WSJ: Forget Buffett; it's the Obama Rule

"Forget Warren Buffet...," argues the Wall Street Journal. "This week the Administration officially endorsed what in essence is the Obama Rule: Taxes must be high simply to spread the wealth, never mind the impact on the economy or government revenue. It's all about 'fairness', baby."

The Buffett rule is really nothing more than a sneaky way for Mr. Obama to justify doubling the capital gains and dividend tax rate to 30% from 15% today. That's the real spread-the-wealth target. The problem is that this is a tax on capital that is needed for firms to grow and hire more workers. Mr. Obama says he wants an investment-led recovery, not one led by consumption, but how will investment be spurred by doubling the tax on it?

The only investment and hiring the Buffett rule is likely to spur will be outside the United States—in China, Germany, India, and other competitors with much more investment-friendly tax regimes. The Buffett rule would give the U.S. the fourth highest capital gains rate among OECD nations, according to a new study by Ernst & Young, to go along with what is now the highest corporate tax rate (a little under 40% for the combined federal and average state rate). That's what happens when politicians pursue fairness over growth.

Real Reason Libs Tax Wealthy

Why do so "many young liberal bloggers cheer on proposals to raise tax rates on high earners," wonders Michael Barone in an op-ed today. It isn't to increase government revenue, because it generally results in less revenue. And it isn't to ensure they pay 'their fair share', since as it is "the American tax system, including the payroll tax and state and local taxes, is more progressive — in the sense of extracting disproportionate shares of revenue from high earners — than most European tax regimes..."

I think the answer to the puzzle can be found in a remark Barack Obama made during the 2008 fall campaign — a remark that seemed to go mostly unnoticed.

ABC's Charlie Gibson asked candidate Obama if he would raise capital gains taxes even if, as in the past, that brought in less revenue to the federal government.

Yes, said Obama. "I would look at raising the capital gains tax for purposes of fairness."

Ponder that answer for a moment. A candidate for president — president now — said he wants to take more money from people who earned it even though doing so would produce less money for the government.

The philosophy that has to be behind that answer is also behind the Obama administration budgets that have proposed capping the charitable deduction for high earners. The clearly intended result would be a massive transfer of money from the voluntary sector of society into government.

Alexis de Tocqueville in the 1830s identified the voluntary sector as a unique feature of American democracy,one that gave it strength and character. He compared it positively with his own France, where centralized government stifled initiative and innovation.

[snip]

Higher tax rates on high earners, even if they produce less revenue, are an attempt to centralize power in government and to limit the autonomy and countervailing power of individuals in the voluntary sector.

Which is why the liberal bloggers cheer them on. And why they eagerly join the Obama White House in demonizing the Koch brothers, who donate large sums to conservative causes. (Disclosure: I have spoken at two Koch conferences and was reimbursed for travel expenses.)

The Obama Democrats don't want their funders like George Soros getting competition from the likes of Charles and David Koch.

In a contest "to make this country more like Toqueville's France" or "to keep it more like Toqueville's America," concludes Barone, "the liberal bloggers are rooting for France."

Oops, Liberals' Class Warfare Isn't Working

A national poll by The Hill released February 27, 2012, reports that "likely voters prefer lower individual, business tax rates."

The big majority opted for a lower tax bill when asked to choose specific rates; precisely 75 percent said the right level for top earners was 30 percent or below.

The current rate for top earners is 35 percent. Only 4 percent thought it was appropriate to take 40 percent, which is approximately the level that President Obama is seeking from January 2013 onward.

The graphic below shows the breakdown of responses by likely voters (LV), males, females, and younger voters:

The Hill admits "the new data seem to run counter to several polls that have found support for raising taxes on high-income earners."

“If you ask people, ‘Should families with more than $250,000 pay a higher tax rate?’ you would get a lot of yeses on that,” said Clint Stretch, managing principal of tax policy at Deloitte Tax LLP. “And yet … you’ve got 75 percent of the answers are suggesting high-income people should have a lower tax rate, and that’s an astonishing result.”

One possible explanation is voters may not know how much the nation’s top earners are already being taxed. The poll did not ask voters to identify current tax rates before saying what rate they favored.

“It might be that people are underestimating how much the rich pay now,” said Bruce Bartlett, a former Reagan adviser and Treasury official under President George H.W. Bush.

Indeed.

Middle Class Collateral Damage

It isn't bad enough that almost half of Americans are dependent on government already. In his 2013 budget proposal to triple the tax rate on dividents, President Obama takes aim at the 51 percent of adults in the nation who are savers trying to fend for themselves. From the Wall Street Journal:

One buried surprise is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets. Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8%—nearly three times today's 15% rate.

Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.

The truth is that the plan gives new meaning to the term collateral damage, because shareholders of all incomes will share the pain.

According to the Investment Company Institute, about 51% of adults own stock directly or through mutual funds, which is more than 100 million shareholders. Tens of millions more own stocks through pension funds. Why would the White House endorse a policy that will make these households poorer?

Seldom has there been a clearer example of a policy that is supposed to soak the rich but will drench almost all American families.