15% and the Big Buffett Lie

I have recently had some fun tearing apart the numbers liberals (and other republicans) are trying to use to tear apart the republican field. A few days ago I posted a blog showing how misleading the liberals are in portraying Obama’s massive expansion of federal debt. Using numbers is a dangerous thing because, unlike other forms of rhetoric, numbers actually give us something to dig into. Thus it is with the BBL (Big Buffett Lie) that his secretary pays more in taxes than he does and the attack on Mitt Romney’s 15% average tax rate as being lower than that of middle class Americans. All of this blather falls under the liberal rubric of “unfairness.” I decided to play around with these numbers a bit and see just how unfair they really are and to whom they are unfair.

Part of the unfairness doctrine is that wealthy people like Mitt Romney pay “lower taxes” than less wealthy folks. There are so many misleading details buried in this statement it’s hard to know where to start, but let’s go for it. 

On an absolute basis, of course, Mitt Romney pays far more in taxes than the average middle class Joe – about 450 times more, in fact. For example, a married person earning $50,000 per year will pay $6,654 in federal income taxes in 2011. Mitt paid $3,000,000 (in 2010). Divide 3,000,000 by 6,654 and you get 450. Mitt paid 450 times more in taxes than the middle class Joe! 450 times!! Fair? Unfair? You decide. But, wait, there’s more. A lot more. 

While it is accurate to say that average Joe married person earning $50,000 is “in the 25% tax bracket,” it is not accurate to say such a person “is paying 25% in taxes” or even that such person is paying a higher tax rate than Mitt Romney. These are marginal tax brackets and only the last $34,500-$50,000 of income would be taxed at the 25% rate while the actual taxes paid by a married person earning $50,000 would be $6,654 or 13.3% of income (6,654/50,000). So, in fact, the average Joe is paying a LOWER overall rate than Mitt Romney’s 15%. This is Buffett’s Big Lie. I don’t know what he pays his secretary, but I’ve hired many over the years and very few of them make more than $50,000 (and if he’s paying his $1,000,000 a year she would be expected to pay higher taxes; maybe that’s part of his big lie – I don’t know). So, assuming he’s paying her about $50,000, it is inconceivable that she’s paying more absolute taxes (see above) and quite likely she’s paying a lower overall rate than the Big Liar (whose rate, like Mitt’s, is probably about 15%). It probably is true that her top marginal rate on ordinary income is higher than the Big Liar’s, but, as we saw above, that is as relevant as the fact that the Redskins won 3 Super Bowls in the late 80s and early 90s (sorry – I was struggling for a good “as relevant as….” analogy and I just felt like reminding my readers that the Skins were really good a really long time ago). 

Now, let’s look more carefully at the 15% that Mitt actually paid. The 15% is almost completely on capital gains, the source of most of his income. But, the effective total federal tax on those dollars is more like 45% because the profits of the corporation were taxed at the corporate rate of 35% (one of the highest corporate tax rates of any country in the world; even President Obama has agreed it is anti-competitive), then again at the 15% capital gains rate when Mitt filed his return. Since Mitt and other shareholders ARE the owners of the company, the profits of the company inure to their benefit only and, thus, they are the ones who are effectively paying the 35% corporate tax on profits. So, indeed, Mitt’s effective tax rate is probably about 45% (15% on top of 35% – do the math) on most of the dollars earned, much higher than the rate (even the marginal rate) paid by the average Joe or the Big Liar’s secretary. Fair or unfair? 

Now, as we start to dig deeper into the question of fairness, let’s look at who actually pays how much in taxes in the US? The top 1% pay 37% of all federal taxes (2009 numbers). Yeah, those evil one-percenters, who have been the proximate cause of demonstrations around the nation, are carrying nearly 40% of the load for the entire country. You’d actually think the Occupiers might say “thank you” instead of building squalid little villages in public parks. The top 5% pay 59%. The top 10% pay 70% of all taxes. The bottom 50% pay 2.25% of all taxes. So, in considering “fairness,” it’s probably relevant to consider the fact that while Mitt (and other wealthy folks) may pay a net tax RATE that is lower than the top marginal rate paid on ordinary income by someone in the bottom 50% of earners/taxpayers, the top 1% are paying way more than their “fair share” of taxes under any mathematical construct. And, if you include the top 20% in the analysis, they are, mathematically speaking, paying basically ALL of the taxes in the United States. The bottom half are paying essentially nothing. I find it puzzling to contemplate how that could be “unfair” to the folks paying close to nothing and overly generous to the folks paying basically everything. Seriously, I’m an open-minded guy (stop laughing) – can someone explain to me how that’s “unfair” to the folks paying basically nothing? Should they pay less than nothing? There’s a comment section below. Have at it. 

Here’s a more controversial line of thought. Mitt paid $3,000,000 in taxes in 2010. We pay taxes to run the government so that the government can provide services to us – pave our roads, protect us with a military and police force, make sure we don’t get life saving drugs because the FDA is dysfunctional (I digress). Universally, at all levels of income, Americans do not believe the tax code should be used to redistribute income. Thus, it is interesting to consider whether Mitt used more government services than the average Joe making $50,000 who paid $6,654 in federal income taxes. I’m guessing probably not. Maybe Mitt even used fewer services (for example, if he sent kids to private vs. public schools). If two people are using the exact same level of government services, is it “fair” to ask one of them to pay 450 times more for those services than someone else using exactly the same level of services? Personally, I’m OK with a progressive tax code as I actually do believe that the more fortunate folks should pay more, but I do find it odd and offensive that a guy who pays 450x more for the exact same services is vilified and accused of paying unfairly LOW taxes. That’s mondo bizarro, folks. 

Finally, suppose we were to concede that it is somehow objectively “unfair” that Mitt is paying 15% (which, in actual fact, may or may not be a lower rate than someone making less money, per the data above on Buffett’s Big Lie), then one has to  propose a solution to rectify the alleged unfairness. How would you make it more fair? Well, there are only two possibilities: (1) Raise the tax rate on capital gains so that Mitt pays a higher percent or (2) Lower the tax rate on ordinary income. Let’s take #2 first because it is easy. If President Obama wants to lower marginal tax rates anywhere in the economic spectrum, he has my support. As the numbers above on who pays what show, it will only have an impact on economic growth if he does it for all taxpayers, but any tax cut on marginal rates is a good tax cut. #1 is way more complex. 

In 2008, Charlie Gibson interviewed President Obama and asked him why he would support raising capital gains tax rates even though “revenues from the tax increased” when the rate fell. Obama replied, “I would look at raising the capital gains tax for purposes of fairness.” So, even Obama acknowledged that raising this tax would have a net negative impact on the economy and tax revenue, but he’d do it anyway for “fairness” even if that meant slower growth, higher unemployment, etc.  This notion of symbolism over substance dramatically alters the landscape in the debate over fairness and feels antithetical to the founding principles of America. It seems to me that doing something in the name of fairness that would inherently make economic life worse for the middle class is, by definition, unfair to those middle class folks. Q.E.D.

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About Bruce Robertson

Bruce Robertson is an amateur writer and professional provocateur
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7 Responses to 15% and the Big Buffett Lie

  1. Dan Grabois says:

    Here’s a hypothetical society. It has 10 people in it. One earns $100 a year, the other 9 each earn $1 a year. You have a flat tax rate of 15%. So the rich guy pays $15 in taxes, while the other 9 pay $.15. Doing the math, as you have suggested is a good activity for your faithful readers, I reckon that the one guy pays $15 while the other 9 TOGETHER pay $1.35. This is completely unfair. The rich guy is paying essentially all the taxes, more than 10 times what the rest combined are paying.

    The flaw in the argument is that you are mixing percentage of people into an argument about percentage of MONEY. The top 1% of the people is not many people, but the top 1% of money earned is HUGE. If our top 1 guy above earned $100, or $1000, your way of looking at things makes it seem even more unfair. After all, let’s say he earns $1000 per annum and the others each earn $1 per annum. The total earned is $1015. 15% of that is around $152 (I did the math again!). Each person’s fair share of the society’s total take should be around $15, one tenth of the total earnings. This is obviously a crazy way to look at things (imho).

    I would also add that those top 1% in fact do use much more government service. They use the roads, they fly on planes, they use the courts, and so on. They have employees for whom the government pays half the social security tax. They have also benefitted greatest from the open economy in the US, and thus can be asked to contribute back.

    • Dan, when I issued the challenge to comment in the comment space, I had you in mind. Sadly, I’m disappointed. You declared a “flaw in my argument,” but never addressed my argument. My argument is that it is absurd to call the current system unfair when one group is paying all the taxes and another group is paying very little. Your attempt to discern between percent of taxes paid and percent of people paying them doesn’t change the outcome a bit. It may move the numbers around somewhat (I DIDN’T do the math), but it will not change the conclusion that the top earners are paying a ridiculous percentage of the taxes in this country…..and that they should be thanked, not vilified.

      And, your assertion that the top 1% use MORE government services is preposterous. I fly about 100 flights per year and I can assure you the planes are not filled with 1-percenters. Plenty of ordinary families with screaming babies. Moreover, even if the 1% fly a bit more and use an extra 30 seconds of TSA time or air traffic control time, their less wealthy counterparts are riding public transportation or Amtrak, both heavily subsidized. The top 1% may use the courts more to sue each other over bad business deals, but the vast majority of criminal court time is not the top 1%. Nor is all the money spent on jails. The top 1% also don’t use Medicaid, food stamps, or any one of the myriad government programs for the poor. It just isn’t close.

      • Dan Grabois says:

        At least I am consistent in disappointing you on a regular basis. You say “it is absurd to call the current system unfair when one group is paying all the taxes and another group is paying very little.” My comment was meant to point out that when one group has almost all the money, they should in fact pay most of the taxes. I frequently hear the complaint that the top 1% pays 37% of the taxes (hey, I even heard that from you in your original post above), as if the fair thing would be for the top 1% to pay 1% of the taxes. My point is that you cannot compare 1% of the people to 1% of the taxes. Perhaps Fox News would try out such a dumb misuse of statistics (undoubtedly after “accidentally” calling Obama Osama), but surely not someone as smart as you, my own cousin who shares 12.5% of my genes (and therefore should only pay 12.5% of the amount I pay in taxes — oh, wait, I’m confusing percentages again). Although I don’t have the numbers at my fingertips (or anywhere else), I’m going to guess that the top 1% of the people earn WAY more than 37% of the income, and their income appears to be growing. So of course they should be responsible for paying a large portion of the country’s income tax. My example of a simple society of 10 people was meant to make that point, but it undoubtedly did not do (as the British would say).

        One other point I wish to make will sorely disappoint you as well. If you earn $100,000 a year and you pay $15,000 in taxes, and I earn $30,000 a year and pay the same percentage, viz. $4,500, the amount that I am paying is much more hurtful to my quality of life than the amount you are paying. In that instance, I will resent being asked to be grateful to you, and I will especially resent being told that I should be happy to be paying “very little.”

    • John says:

      Here is another theoretical society, 10 people, one makes $100 and pays $22 in taxes, one more makes $25 and pay $4 in taxes, two more make $10 and pay $1.5 in taxes, three make $5 and pay $.05 in taxes and the final three make $3 and pay no taxes and collect “assistance” of $2 due to the unfair situation they are forced to live in.

      Does this scenario look fair to anyone? I agree, what we need to do is actually give those poor fellas earning only $5 an additional $1 from the government because they are actually working and not earning as much as those making only $3 and we will call this the “earned income credit”.

      And to pay for this we will either ask someone to loan us the money or increase the tax on the person making $100 by $3 because it is unfair for him to be rich and he probably smells bad too.

  2. See this is the wonderful thing about numbers. You can’t say “I’m going to guess that the top 1% of the people earn WAY more than 37% of the income.” You have to support your argument with numbers! But, before you waste your entire afternoon searching for numbers to support this statement, it doesn’t matter. Even if you do produce such numbers it absolutely doesn’t change my point, which you still have not addressed. Note that nowhere in my post did I say “it’s unfair that Mitt Romeny (or the top 1%, 5%, or 20%) are paying more taxes than the bottom 50%. To the contrary, I gave a subtle nod to the fact that it is fair when I said, “Personally, I’m OK with a progressive tax code as I actually do believe that the more fortunate folks should pay more….” The point of my blog was to point out how completely inane it is to declare it unfair that a group that is currently paying essentially no taxes are paying too much in taxes and a group that is paying all of the taxes is paying too little. And, yet, that is precisely the liberal rhetoric today. You’ve said nothing to address that point. You’ve only said, if I may paraphrase, “the way it is now is completely fair.” Frankly, I don’t love the current system, but I haven’t said anything that is inconsistent with your position. Yet.

    I’d actually be willing to make a deal whereby the top earners pay even more and the bottom pay even less (wait, impossible, they don’t pay anything now) in exchange for the top taxpayers, in turn, getting more control over the government and decisions as to how that money gets spent. Seriously, think about it. if we have a system where a teeny tiny minority is paying for literally (not figuratively) everything, ought not they have far more say in how their money gets spent? If we move to this system, perhaps we amend the constitution to allocate votes not one per person, but pro rata based on taxes paid. I’m open for any and all possibilities along these lines.

  3. Bonnie Miller says:

    Or to sum it up in a political cartoon i saw recently…a caricature of Pres Obama said, “I won’t allow the half of Americans who pay no taxes to bear the burden of the other half who aren’t paying their fair share.”

    Bill (not Bonnie) Miller

  4. Just an insertion of facts: The Top 1% earn about 17% of all the income in America and pay about 37% of all the taxes.

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