressive are correct (our uber-rich still use international tax planning – it is just more difficult and the amount that can be hidden is a bit lower).
It tells me something important about the vicious, selfish, materially-imbalanced culture in the US that the avoidance of taxes (the cost of civilized existence) is a professional sport. Indeed, it was a rationale for starting the country in the first place. If you just showed up in this country from another planet and were told that taxes were how collectively beneficial goods and services were funded and then observed damn near everybody–especially the opinion-makers and owning class–trying to get out of paying them, what conclusions might you reach?
spot on – the Buffett rule is a bit progressive but is only offered so as to stop the really progressive taxation that many of us advocate.
“I’ve got gold and real estate.”
Instead of these things, I wish you had the ability, just once, to look at things from outside your political framework and to offer comments that weren’t rigidly ideological. What is it that prohibits your empathy (I didn’t say sympathy)?
Or, if thinking outside of your box is not possible, could you do a better job of representing your political position? How about some stronger arguments or better evidence? I, and I suspect many others here, would appreciate hearing them.
I love different and dissenting comments at FDL–especially from so-called “trolls”– and am no fan of echo chambers no matter how comforting they may be. However, your comments are invariably boring and predictable. I’d bet most of the regular commenters at FDL could write your posts for you.
Could you please do better? “So you’re advocating the printing press ad infinitum?” Really. Is that half-ass, rhetorical bullshit the best you’ve got? Ye gods! Show some fucking guns, shooter. You are not trying very hard.
Notice how Obama is pushing this tax, that isn’t high enough to begin with and can easily be evaded, but is mum on the expiring Bush/Obama tax cuts… or are they gonna expire?
Where is Obama’s pledge to not extend the Bush/Obama tax cuts?
That would be simple enough…
oh, wait…
As I’ve been saying for a loooong time now, Obama’s second term will be worse than his first.
“As I’ve been saying for a loooong time now, Obama’s second term will be worse than his first.”
You can take that to the bank. What refrain will then replace the current “But a Republican would be worse”?
David, this post is not up to your standards or those of FDL. And, yes, I realize that some of what I list below appears in the article you quote rather than in what you wrote yourself, but you quoted it and left it unchallenged.
1) As someone already said the municipal bond “tax dodge” is on net a good thing, not bad.
2) And the complaint that people will still be able to avoid taxes by giving to charitable organizations makes absolutely no sense. This is a again a good thing, not a bad one. Are you trying to kill all the arts, medical foundations, ACLU, etc. etc.? And just on a purely ethical level, why on earth should people have to pay taxes on income they give away to good causes.
3) Lastly, the comment on being able to avoid capital gains taxes by timing them to coincide with capital losses? That’s only fair. If you lose as much money in a year as you make, your income from the sales is zero. Why should you pay taxes on zero income?
The Buffett rule is a good thing, even though it’s not a total solution to anything. Let’s not distract people with misinformation and irrelevancies.
Please, as a long-term supporter of FDL, I urge you to rewrite and republish this post. — Phil
You wound me sir!
Heh.
Yours is a pithy comment perfect for a nice quiet Sunday morning. In particular order…
Why are assuming my having gold and real estate is ideological? The CEO’s of JP Morgan and Goldman Sachs are both Democrats, as is most of the NY financial establishment. Actually I have to see your characterization as bigoted and prejudiced. No offense.
???? Apparently you didn’t get the MMT reference, or you’d recognize my response as factual not rhetorical. Just to make sure we’re on the same page, Econobuzz was referring to the proposition that the US Govt didn’t need to tax or borrow money, just print/create money forevermore. Which guarantees inflation – against which gold and real estate are classic hedges? Is just printing currency forevermore a good idea? I don’t think so.
Presumabably not to Econobuzz. Unlike some here, I have a life. I will occasionally ignore the audience and shorthand comments to people who presumably have the backround to understand them. It’s not all about you.
Come now, I don’t feel the need to join the chorus. I comment here because unchallenged echo chambers will produce things like the initial Trayvon Martin falsehoods, or the “they took my piece of the pie” fallacy. Those lines of thought provoke class and race conflict, which are dangerous.
Telling people their lot in life is someone else’s fault does nothing for them but immobilize. It says they aren’t competent enough to progress, and induces them to wait for compensation. Is that good? no.
Any other questions?
No more questions. You have not been able to listen to my original comment. It’s often that lack of empathy thing that stymies one’s ability to hear others. Here’s how one can tell when they have been adequately empathetic: when they can accurately articulate a perspective different from their own. To be able to do this does not conflate with agreeing with them. To understand someone else does not imply consent. Instead, it’s a basic indicator of effective communication. If you aren’t able to accurately reiterate another’s words and the ideas behind them, which shows that you understand what they have said, then most likely you have not actually heard them. You response indicates that you did not do this (e.g. my comment about ideology has fuck all to do with your ownership of gold–we all understand your point about paper money and inflation). You misconstrued my comments in every instance you responded to above. Almost always, the stumbling block to being able to see things from another’s perspective is the perception of threat to oneself.
Here’s something I do that helps me. I make a point of reading authors and talking to people who have different ideas than me. Engaging them at least helps me better understand and be able to articulate my own positions. Often I come across a perspective or information that I had not considered, which forces me to deal with this new thing, maybe even incorporate it into my worldview (“When I get new information, I change my position. What, sir, do you do with new information?” –J.M. Keynes). Try it. It won’t hurt–you’ll still be breathing oxygen afterward.
I’ll try again. My point was not that I disagreed with you or your attempts to offer different opinions but that perhaps you could do a better job of it. Most of us know what you are saying, shorthand and all (I’d bet econobuzz did not tell you to go fuck yourself out of a surprised inability to deal with the issue of printing money, as if you bringing it up was an incontestable counterpoint). My suggestion was that you are not saying it well possibly because of an unwillingness to empathize, and therefore hear, or by putting forward weak, predictable, one-dimensional arguments that you typically deliver as defensively and unreflectively as party line talking points (it is possible for a statement to be both factual and rhetorical). I was not asking you to join the chorus. On the contrary, I was suggesting that if you care about challenging the chorus that you try harder at it. Suggesting that you don’t have the time or that the fault is someone else’s (who presumably doesn’t have the background) is a poor excuse. An effective articulation of your argument is your responsibility.
Show some bravery and do a better job! I, for one, would appreciate it. And I suspect others at FDL might as well. There is no reason to act like everyone at FDL is your enemy–unless of course you enjoy that assumption. Otherwise, please try harder!
Darn, it must be my simplistic and non-empathetic partisanship that fails to see what it is you want. One guy wants to print and I ask him to go on record with that. Which part of that simple exchange are you having a hard time with? What empathy is required of a straightforward statement that taxing isn’t required?
Perhaps you’d like to demonstrate what a proper response should look like?
You came through clear @5. I understood what you were getting at. Econobuzz understood what you were getting at. And I was considering the totality of your other comments over the months, not just the one here.
Forget about defending your position, scoring points or getting an opponent’s comments “on record” for a minute, and instead try this if you want–no need to respond, just try it. Go back and read my comments @ 13 and @ 18 and put what I said into your own words. If you can do this before responding to folks you disagree with, it might improve your ability to offer stronger, more thoughtful and better argued dissenting perspectives, which we might all benefit from (that whole chorus thing).
So let’s see, I’m repeating his argument back, and asking if I’m correct. Isn’t that what you are looking for? If not, sorry, but that’s as good as it gets. Just pass over my posts from now on.
I suspect most readers do pass over your posts, and more’s the pity if you are interested in challenging the chorus and assuaging conflict for the betterment of society–and I’ll take your word that you are. You are not being effective toward these outcomes. This is why you get responses like “fuck off” and people call you a troll. You are perhaps not getting readers to consider your position but instead possibly confirming their prejudices against such opinions and turning them off. Does that sound like an effective method to you? Are you likely to accomplish your stated goals by such tactics? I’ll bet you a paycheck I’m not speaking just for myself on this account.
Perhaps this is my blind stubbornness, but I’m sure you can improve your game. You can do better. Empathy will help, not hurt, you or your efforts (it’s very hard to provide good criticism if you don’t know what the other person is saying). FDL could benefit from sound challenges from your perspective. Hell, maybe try channeling somebody like Niall Ferguson, he’s a thought-provoking conservative–”The Cash Nexus” was worth reading.
So you think I’d be more effective as a concern troll?