It’s a few days old, but via Jim Kelly, I’ve just discovered David Frum’s article “Two Cheers for the Welfare State.” Frum, if you don’t know, is a former National Review editor and George W. Bush speechwriter, a one-time “true believer” in all things conservative, but who has become associated in recent years with the GOP’s centrist wing. Anyway, I think his article is great, and instead of excerpting it, I’ll just encourage everyone to go and read the whole thing.
I’d be curious to hear what our resident conservatives think about it, or more specifically, about its substance (in other words, yes, I know you all think Frum’s a RINO — but why is he wrong?). Also, any links to good conservative rebuttals of the piece that have already been published (I’m sure they’re out there) would be appreciated.
Frum’s arguing from the same false premise that basically the entire left does: that the GOP/Tea Party want to dismantle the “social insurance state.” Quite the contrary: the debt hawks realize that the only way we’re going to continue to have any social insurance is if programs designed in the ’30s and ’60s are reformed to reflect 21st-century reality.
Ditto Mike — the entire article is built on straw-man premises. The arguments at National Review or Wall Street Journal aren’t that now is the time to dismantle the Welfare State, the arguments are that now is the time to reform them. Frum even states in an earlier dialogue, “What Yuval Levin is criticizing is not the welfare state. It’s the social insurance state: a state that taxes all to provide benefits available to all.” Frum implies objection to the Ryan plan, but he doesn’t clarify what in the plan with which he takes issue. Reading his previous pieces in this series, it appears means-testing is what bothers him, but what Ryan’s plan proposes with Medicare isn’t means-testing. Is converting Medicare to an up-front subsidy rather than a blanket spending program really that evil? Frum harps in the need to rein in healthcare costs and says that it needn’t be by controlling outcomes, so how else does he portend to due that? He just assumes there will be a Wal-mart like revolution with healthcare without examining what drives such change at the fundamental levels.
Ultimately Frum’s arguments fail for the same reason a lot of “centrist” arguments fail: they understand what they are for even less than they understand why they are against what they are against.
As an example, Frum derides Republicans for saying there’s a spending problem more than a revenue problem and for wanting to flatten the code and close out deductions and loopholes. But Ryan makes it very clear he wants the changes to simplify the code and be revenue-neutral, so the main issue must then be, are the changes unfairly tilted towards the rich (as Democrats and liberals are wont to accuse)? The evidence is clearly in favor of drawing the opposite conclusion: our present tax code is so slanted against the rich, we have almost no room to extract anything left, and it’s harming economic productivity. Even today in the WSJ, the conservative case is borne out that raising taxes on the rich simply won’t make a dent at all in our fiscal crisis, so this is really about how we want to tax the middle class, and as a person who just submitted his tax returns after a laborious weekend of craptastic tax preparation, I much prefer Ryan’s approach of simplification. Not to mention there are tremendous administrative costs associated with the system we have that would be eliminated with a flatter, simpler system.
“our present tax code is so slanted against the rich, we have almost no room to extract anything left, and it’s harming economic productivity.”
How rich are you? Warren Buffet says he pays less taxes than his secretary.
http://www.timesonline.co.uk/tol/money/tax/article1996735.ece
Too many Americans like AML that know nothing do most of the talking.
He pays a lower rate, he doesn’t pay less taxes.
The rich pay the overwhelming majority of taxes in the U.S.
If you make more money, don’t you think you should pay more taxes? At first that was a rehetorical question, but now I actually think you might say he shouldn’t.
Buffett says he paid 17.7% on the $46 million he made and his secretary paid 30% of her $60k. It’s hard to believe that someone would have to try and get through the year on less than the $38 million they were left with AFTER taxes, but I think if the government took a couple percent more, it would make a big difference to the benefit of the rest of Americans.
The people who benefit the most from living in this country, should also bear a greater burden, not the other way around,
This is an excellent opportunity to continue to debate the “gahrie” plan.
1) Everyone does their taxes on a postcard every year. from the poorest to the richest, including corporations.
Line 1: How much money did you make last year? __________
Line 2: What is your tax rate? __________
Line 3: How much do you owe? __________
Line 4: How much did you have withheld? __________
Line 5: How much do you owe? __________
or
How big is your refund? __________
2) Tax rates begin at 5%. Everyone pays, even if your only income was government checks. Tax rates go up to 33% in normal times….but will go up to 50% at the top while we pay down the national debt. If you don’t pay your taxes, you don’t get to vote in the next federal election.
3) Sandy Underpants: If President Obama confiscated all the money of the rich like Buffet, he wouldn’t even have enough money to balance this year’s budget, let alone pay off the debt. Then what would you do next year?
4) Absolutely no tax shelters, deductions, credits, etc, etc.
How much did you make? What is your rate? How much do you owe? Period.
I think Obama wanted the tax rate to go back to what it was under Clinton, which was a 2% increase from what it is now, and the Republicans chimped out so bad he had to give up that idea. Warren Buffett just wants the super rich to pay the same rate as his secretary which would be double what many of them are paying right now. If Buffett’s $60k per year secretary can pay that rate and get by, I think the super rich can manage, somehow.
The tax rate in this country used to be 70-90% of a person’s income, so it’s not like asking the ultra-wealthy to pay at least 30% of their annual earnings is unamerican, heck the country was in much better shape all around back when taxes were at a level that allowed the country to sustain itself.
heck the country was in much better shape all around back when taxes were at a level that allowed the country to sustain itself.
Things were even better back when the government was small enough not to be supported on the backs of the American people by confiscating their earnings.
Warren Buffett is full of shit. A $60K salary BEFORE any deductions or credit falls into the 25% category. I know because I’m in that category and just filed my taxes.
The 17% he is stating he paid is the CORPORATE rate for his Berkshire Hathaway company.
Two different animals.
@frederico
Before you write off the financial literacy of one of the most successful businessmen in American history, do your homework:
Assuming the secretary is single, the 25% marginal bracket starts at about $34k, so if the secretary makes $60k, then not only are they very likely to still be in the 25% bracket after deductions etc., but a large portion of their income is taxed at that rate. On top of that, they pay 15.3% for FICA – only half of which is shown on the pay stub, but all of which is included in any economically honest discussion. Without my actually crunching the numbers, 30% is not an unreasonable number.
The 17.7% number he quoted is not related to the corporate tax rate. It’s a blended average of the tax rate on his salary (I think it’s currently $100k, not sure what it was in 2007 when the quote seems to be from) and his capital gains (and dividends) from owning shares in his company (which is some enormous number). The maximum capital gains rate is currently 15%, and you don’t pay any FICA on it. So the effective tax rate he pays on his personal income, even without making an effort to intentionally lower his taxes (ie. setting up tax shelters), may well be near 17.7%.
Michael #12 – before propagating the misleading propaganda of attempting to pretend to compare apples and kumquats, why not do something just as meaningful and have the folk who employ more people pay a lower percentage of personal taxes, since the jobs they provide pay more taxes to the country …
How many folk does the secretary provide gainful employment for, as compared to Warren Buffett ?
With that said, if Mr Buffett believes that *he* isn’t paying enough taxes, he can add as much as he feels is appropriate, and then send the total to the IRS …
Well Frum’s article and the series of posts from which it comes are themselves a rebuttal to Yuval Levin’s article in National Affairs. If you’re interested in the conservative perspective, then I suggest you start there.
Alasdair,
You may certainly call it apples and kumquats (a kumquat, for purposes of rhetoric, perhaps having more or less difference to an apple than does an orange?). Indeed, Buffet earns his income mostly by investing, while his secretary earns his or her income mostly through labor, and investment and labor are different. However, when one person earns 60,000 apples a year and the other earns 100,000 apples plus 46 million kumquats, I feel quite comfortable identifying which person has more fruit, even if they are different fruits.
You propose that, before I propagate the propaganda, I have the employer pay a lower percentage of taxes. Unfortunately, this is impossible, since the taxes in question of both the employer and the employee were paid in 2007, and the employer did indeed pay a lower percentage of his income as federal taxes at that time (and, very likely, had already been doing so for some years), and I did not make my comment until 2011. Therefore, your first proposal is impossible.
I certainly agree with your judgment that federal tax policy, which moves trillions of dollars, is “just as meaningful” as my brief comment on a moderately read blog. I would have to be a megalomaniac to think it were not as meaningful.
I don’t know for how many folk Mr. Buffett and his secretary each provided jobs. Neither frederico nor I made any claims about how many jobs were provided. If you read our postings, neither of us made any claims about whether the amounts that they paid were justified, reasonable, good for America, moral, or otherwise right. The only questions that we addressed were “how much did each individual earn” (this part seems to be uncontested) and “how much federal taxes, assessed on the basis of personal income, did each individual pay”, in order to evaluate whether the factual claims made by Mr. Buffett were likely or unlikely to be accurate. Frederico believed that the factual claims were unlikely to be accurate (“full of shit”), whereas I believe that the numbers are well within the range of feasibility.
I certainly agree that Mr. Buffett can pay more money to the government if he wishes. The official term for this is “Gifts to the United States,” and money is sent to the Credit Accounting Branch within the FMS. However if the debate is over what the tax rate set by law ought to be, at present, I don’t think that gifts to the government are currently at a large enough level to change to the conversation.
Mr. Buffett could also, as many wealthy individuals do, employ techniques to avoid paying taxes. In the above referenced quote he claimed that he did not, so I have not addressed the additional issues and complexity this would introduce.
I think the Buffett debate here is missing the forest for the trees. No doubt Buffett pays a higher marginal rate on his income taxes than does his secretary. No doubt also that Buffett makes far more of his income via capital gains and dividends, which are taxed at a lower rate. The questions that then must be asked, if one is truly troubled by the 30% rate for the secretary vs. the 17% rate for Buffett, are these:
– Should the cap on FICA taxes be lifted? By how much? And if Social Security and Medicare are not supposed to be means-tested and are to be benefits for all, doesn’t that logically mean that this extra FICA revenue is largely going back to the rich people who are contributing it via lifting the FICA cap?
– Should we apply FICA taxes to capital gains and/or dividends? If so, the same issues apply, and folks like Buffett are now going to get massive Social Security and Medicare benefits compared to the rest of us (or at least compared to his secretary).
– Are we suggesting that some level of progressive scale should be introduced to capital gains and dividend tax rates? Think through the implications of that — aside from the administrative nightmare it causes, you’re drastically incentivizing and affecting the effective and efficient movement of capital. I don’t see how you get any other result from that but massive economic retardation.
– Should corporate income tax, personal income tax, capital gains tax, and dividend tax rates all be rationalized and equalized? There’s no doubt that dividend income is double taxation, since that money has already been taxed as corporate income, but if the beneficiaries of dividend income are mostly rich people, perhaps the paradigm should be flipped and we should eliminate corporate income tax as much as possible and jack up dividend tax rates massively instead.
The bottom line is the Buffett / secretary comparison is useful for illuminating how complex and irrational our tax system is, but it doesn’t really serve as a workable example for how to reform the code to be more “fair”.
* incentivizing should be disincentivizing.
AMLTrojan – These are certainly important questions and discussions, and you make some good arguments. My point was that, while you and others are looking at what *should* happen, frederico disbelieves what *did* happen. To paraphrase Moynihan, it is important to distinguish between a discussion of facts and one of opinions. I defended Buffett’s facts as being plausible, and Alasdair, who apparently disagrees with Buffett’s opinions, took objection to that defense.
I am hesitant to call Buffett a liar. OTOH, I thought that was the whole point of the Alternative Minimum Tax — to ensure the rich pay their dues regardless of the loopholes and deductions and such.
Here’s another way of looking at it: What if Buffett sold all of his holdings and invested 100% in muni bonds? Theoretically, he would pay no taxes whatsoever, right?
So I stand by my previous conclusion, which is that the veracity of Buffett’s claims are not worth doubting, we just need to be smart about what kind of conclusions we draw from them.
If Buffet is only paying his secretary $60K, he’s a cad.
Why should Buffett be obligated to redistribute his wealth to his secretary? Socialist! 😛
AMLTrojan 319 succinctly phrases my intent … I do not doubt Buffett’s veracity – I *do* doubt the sincerity expressed … my disagreement is with the conclusions Buffett apprently tries to draw …
As AMLT pointed out, someone who invests all hiscapital in Muni Bonds (non-taxable) should be able to earn millions in income from them without having to pay any income tax …
If the populace decides that it is not “fair” to have non-taxable Muni Bonds, then fix the tax code …
Why should Buffett be obligated to redistribute his wealth to his secretary? Socialist! 😛
I didn't say he was obligated…I said he was a cad.
People should do the right thing even if they aren't obligated.
I’m glad (if a little confused) to see gahrie condoning progressive tax policies.
I wish it were as simple as the “What did you make? What is your rate? What do you owe?” formulation. It just isn’t.
What if I own a 10% stake in Facebook that was worth nothing when I first got it, but went up $5 billion in value last year? Should I be taxed on that? What if I have no $$$ to pay taxes because all my wealth is tied up in those shares, and I haven’t sold them (I have a non-taxable unrealized gain)?
What if I take out a loan against my Facebook shares to buy a mansion… Should that be taxable? I still haven’t really earned anything.
These are the sorts of dodges that naturally evolve to reduce the tax rates paid by the rich. In the modern era of tax evasion, a “progressive” tax system really does nothing more than ensure that the rich pay the same as everyone else.
Oh, and certain hedge fund managers are truly the ultimate douchebags in the universe. The HFT guys (high frequency traders) literally make their money by stealing it in microseconds from serious investors of all stripes, and wind up paying lower tax rates than anyone due to the lowered cap gains rates (thanks GWB).
What if I own a 10% stake in Facebook that was worth nothing when I first got it, but went up $5 billion in value last year? Should I be taxed on that?
You should be taxed when you realize the profit by selling the shares.
What if I take out a loan against my Facebook shares to buy a mansion… Should that be taxable?
The money you spend on the mansion should be, regardless of the source.
When you add in gas taxes, “sin” taxes, sales tax, commodities taxes (power/water/cable/phone, etc), I’m willing to bet that most people earning $75,000 and less pay far more than your average rich person as a percentage of income under your “progressive” system.
Tax cheats will always exist. My system would make it much harder than the current system. It would also save our economy the billions of dollars spent every year on tax lawyers, tax preparers and lobbyists, not to mention we could drastically cut the size of the IRS.
We need to stop legislating through the tax code. The sole purpose of the income tax should be to confiscate the least amount of money necessary to fund the smallest federal government possible.
gahrie @ #23: I know. It was a joke.
Casey, first off, you and I both know that nobody just lucks into 10% of a start-up worth “nothing”; you either were part of the IP and brains behind the company, or you were a venture capitalist or “angel investor”. That alone is a huge entrepreneurial risk, and the capitalist system should rightly reward those kinds of risks with the potential for massive rewards. Wealth creation is the essence of capitalism, and funding a business venture is perhaps the very best example of that in the micro sense.
What if I take out a loan against my Facebook shares to buy a mansion… Should that be taxable? I still haven’t really earned anything.
Loans should not be taxable, no. But if that cash you took out sits in a bank and earns interest, that’s taxed. And if you buy a mansion, you’ll be paying transfer fees / excise taxes, property taxes, and real estate commissions — which are taxed. When you buy the furniture, you’ll be taxed, Will that be as much as taxing $5B worth of Facebook shares? Of course not .. but you’ll have a helluva capital gains hit when you finally do sell (maybe only 15%, but that’s still a $750M tax bill).
These are the sorts of dodges that naturally evolve to reduce the tax rates paid by the rich. In the modern era of tax evasion, a “progressive” tax system really does nothing more than ensure that the rich pay the same as everyone else.
Well there’s a big, giant, intellectually bankrupt, empirically empty, cop-out of an argument if I’ve ever seen one. We just got done hypothesizing how a rich person could invest his money in tax-free muni bonds and pay $0 in taxes, and you come back with this pie-in-the-sky nonsense? Really?!?
That’s okay, I can answer platitudes with platitudes.
At the core of their existence, the American people don’t hate the rich. The boot-strapping capitalist that manipulates the system, dominates the market, and becomes the capitalist baron? In his heart, the American admires that guy. Americans are about guts. Blood, sweat, toil, competition, perseverance. And most of all … winning. Americans don’t want to tear down and take more money from the winner, they want to be the winner, and they want to be led by the winner.
You know who the American really hates? The trust-fund baby. The old rich. […] The guy who didn’t win anything, he just lucked into a silver spoon and a risk-eliminating inheritance.
Me? I don’t hate that guy. To me, tax policy isn’t about morality, and it isn’t the place to right wrongs or pull back to the pack those who were born into wealth or prominence. To me, tax policy should be driven by empirical data and logic in an attempt to answer a singular question: what is the most efficient way to extract revenue from the economy with the least hindrance to overall economic growth? Let’s argue about morality and justice and fairness on the social policy and spending side — not on the tax side. Who knows — maybe the facts and data will lead us to a tax system that extracts its pound of flesh through luxury and “overconsumption” taxes, and by confiscating all your money after you die. That’s one way to starve the trust-fund babies, anyway.
AML, please contact me directly regarding this last comment. My personal e-mail is just my first name, a period, then my last name @gmail.com. This is best resolved privately.
EDITOR’S NOTE: Let the record show that, in response to a request, I deleted a particular sentence from AMLTrojan’s comment for violating a longstanding blog policy. I make no comment or judgment on whether any violation was intended, but regardless, I felt the partial deletion was appropriate. I added a […] where I made my edit. I don’t think I’ve undermined the substance of AMLTrojan’s argument.
I mention this only for the sake of posterity and editorial honesty. If anyone has issues, questions or concerns regarding this decision, I’d encourage you to e-mail me at irishtrojan [at] gmail.com. I don’t want this interesting, substantive thread to be derailed by a pointless debate over whether I am properly exercising my powers as the blog’s (hopefully benevolent) dictator. 🙂 Such things are, ultimately, not really up for debate.
Apologies [for violating], and, agreed [not up for debate].
Consider the Internal Revenue Service’s income tax statistics for 2008, the latest year for which data are available. The top 1% of taxpayers—those with salaries, dividends and capital gains roughly above about $380,000—paid 38% of taxes. But assume that tax policy confiscated all the taxable income of all the “millionaires and billionaires” Mr. Obama singled out. That yields merely about $938 billion, which is sand on the beach amid the $4 trillion White House budget, a $1.65 trillion deficit, and spending at 25% as a share of the economy, a post-World War II record.
Say we take it up to the top 10%, or everyone with income over $114,000, including joint filers. That’s five times Mr. Obama’s 2% promise. The IRS data are broken down at $100,000, yet taxing all income above that level throws up only $3.4 trillion. And remember, the top 10% already pay 69% of all total income taxes, while the top 5% pay more than all of the other 95%.
http://online.wsj.com/article/SB10001424052748704621304576267113524583554.html?mod=djemEditorialPage_h
A more expanded note for posterity: While I wrote the [now deleted] sentence to illustrate a point about who in society really is “rich”, and I believe that point was relevant to the conversation, the indirect and underhanded manner in which it was communicated was insufficient to avoid violating Brendan’s policy, which admittedly I was not being sufficiently conscientious of when I wrote my comment. The other generic point that is relevant here is that, while the internet tends to provide a cloak of anonymity to communication (sometimes for our own protection and a respect for privacy), when it comes to rhetorical discussion, ultimately the ethos cannot be wholly separated from the logos and the pathos.
Bill Whittle (and Iowahawk) provides an excellent illustration of AML’s point that raising taxes on “the rich” will do very little and that our fiscal crisis is much more of a spending problem than a revenue problem.
Gahrie #20– If Buffett is paying his secretary “only” $60k, he’s a cad, but the fact that he is the 3rd richest man in American and “only” paying HALF the tax-rate of upper middle-class Americans, it’s fine?
Alisdair #13– It doesn’t matter how many people an individual employs in determining their tax liability. Buffett’s point wasn’t that he wants to personally pay more than everyone else, he wants the super-wealthy to pay a fair tax-rate compared to the middle-class who pay nearly double what HE pays. Trust me, he knows more than you do about what he paid in personal income tax.
Alisdair #22– Who’s talking about Municipal Bonds? Buffett didn’t become a billionaire on muni bonds. Yeah, you pay no taxes on muni bonds, you also pay no taxes if you make $15,000 a year, but so what. “Than fix the tax code”, that’s what we’re talking about doing, but repubs say stuff like the rich are taxed too much already, and so far that has to be proven by any facts.
AML #27– I think the problem in this debate is that some people make it too personal. Nobody hates the rich. The discussion is whether or not the rich can pay a tax rate that they were perfectly capable of paying throughout the 1990s, which is 2% more than the current tax rate. And the answer is yes, and the problem is Republicans who say the answer is no.
The answer to most of the budget deficit is military spending, and again the problem is Republicans.
If Buffett is paying his secretary “only” $60k, he’s a cad, but the fact that he is the 3rd richest man in American and “only” paying HALF the tax-rate of upper middle-class Americans, it’s fine?
Under the current tax code, yes. However, this is one of the ‘problems” my plan would fix.
The answer to most of the budget deficit is military spending, and again the problem is Republicans.
The ignorance of this statement is simply astounding.
For the 2010 fiscal year, the president’s base budget of the Department of Defense rose to $533.8 billion. Adding spending on “overseas contingency operations” brings the sum to $663.8 billion
The total deficit for fiscal year 2009 was $1.42 trillion, a $960 billion increase from the 2008 deficit.
The 2009 budget deficit would represent 12.3% of gross domestic product,[9] the largest share since World War II
So if the entire defense department was zeroed out, it wouldn’t cover the increase in the federal deficit from 2008 to 2009, let alone the deficit itself.
The discussion is whether or not the rich can pay a tax rate that they were perfectly capable of paying throughout the 1990s, which is 2% more than the current tax rate. And the answer is yes, and the problem is Republicans who say the answer is no.
Sure, the rich are “perfectly capable” of paying a higher rate. But that higher rate A. won’t make a dent in the deficit, and B. will stunt economic growth. So really, what’s the point? All I hear is the rich must pay their “fair share”, but as I said above, “fair” is arbitrary and not even attainable under the current parameters of the tax code, so the driver should really be about “what is the most efficient way to extract revenue from the economy with the least hindrance to overall economic growth?” To me, I think the long-term answer should be: institute one very simple and low flat tax that doesn’t kick in until over ~$100k (indexed for wage inflation); ensure the tax rate applies equally to corporations, individuals, capital gains, and dividend income; and eliminate all deductions and loopholes. If we could achieve that, I’d even be open to instituting a consumption tax (whether it be carbon-based, fossil-fuel imports, or energy / utilities; or luxury items; or items that are linked to poor health like sugar, fat, and calories). Why? I’d rather lower taxes on income / profits overall and counteract the revenue loss by selectively putting artificial price pressures to temper “social minuses” than subsidize and inflate certain production and behaviors, as the latter method becomes a positive-feedback loop that entrenches special interests and leads to market bubbles and crashes.
By the way, Casey, if you still feel the need to chat, you can reach me at [my nom d’internet] @ yahoo.com or on Facebook.
Saying “all we have to do is go back to the tax rates under Clinton” is effectively saying “all we need is another asset price bubble that funnels a huge amount of money into the pockets of the rich”. This seems neither particularly feasible, nor desirable.