One of the benefits of our federalist system is that states with wacky policies can actually lose residents, business, etc., to more sane, neighboring states.
Take, for example, the case of New York's recent teach evaluation law. A state supreme court judge ruled against a provision of the law allowing schools to fire teachers "whose students persistently get poor marks on standardized tests and other assessments." In other words, teachers who can't exhibit adequate performance on the one thing we actually expect from our schools- children who demonstrate learning.
Today's Wall Street Journal reported that New York Justice Michael C. Lynch,
"specifically rejected the section allowing schools to give teachers the lowest rating if they fail the student performance part of their evaluation, even if they score higher on other measures."
The law which went into effect last year made "40% of a teacher's review" based on their students' achievements.
Essentially, the teachers' union in New York sued the state, claiming the new process relies too heavily on test scores. It appears they won.
For now.
There are, according to the Journal piece, various aspects of the new process which are still subject to collective bargaining. The state will appeal the ruling.
Looking beyond the problem with the teachers' union, one has to feel sorry for New Yorkers living under such idiotic state supreme court judges.
Can you imagine some of the poorer state residents learning that their own state's court system overturned a basic, sensible notion that teachers who can't manage to educate the children under their care to perform well on standardized tests get a pass to continue harming other children, too?
Maybe the New York teachers won this round. But if the ruling holds up, I'd suspect it's one more reason people will flee New York, as the value of even "free" public education declines.
Thursday, August 25, 2011
Wednesday, August 24, 2011
Luddite Economics
As a person with a substantial academic background in economics and business, it always pains me to hear politicians- of any partisan stripe- talk about jobs as if they are simply created out of thin air. Or to hear officeholders, especially presidents and governors, say 'I created' so many jobs.
Right now, as Republican governor of Texas Rick Perry campaigns, he, and the media, are full of the 'I created' speak. But real conservatives don't believe government creates private sector jobs, per se. Unless, of course, they nationalize something or give money to a company specifically for job creation.
But, mostly, the best one can say about a government executive is,
'S/he orchestrated ab environment of regulatory restraint, moderate taxes and generally favorable conditions for business, thus attracting new companies and facilitating higher employment.'
Further, hearing politicians negatively remark on technology's impact on employment, like Wonderboy did recently, also pains me greatly.
To vilify ATMs, the internet and/or other capital-equipment based productivity increasing tools is to be an economic Luddite.
These inventions either improve existing products and services for customers, lower prices of goods and services, or provide new capabilities, such as online search for and purchase of goods or services. All good things. Things which improve living standards, when measured by consumption and satisfaction per dollar.
That many of these technological improvements or facilitators also result in the elimination of jobs and businesses is simply part of the advance of human civilization.
As a corollary, I think it represents a serious mistake for government officials, e.g., presidents, senators, representatives, governors, to speak of government institutions focusing on 'job creation,' per se.
Since governments don't, and shouldn't, directly create jobs, it would be better to know that those elected officials are working to create environments which are favorable to the growth of existing businesses and the birth of appropriate new ones. Both of which may create jobs.
Yes, ideally one thinks of full employment as a good thing which stimulates economic growth. But that doesn't mean that, say, by borrowing or taxing to raise money, a government entity can then just pay that money to people for "jobs," whatever they may be, and magically create sustained, healthy and productive economic growth.
As I noted in this recent post on my companion business blog,
""All economic problems are about removing impediments to supply, not demand," Arthur Laffer reminds us.
I highlighted Art Laffer's comment because it seems useful to me to focus on the true fundamental nature of man's economic problem: scarcity. Economics has always been, at root, about how to allocate scarce resources for the production of goods and services to satisfy a population's demands, at prices which satisfy both producer and consumer. "
Thus, productivity is a good thing. Producing more goods or services with fewer inputs results in the freeing up of more resources. Perhaps lower prices.
And without productivity growth, there can't be non-inflationary wage growth for workers. Nor, for that matter, non-inflationary growth at all, absent simply adding more resources, such as people or materials.
Productivity increases allow healthy, sustainable and non-inflationary economic growth by releasing resources for other uses, instead of just requiring more resources for a society's economic growth.
Higher productivity is a good and necessary aspect of an economy, not a phenomenon to be lamented or denigrated, as some politicians are in the habit of doing.
Right now, as Republican governor of Texas Rick Perry campaigns, he, and the media, are full of the 'I created' speak. But real conservatives don't believe government creates private sector jobs, per se. Unless, of course, they nationalize something or give money to a company specifically for job creation.
But, mostly, the best one can say about a government executive is,
'S/he orchestrated ab environment of regulatory restraint, moderate taxes and generally favorable conditions for business, thus attracting new companies and facilitating higher employment.'
Further, hearing politicians negatively remark on technology's impact on employment, like Wonderboy did recently, also pains me greatly.
To vilify ATMs, the internet and/or other capital-equipment based productivity increasing tools is to be an economic Luddite.
These inventions either improve existing products and services for customers, lower prices of goods and services, or provide new capabilities, such as online search for and purchase of goods or services. All good things. Things which improve living standards, when measured by consumption and satisfaction per dollar.
That many of these technological improvements or facilitators also result in the elimination of jobs and businesses is simply part of the advance of human civilization.
As a corollary, I think it represents a serious mistake for government officials, e.g., presidents, senators, representatives, governors, to speak of government institutions focusing on 'job creation,' per se.
Since governments don't, and shouldn't, directly create jobs, it would be better to know that those elected officials are working to create environments which are favorable to the growth of existing businesses and the birth of appropriate new ones. Both of which may create jobs.
Yes, ideally one thinks of full employment as a good thing which stimulates economic growth. But that doesn't mean that, say, by borrowing or taxing to raise money, a government entity can then just pay that money to people for "jobs," whatever they may be, and magically create sustained, healthy and productive economic growth.
As I noted in this recent post on my companion business blog,
""All economic problems are about removing impediments to supply, not demand," Arthur Laffer reminds us.
I highlighted Art Laffer's comment because it seems useful to me to focus on the true fundamental nature of man's economic problem: scarcity. Economics has always been, at root, about how to allocate scarce resources for the production of goods and services to satisfy a population's demands, at prices which satisfy both producer and consumer. "
Thus, productivity is a good thing. Producing more goods or services with fewer inputs results in the freeing up of more resources. Perhaps lower prices.
And without productivity growth, there can't be non-inflationary wage growth for workers. Nor, for that matter, non-inflationary growth at all, absent simply adding more resources, such as people or materials.
Productivity increases allow healthy, sustainable and non-inflationary economic growth by releasing resources for other uses, instead of just requiring more resources for a society's economic growth.
Higher productivity is a good and necessary aspect of an economy, not a phenomenon to be lamented or denigrated, as some politicians are in the habit of doing.
Tuesday, August 23, 2011
Paul Ryan's Formal Refusal To Run for President
I was busy ferrying a friend from his car's dealership to his home last night, for which he bought me dinner. So I missed seeing any Fox News programs and, thus, also missed coverage of Wisconsin Congressman's official declaration that he won't be entering the GOP presidential race for 2012.
It wasn't until I read this morning's Wall Street Journal editorials that I learned of this recent development. In concert with that editorial's sentiments, I'm happy that Ryan plans to remain in the House, assuming he wins his district again next year (for the eighth time).
Much has been made of Ryan's articulate manner of explaining the necessity of entitlement and tax reforms. But, as we've seen from Wonderboy, there can be an actual loss of force in the Oval Office, whereas being a powerful committee chairman in the House or Senate can be a force multiplier, for good or bad.
In Ryan's case, were the Senate and/or Oval Office to be won by the GOP in 2012, he would definitely be able to extend his influence from his House position.
It's an irony of the American system that a Representative like Ryan has only to win a single district in order to be returned to the House and, if in the majority, have great effect on national policy. Even being a Senator means, for many states, a much more challenging and expensive campaign just to, again, be one of many in a legislature with not really a tremendously larger influence than a Representative, unless the Senate is split closely enough to make every Senator the potential 60th or 41st vote.
When I was growing up in central Illinois, both GOP Congressional leaders lived within 20 miles of me. Bob Michel was the ineffectual House GOP Minority leader, while Everett Dirksen had the same position in the Senate. Neither ever ran for president, but both had surprising influence as a result of holding fairly safe seats for decades in a then solidly-GOP downstate Illinois.
But running for and winning the White House is an entirely different matter. Especially when there is an incumbent, no matter how inept and unpopular. The requirements of running a national campaign is probably not where you want said candidate to get his/her executive experience. And that could well be what happens to Paul Ryan, were he to have acceded to the requests of the GOP fundraisers who tried to recruit him into the race.
As I wrote in an earlier post, I'm reminded of Texas Senator Phill Gramm's run for president in the post-Reagan era. Though he led in money raised, Gramm never escaped the so-called 'green eyeshade' image and a sense he was, as the Wall Street Journal put it, 'running for chief accountant, rather than president.'
Ryan infuses his fiscal messages with more moral and lifestyle content, but, down deep, it's still mostly about wonkish policy details that don't actually play well in presidential campaigns.
Perhaps a different power distribution post-2012 will provide more options for Congressman Ryan. More success in his efforts to actually reverse the growth of entitlement spending. Perhaps a VP slot or a return to Madison to follow Scott Walker as governor. Or perhaps Ryan will depart the political scene, once he's successfully accomplished his work on entitlements.
But the Journal editorial was, I think, correct to congratulate him on knowing his limits and choosing to avoid the temptation of a presidential campaign, no matter how much others wish he'd have agreed.
It wasn't until I read this morning's Wall Street Journal editorials that I learned of this recent development. In concert with that editorial's sentiments, I'm happy that Ryan plans to remain in the House, assuming he wins his district again next year (for the eighth time).
Much has been made of Ryan's articulate manner of explaining the necessity of entitlement and tax reforms. But, as we've seen from Wonderboy, there can be an actual loss of force in the Oval Office, whereas being a powerful committee chairman in the House or Senate can be a force multiplier, for good or bad.
In Ryan's case, were the Senate and/or Oval Office to be won by the GOP in 2012, he would definitely be able to extend his influence from his House position.
It's an irony of the American system that a Representative like Ryan has only to win a single district in order to be returned to the House and, if in the majority, have great effect on national policy. Even being a Senator means, for many states, a much more challenging and expensive campaign just to, again, be one of many in a legislature with not really a tremendously larger influence than a Representative, unless the Senate is split closely enough to make every Senator the potential 60th or 41st vote.
When I was growing up in central Illinois, both GOP Congressional leaders lived within 20 miles of me. Bob Michel was the ineffectual House GOP Minority leader, while Everett Dirksen had the same position in the Senate. Neither ever ran for president, but both had surprising influence as a result of holding fairly safe seats for decades in a then solidly-GOP downstate Illinois.
But running for and winning the White House is an entirely different matter. Especially when there is an incumbent, no matter how inept and unpopular. The requirements of running a national campaign is probably not where you want said candidate to get his/her executive experience. And that could well be what happens to Paul Ryan, were he to have acceded to the requests of the GOP fundraisers who tried to recruit him into the race.
As I wrote in an earlier post, I'm reminded of Texas Senator Phill Gramm's run for president in the post-Reagan era. Though he led in money raised, Gramm never escaped the so-called 'green eyeshade' image and a sense he was, as the Wall Street Journal put it, 'running for chief accountant, rather than president.'
Ryan infuses his fiscal messages with more moral and lifestyle content, but, down deep, it's still mostly about wonkish policy details that don't actually play well in presidential campaigns.
Perhaps a different power distribution post-2012 will provide more options for Congressman Ryan. More success in his efforts to actually reverse the growth of entitlement spending. Perhaps a VP slot or a return to Madison to follow Scott Walker as governor. Or perhaps Ryan will depart the political scene, once he's successfully accomplished his work on entitlements.
But the Journal editorial was, I think, correct to congratulate him on knowing his limits and choosing to avoid the temptation of a presidential campaign, no matter how much others wish he'd have agreed.
Monday, August 22, 2011
The Tea Party's Next Challenge
Yuval Levin and Peter Wehner wrote a useful editorial in Friday's edition of the Wall Street Journal entitled The Tea Party's Achilles' Heel.
They argue, correctly, I believe, that the Tea Party movement will have shown itself to be a one-hit wonder if its constituents don't follow their focus on current federal spending with equally serious attention to reforming and reducing the immense promised, but unaffordable social program benefits in Social Security, Medicare and Medicaid.
The authors note how quickly Michele Bachmann backpedaled on Paul Ryan's sensible budget which included entitlement reforms. That her fellow GOP presidential candidates have also remained largely silent on details of entitlement cuts.
Theirs is, I believe, the only really insightful critique of the Tea Party movement which I've read. Ironically, it comes from the right, not the left, and suggests that movement might not go far enough, instead of branding it a domestically-based group of fiscal terrorists, as the administration and some Democratic Congress members have done.
They argue, correctly, I believe, that the Tea Party movement will have shown itself to be a one-hit wonder if its constituents don't follow their focus on current federal spending with equally serious attention to reforming and reducing the immense promised, but unaffordable social program benefits in Social Security, Medicare and Medicaid.
The authors note how quickly Michele Bachmann backpedaled on Paul Ryan's sensible budget which included entitlement reforms. That her fellow GOP presidential candidates have also remained largely silent on details of entitlement cuts.
Theirs is, I believe, the only really insightful critique of the Tea Party movement which I've read. Ironically, it comes from the right, not the left, and suggests that movement might not go far enough, instead of branding it a domestically-based group of fiscal terrorists, as the administration and some Democratic Congress members have done.
Friday, August 19, 2011
Bachmann's Fatal Mistake- Gasoline Price Promises
I think Michele Bachmann is gathering momentum in demonstrating that she truly is not yet ready for national political prime time.
One pundit noted, earlier this week, regarding Paul Ryan's being coaxed by GOP moneymen, to consider a presidential run, that running a national campaign will be far more difficult and complex than running to represent Janesville, Wisconisn in Congress.
Obviously, that goes for Bachmann, as well.
But I think Bachmann just made a fatal error. Last night I saw video of her on one of the Fox News programs promising that, if elected, gasoline prices will be less than $2/gallon.
I was stunned, but not totally surprised. This is Bachmann displaying an inability to distinguish Tea Party desires for less government and more free markets, and raw, fawning populism along the lines of the ancient 'bread and circuses' Roman emperors.
A more mature, wise and seasoned Bachmann would have said, on the same topic, something like this,
'When Obama came into office, gasoline was at $1.75. What are you paying now (over $3)? That's because his deliberate anti-oil, anti-coal energy policies are driving up the price of all fossil fuels except natural gas. But we don't yet put natural gas in our car's fuel tanks.
If I'm elected president, I'll reverse his destructive energy policies. I can't, of course, control the price of gasoline or oil- that's the job of the global free markets, in response to global supplies and demand. But I can promise that I'll return as much of this nation's energy policies to free market principles as possible, eliminate the DOE, and transfer whatever useful information-collection and other elements to their most-productive homes in other federal agencies.
The bottom line is in my administration, we'll make responsible, affordable energy a key policy objective.'
Instead, Bachmann comes off as a modern-day King Canute, commanding the price of US gasoline to fall.
Very foolish.
For me, this pretty much spells and end to her viability as a presidential candidate. This sort of dictatorial lunacy will successfully position and portray her, as I and others have already noted, as the GOP version of Wonderboy. An inflexible, power-mad ideologue.
One pundit noted, earlier this week, regarding Paul Ryan's being coaxed by GOP moneymen, to consider a presidential run, that running a national campaign will be far more difficult and complex than running to represent Janesville, Wisconisn in Congress.
Obviously, that goes for Bachmann, as well.
But I think Bachmann just made a fatal error. Last night I saw video of her on one of the Fox News programs promising that, if elected, gasoline prices will be less than $2/gallon.
I was stunned, but not totally surprised. This is Bachmann displaying an inability to distinguish Tea Party desires for less government and more free markets, and raw, fawning populism along the lines of the ancient 'bread and circuses' Roman emperors.
A more mature, wise and seasoned Bachmann would have said, on the same topic, something like this,
'When Obama came into office, gasoline was at $1.75. What are you paying now (over $3)? That's because his deliberate anti-oil, anti-coal energy policies are driving up the price of all fossil fuels except natural gas. But we don't yet put natural gas in our car's fuel tanks.
If I'm elected president, I'll reverse his destructive energy policies. I can't, of course, control the price of gasoline or oil- that's the job of the global free markets, in response to global supplies and demand. But I can promise that I'll return as much of this nation's energy policies to free market principles as possible, eliminate the DOE, and transfer whatever useful information-collection and other elements to their most-productive homes in other federal agencies.
The bottom line is in my administration, we'll make responsible, affordable energy a key policy objective.'
Instead, Bachmann comes off as a modern-day King Canute, commanding the price of US gasoline to fall.
Very foolish.
For me, this pretty much spells and end to her viability as a presidential candidate. This sort of dictatorial lunacy will successfully position and portray her, as I and others have already noted, as the GOP version of Wonderboy. An inflexible, power-mad ideologue.
Thursday, August 18, 2011
Wonderboy's Bus Tour
There is much to find humorous about Wonderboy's Midwestern bus tour this month.
First, I guess, is that he succeeds in appearing to be just another candidate for his own office. What with Sarah Palin, Michele Bachmann and who knows who else is careening around Iowa and nearby parts in a monster bus, the First Rookie seems like just another of the bunch.
Except that since he actually lives in the White House, it's hard to believe anyone in those states actually believing he is an 'outsider.' Which is what the bus thing is supposed to make his would-be supporters believe.
As we've learned in nearly three years of suffering through his presidency, Obama does not have a common touch. He's not a retail politician in the same vein as Michele Bachmann or Rick Perry. He always comes off as a bit stiff and arch.
Frankly, in that regard, he reminds me of George H.W. Bush, whom I liked. But I thought he lost his re-election on the day that he was caught on camera buying a pair of socks in a mall in Maryland. Saying that he was doing his part to spend money and ease the recession. Marveling at a UPC scanner.
George Sr. just looked totally out of touch with the reality of everyday American life.
So, too, does Wonderboy. Attempting to blame Congress for his own failings. Crying "Get It Done!" as if the federal government's spending binge was the GOP House's idea. So maybe what Obama really means to do is castigate Frisco Nan and Harry Reid for their spending in the last Congressional session? Before last November's election?
Then he's running around complaining that the rich- which is now down to only $200K/year for individuals- don't pay enough taxes! As several Wall Street Journal editorials have noted, Wonderboy rails against "millionaires and billionaires," but it's the "thousandaires" whose money he's really after.
So many muddled messages in the heat of a Midwestern summer. But at least Wonderboy is on the bus. Looking populist. Taking his cue from Give 'Em Hell Harry Truman. Although not everyone could commandeer trains and tracks like Harry did. Compared to his whistle-stop tour in what Karl Rove reminded viewers on Fox News was the last month of the campaign, Wonderboy's using a large bus is decidedly un-Presidential.
More like a country singer's tour bus than what one would expect of a sitting President.
First, I guess, is that he succeeds in appearing to be just another candidate for his own office. What with Sarah Palin, Michele Bachmann and who knows who else is careening around Iowa and nearby parts in a monster bus, the First Rookie seems like just another of the bunch.
Except that since he actually lives in the White House, it's hard to believe anyone in those states actually believing he is an 'outsider.' Which is what the bus thing is supposed to make his would-be supporters believe.
As we've learned in nearly three years of suffering through his presidency, Obama does not have a common touch. He's not a retail politician in the same vein as Michele Bachmann or Rick Perry. He always comes off as a bit stiff and arch.
Frankly, in that regard, he reminds me of George H.W. Bush, whom I liked. But I thought he lost his re-election on the day that he was caught on camera buying a pair of socks in a mall in Maryland. Saying that he was doing his part to spend money and ease the recession. Marveling at a UPC scanner.
George Sr. just looked totally out of touch with the reality of everyday American life.
So, too, does Wonderboy. Attempting to blame Congress for his own failings. Crying "Get It Done!" as if the federal government's spending binge was the GOP House's idea. So maybe what Obama really means to do is castigate Frisco Nan and Harry Reid for their spending in the last Congressional session? Before last November's election?
Then he's running around complaining that the rich- which is now down to only $200K/year for individuals- don't pay enough taxes! As several Wall Street Journal editorials have noted, Wonderboy rails against "millionaires and billionaires," but it's the "thousandaires" whose money he's really after.
So many muddled messages in the heat of a Midwestern summer. But at least Wonderboy is on the bus. Looking populist. Taking his cue from Give 'Em Hell Harry Truman. Although not everyone could commandeer trains and tracks like Harry did. Compared to his whistle-stop tour in what Karl Rove reminded viewers on Fox News was the last month of the campaign, Wonderboy's using a large bus is decidedly un-Presidential.
More like a country singer's tour bus than what one would expect of a sitting President.
Wednesday, August 17, 2011
Buffett On Taxes
What do Wonderboy and his favorite billionaire, Warren Buffett, have in common? They both run organizations which have recently suffered a credit rating downgrade.
But being a billionaire doesn't stop Buffett from being used and quoted by the First Rookie at every opportunity for saying the rich should pay higher tax rates. Or more in taxes- Buffett isn't clear on that. But he seems to mean the former.
In this recent post I quoted Stephen Moore's explanation of Warren Buffett's relatively low effective tax rate. To wit,
"Democrats in Congress routinely cite Mr. Buffett's tax confessions as irrefutable evidence that tax rates on the very rich are too low and the system is unfair. And the system would be unfair, if Mr. Buffett's tax facts were the whole truth. But they aren't.
I don't know the details of Warren Buffet's personal taxes, and he hasn't made them public. But the IRS does provide reliable data on effective tax rates—the overall share of their income that various groups pay in federal income taxes (not including state or local taxes) after accounting for all deductions and exemptions. These are different than marginal tax rates, which are paid on the next dollar of income and now peak at 35% for individuals.
So how does Mr. Buffett arrive at such a low personal tax rate? He may have been referring to a 2010 IRS study of the 400 richest American taxpayers, a list he's probably on. It showed those people paid an effective federal income tax of 18.1% in 2008.
Yet that study crucially omits the corporate income tax, which is mostly borne by the owners of companies.
Mr. Buffett owns about one-quarter of his investment company Berkshire Hathaway, and his shares are worth about $38 billion. This wealth is mostly stored in what are technically called "unrealized capital gains." Eventually when those gains are converted into income, he will pay a capital gains tax. Even so, in 2008 Berkshire paid $3 billion in corporate taxes. And since Mr. Buffett is the principal owner, he shoulders a big share of that tax.
The reason for the light capital gains and dividend tax is that corporations pay up to a 35% tax on their profits before a dime of it is passed on to shareholders. The real tax rate on corporate income paid to individuals through capital gains and dividends is not 15%. It is closer to 45% once you count the tax on corporate profits. If the dividend tax rises to 20% next year from 15% today, then the total tax on dividends paid to shareholders would be closer to 50%, and that doesn't include state and local taxes.
Overall, though, Warren Buffett is wrong on taxes. The tax system is already far too reliant on the wealthy to pay the government's bills. Taxes on millionaires and billionaires are already near a record high in terms of the share of all income taxes paid. And the effective tax rate on this group is much higher, not lower, than any other income category. The best way to balance the budget is for the economy to produce a lot more American success stories like Warren Buffett."
Perhaps it's Wonderboy's complete detachment from the world of business and how the money that the federal government taxes is initially earned that leads him to think Warren Buffett is a guy who creates jobs.
Buffett is a money manager. Doesn't our president realize that? Buffett didn't invent anything. He didn't create a company. In fact, the one with which he's most closely associated, Berkshire Hathaway, is the name of a former clothing manufacturer which Buffett acquired.
If anyone were to be a true poster boy for a wealthy person who created tangible products and wealth, it might be Steve Jobs. Or the Koch brothers- but they're conservatives. So I suppose they wouldn't do.
How about Jon Hunstman, Sr? He's probably conservative, as well.
But Buffett is not the best exemplar of someone who has created much from nothing, and complains that he pays too little in taxes.
Further, even Warren confused the issue when he stated that he was very wealthy, then spoke of his low effective tax rate. You see, taxes are on income. Much of Buffett's wealth is, as Stephen Moore noted, in unrealized gains on Berkshire equity.
Maybe even ol' Warren isn't really clear on just why he pays what he pays. But one thing is sure- Warren always plays nice with the current administration, in order to avoid being the victim of a federal witch hunt. I think the tax issue is no exception.
But he does seem to be misinformed on just what share of taxes paid to the federal government are from very high earners. And when a group is that small, does anyone really believe that a single person in the group represents the views of all of the group?
I doubt it.
One thing of which you can be sure, though. When Wonderboy appears before a crowd of lower- or middle-income people, his rich-baiting calls for more taxes from higher earners is going to sound great. Especially if, thanks to the president's policies, those people have virtually no chance of becoming high earners, and, so, just like the president, evince an attitude of envy and greed when it comes to those who have earned more income than them.
But being a billionaire doesn't stop Buffett from being used and quoted by the First Rookie at every opportunity for saying the rich should pay higher tax rates. Or more in taxes- Buffett isn't clear on that. But he seems to mean the former.
In this recent post I quoted Stephen Moore's explanation of Warren Buffett's relatively low effective tax rate. To wit,
"Democrats in Congress routinely cite Mr. Buffett's tax confessions as irrefutable evidence that tax rates on the very rich are too low and the system is unfair. And the system would be unfair, if Mr. Buffett's tax facts were the whole truth. But they aren't.
I don't know the details of Warren Buffet's personal taxes, and he hasn't made them public. But the IRS does provide reliable data on effective tax rates—the overall share of their income that various groups pay in federal income taxes (not including state or local taxes) after accounting for all deductions and exemptions. These are different than marginal tax rates, which are paid on the next dollar of income and now peak at 35% for individuals.
So how does Mr. Buffett arrive at such a low personal tax rate? He may have been referring to a 2010 IRS study of the 400 richest American taxpayers, a list he's probably on. It showed those people paid an effective federal income tax of 18.1% in 2008.
Yet that study crucially omits the corporate income tax, which is mostly borne by the owners of companies.
Mr. Buffett owns about one-quarter of his investment company Berkshire Hathaway, and his shares are worth about $38 billion. This wealth is mostly stored in what are technically called "unrealized capital gains." Eventually when those gains are converted into income, he will pay a capital gains tax. Even so, in 2008 Berkshire paid $3 billion in corporate taxes. And since Mr. Buffett is the principal owner, he shoulders a big share of that tax.
The reason for the light capital gains and dividend tax is that corporations pay up to a 35% tax on their profits before a dime of it is passed on to shareholders. The real tax rate on corporate income paid to individuals through capital gains and dividends is not 15%. It is closer to 45% once you count the tax on corporate profits. If the dividend tax rises to 20% next year from 15% today, then the total tax on dividends paid to shareholders would be closer to 50%, and that doesn't include state and local taxes.
Overall, though, Warren Buffett is wrong on taxes. The tax system is already far too reliant on the wealthy to pay the government's bills. Taxes on millionaires and billionaires are already near a record high in terms of the share of all income taxes paid. And the effective tax rate on this group is much higher, not lower, than any other income category. The best way to balance the budget is for the economy to produce a lot more American success stories like Warren Buffett."
Perhaps it's Wonderboy's complete detachment from the world of business and how the money that the federal government taxes is initially earned that leads him to think Warren Buffett is a guy who creates jobs.
Buffett is a money manager. Doesn't our president realize that? Buffett didn't invent anything. He didn't create a company. In fact, the one with which he's most closely associated, Berkshire Hathaway, is the name of a former clothing manufacturer which Buffett acquired.
If anyone were to be a true poster boy for a wealthy person who created tangible products and wealth, it might be Steve Jobs. Or the Koch brothers- but they're conservatives. So I suppose they wouldn't do.
How about Jon Hunstman, Sr? He's probably conservative, as well.
But Buffett is not the best exemplar of someone who has created much from nothing, and complains that he pays too little in taxes.
Further, even Warren confused the issue when he stated that he was very wealthy, then spoke of his low effective tax rate. You see, taxes are on income. Much of Buffett's wealth is, as Stephen Moore noted, in unrealized gains on Berkshire equity.
Maybe even ol' Warren isn't really clear on just why he pays what he pays. But one thing is sure- Warren always plays nice with the current administration, in order to avoid being the victim of a federal witch hunt. I think the tax issue is no exception.
But he does seem to be misinformed on just what share of taxes paid to the federal government are from very high earners. And when a group is that small, does anyone really believe that a single person in the group represents the views of all of the group?
I doubt it.
One thing of which you can be sure, though. When Wonderboy appears before a crowd of lower- or middle-income people, his rich-baiting calls for more taxes from higher earners is going to sound great. Especially if, thanks to the president's policies, those people have virtually no chance of becoming high earners, and, so, just like the president, evince an attitude of envy and greed when it comes to those who have earned more income than them.
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