Tuesday, January 31, 2012

Billionaires & Secretaries

There has been much talk lately about the growing gap between the rich and the poor. Over on the Left, where I spend a lot of my time, it is generally agreed that the problem is the wealthy. It's thought that if the rich were to pay a greater percentage of their income in taxes, we would be better able to fund relief programs and job-creation programs of various sorts, and lower the tax-burden on the middle class. This would spread some wealth downward and outward and the gap would narrow. I don't have a quarrel with the idea of somewhat higher taxes for the richest among us. The richest 400 filers average about $250 million yearly, and pay, in actual taxes, around 17%. This seems very low, and as a percentage, a smaller slice than some in the middle-class might pay. But as an actual chunk of money, we're talking $42.5 million dollars. Each. In one year. That's a lot of dough. More than I'll pay in a hundred lifetimes - if this one is any indication.

So when Mr. Obama, in last week's mostly excellent State of the Union address, speaks of the fact that Warren Buffett pays a smaller percentage of his income into federal income tax than does his secretary, it gets people's ire up. And it is apparently true. As a percentage of income.

As he told us this, the camera found Buffett's secretary in the audience. And after a few other comments he said: "Now, you can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense." That's the sort of spin that confuses people and drives me crazy. (the italicized is an exact quote from the transcript)

I had a conversation last week with a reasonably bright woman - Betsy - who truly did not understand the very great difference between a PERCENTAGE taxed, and the actual amount collected. Warren Buffett has been very frank about paying a low percentage of his income into taxes. Still, his actual tax bill last year was $6,938,744, according to him, at a rate of 17.4%. The idea that Warren Buffett contributed less to the general upkeep of our society than did his secretary is ludicrous.

We also have to be honest about the money paid in taxes by the many people made better-off by his investments. When he plunks down 50 or 500 million here or there as investment into this business or that, the influx of funds enables those businesses to buy new buildings, trucks, equipment, and supplies that are all built and transported and operated by people who get paid to do it. They hire accountants, salespeople, secretaries ... whoever they need. And all of these workers' income is then taxed. Never mind the staggering charitable giving and other deductibles that keep the taxable part of his income so low. What I'm saying is, a rich guy like Warren Buffett gets a LOT more money into the tax system than shows up on his own statement.

And never mind that the secretary who exemplifies the disparity spoken of by President Obama is able to pay what she does because she is employed by ... Warren Buffet.

And she is paid very well indeed. According to ABC business news, Debbie Bosanek pays at a rate of 35.8%, which puts her income in the area of $200,000.  I don't think that Warren and Debbie are really the poster kids for what is wrong with America.

I do understand that the rich ought to pay a greater part of the overall tax burden. What I don't understand is why my friends over here on the Left are determined to deny that the rich ARE paying a greater part of the overall tax burden. According to the New York Times, the richest 1% make just under 20% of the money. That is shocking, I admit. But they pay somewhere between 25% and 37% of the total tax burden depending on whose figures you believe.

Most of us have seen the Elizabeth Warren video that went viral. It's Ms. Warren in a house somewhere recorded on a smartphone holding forth on the credit crisis and fair taxation. In the first part she talks about how trillions were lost to tax-cuts for the rich, unpaid-for wars and corporate welfare. I get it. No argument from me there. But the other part advances a line of thinking that has also gone viral. This is the idea that as people get rich, they transport goods over roads that the rest of us pay for; that they make fortunes utilizing workers the rest of us paid to educate, and are kept safe by police and fire departments the rest of us finance. This idea is popping up all over. It's an easy one to grab and repeat. The problem is, with all due respect for Ms. Warren, that it's really not true.

That very line of reasoning came up the other night when I was talking with Betsy. She was angry that the rich were getting richer using all these resources and that WE were paying for them. But ... I argued, they are actually paying a far greater share of the costs of these resources. Not only are they not driving on roads we bought, for instance, but in a very real sense we are driving on roads they bought. Stay with me.

Super-basic example coming: Suppose there is a piece of road that 100 Americans use. One of them is a 1 percenter, and the rest of us are 99 percenters. Suppose this bit of road cost a million dollars in taxes to build. The 1%er has paid 25% of that, or $250,000. The rest of us paid, between us, $750.000. Divide that up between the ninety-nine of us, and it turns out we each paid, on average, $7,575. So our rich friend paid 33 times as much for that road as the other 99 did on average. And, it isn't as if he became that rich overnight, or popped into the world after all the infrastructure had been paid for. He paid his lesser share every year just like the rest of us, on the way up.

And it's not as if, directly below the top 1% is an immediate drop-off into poverty. The majority of the rest of that road is paid for by other rich people among the 99% who just don't quite crack the top 1%. The 2 percenters, the 6 percenters, the 13 percenters. All pay much more for that road than do the poorest, who are welcome to use it just as much as anyone else. What about public schools? Seems to me that the rich use that resource hardly at all, and yet pay for most of the cost. Do they use police more? Or have greater need of the fire department?

And while I'm here ... what about the salaries paid to police officers, fire fighters, sanitation workers? Each of these is a well-paid job with benefits and pensions. Take school teachers. In New York City, public school teachers make, on average, just under eighty thou a year. That's a pretty good living, especially when you factor in all the benefits and time off. They are doing very well for themselves. That money comes from taxes, and the greatest part of those taxes comes from the wealthy.

The Right has accused the Left of class warfare for the constant comparisons made between the rich and poor, and the slippery way they confuse the issue. Elizabeth Warren, in this video, scoffs at that idea. And I don't know that I would call it class warfare either. But I do think that it is divisive. The notion that the rich use more resources than they pay for is false. They use a lot less than they pay for. I for one can muster up even a little gratitude. But if we cannot all do that, maybe it would be possible not to blame only the rich every time revenues don't cover expenditures. There are, after all, two sides to that equation.

The truth is that people like me, and like Betsy, don't pay very much in taxes. And we have a lot of services available to us. Could we have more? Sure. Do I not think that the very wealthy should pay a little more than they currently do? Yes ... I do think that. Maybe getting real rates to about 30% would work. Certainly we need to clean up the loopholes and special exemptions in the tax code. My point is not to help the Right hold the line on tax-increases.

My point here is two-fold. First, I think it is essential when we try to solve our problems, that we hold ourselves to a rigorous standard of honesty and objectivity. And secondly, that when one takes on the habit of blaming somebody else for one's problems, he is probably doing more to hurt himself than the people he is blaming have.

I wanted to get that out of the way. In my next post, I will talk about how it feels to be poor.

Dave Morrison ... January 30, 2012

A look at how many rich people pay lower tax rates than the middle class.

A look at some 1 percent-ers.


  1. the key is as you said, honesty and objectivity. I have become a bit snippy toward my friends on the left who keep posting posters and quotes that demonize all conservative thinkers as evil, greedy, heartless, callous, selfish bastards... I take it as evidence that they are not actually thinking at all. Your piece is refreshing.

  2. Interesting spin on this:

    To someone says "the rich pay lower percentage tax rates!", the piece above says:

    1. Yes that is because much of their reported income is capital gains which is taxed at a lower rate.
    2. Taxing capital gains at a lower rate historically brings in more tax revenue and increases business investment.
    3. Even Obama has recognized this by creating a special 0% rate for investing in small businesses for five years. Who are these investors? Mostly the top 1%.

    So neither party is really in favor of actually raising tax rates on the wealthy, because there is no way to do it without shooting ourselves in the foot. This is just political posturing because it polls well. People without jobs understandably want to blame it on someone, and the left is happy to give them a target, with crossed fingers.

    To top it off, in spite of this lower rate because of our intentional lower capital gains rate, the top 1% pays almost 40% of total income tax collected, because this lower capital gains rate is applied to pretty huge numbers. And most of that capital gains income is, you guessed it, invested directly back into companies that hire folks.