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A Further Perspective
Robin Hood Had It Easy
The Buffett Rule, when seen through a tax lens, has nothing to do with “fairness.”
After listening to Obama’s Buffett Rule, you realize Robin Hood had it easy. Achieving “fairness” is much easier done with bows and arrows than rationalizing and legislating. It is simplicity itself to take an arrow from quiver to bow, but complexity itself to take “fairness” and legislate it into the tax code.
Speaking last week, Obama explained his Buffett Rule’s origin: “You’ve heard that my friend Warren Buffett pays a lower tax rate than his secretary…” In this year’s State of the Union address, he explained the Rule’s meaning: “Tax reform should follow the Buffett Rule. If you make more than $1 million a year, you should not pay less than 30 percent in taxes.”
Seems simple enough…until you try to put it into the tax code. Then questions quickly appear.
For one thing: How much do secretaries make? This is a pretty important point because the whole concern apparently arises from Warren Buffett paying a lower tax rate than his secretary. According to last year’s analysis by the Bureau of Labor Statistics, the annual mean wage for “executive secretaries and executive assistants” — and we can presume that Buffet’s secretary falls in that group (more on that point below) — is $48,120. Not bad, not enough to buy a single share of Buffett’s Berkshire Hathaway stock, but not bad.
So, we can presume from the 30 percent “fairness” standard that this person is paying just below a 30 percent rate? According to Congress’s official tax estimator, the Joint Committee on Taxation, an individual making BLS’s annual mean wage for executive secretaries pays a 10 percent income tax rate on her first $8,700, then a 15 percent rate up to $35,350 and then 25 percent up to the $48,120.
Those percentages are well less than the 30 percent “fairness” threshold laid out under the Buffett Rule. What gives?
Well, perhaps Buffett’s secretary is paid a tad more than just the mean annual wage. How much would she have to be paid to fall just below the 30 percent “fairness” level — i.e., the 28 percent rate bracket? Again according to Congress’ JCT, an individual earner does not reach the 30 percent tax bracket this year until she earns over $178,650. Wow.
That is a pretty good salary to say the least — there’s nothing “mean” about it. You have to be pretty handy around the office to make that kind of money. Lots of folks would like to have their handiness so well compensated. In fact, if you’re a secretary making less than this, you should really consider moving to Omaha. Apparently there is a serious shortage of secretarial help in Nebraska.
Another point is that someone making this amount does not simply “pay less than 30 percent in taxes.” They pay a lot less. According to the JCT, she pays an average income tax rate of 10.9 percent. That’s right, 10.9 percent. The reason is because of the stair-step nature of the tax code’s marginal rates (whereby income is taxed first at lower rates) and numerous items in the tax code that reduce the effective tax rate — the real key to taxes’ impact on an individual.
If the focus were on the real economic impact to such below-30 percent-taxpayers, then the Buffett Rule’s quest for “fairness” could simply accept the current capital gains top tax rate of 15 percent, which is still significantly higher than this group’s 10.9 percent average effective tax rate. Of course, that would be plenty awkward to have to admit.
The awkwardness does not stop there though. How do you ensure that someone “not pay less than 30 percent in taxes”? Because the lower tax brackets reduce the overall effective rate that a person pays, even if there were no special tax-reducing items in the tax code, a person is going to pay less than their top statutory rate. In other words, even if you tax everything they make over $1 million at the 30 percent rate, they will still pay less than a 30 percent rate on their total earnings. So do you actually need a rate higher than 30 percent to achieve “fairness”?
And finally ponder this: We have been here before. It’s called the alternative minimum tax, or the AMT — and its top rate is 28 percent. Originally designed in the 1980s to achieve the “fairness” now sought, it missed badly and instead would sweep tens of millions of middle class taxpayers into its net. That is it would if Congress did not “patch” the AMT every year so that the unintended middle class are not caught by it. But even with that fix, it apparently didn’t achieve its “fairness” goal in regards to top earners either, or else we would not now need to look at what would effectively be a second alternative minimum tax.
Yes, Robin Hood had it easy — no wonder his associates were called “Merry Men.” Taking “fairness” from Sherwood Forest to the U.S. tax code is a long and arduous trip indeed.
About the Author
J.T. Young served in the Department of Treasury and the Office of Management and Budget from 2001 to 2004 and as a Congressional staff member from 1987 to 2000.
Letter to the Editor View all comments (37) | Leave a comment
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SC Mike| 4.17.12 @ 7:34AM
What makes it screwier is the millionaires paying no taxes. I guess they’re fully invested in tax-free municipal bonds. Slap a 30% tax on them and they’ll move from munies to a higher yield investment.
What does that do to the munie market? It takes out a bunch of the big money, eventually forcing the local governments to pay higher interest rates to sell the bonds.
Unfortunately the Obami don’t realize that nothing is free, not even demagoguery.
Appleby| 4.17.12 @ 7:56AM
You can't get a good secretary for much under $55,000 a year, and I would guess that a good experienced Legal Secretary would make closer to $65,000. But the difficulty here is all the marginal benefits given out to secretaries, such as a free year off with pay for getting pregnant (which may also be given to her BabyDaddy if he is stupid enough to take it and watch the parade pass him by meanwhile). This has a much bigger effect on the secretarial ranks than any particular tax rate, as a lot of secretaries are in their prime breeding years and this means some companies that are secretary-heavy need to have two separate workforces. The firm where I currently work has several temporaries, who cost far more than permanent employees although we don't get any benefits, due to the have-a-baby-get-a-year-off-with-pay rule, and the large firm where I used to work had 40 "floaters" who had ceased to float and were anchored at the desks of the pregnant.
So it's not all tax rates that determine how much you pay your secretary. It may also be (secretly) based on how likely she is to get pregnant and desert you before you even get her trained. And how do you quantify that?
Bret Maverick| 4.17.12 @ 8:01AM
My dear old Daddy used to say,"The best way to keep a good secretary is screw her on the desk."
cvrgrl| 4.17.12 @ 12:09PM
pig!
Wang Hung Lo| 4.17.12 @ 12:16PM
Old Chinese saying: Man who lose girlfriend forgot where he laid her.
cvrgrl| 4.17.12 @ 12:20PM
ok, ...this is the wrong cite for
crappy sexist jokes
Al Adab| 4.17.12 @ 2:32PM
Doesn't exactly help the cause does it?
wolflen| 4.17.12 @ 2:34PM
not to mention age-ism..if i forgot such a thing..my memory would be more than failing..
Wang Hung Lo| 4.17.12 @ 7:23PM
People no have sense of humer:
Remember, man who farts in church will sit in own pew.
Man who sit on jelly donut get ass in jam.
Old Soldier| 4.17.12 @ 8:23AM
How can people not see through this idiocy?
1. Most of Warren Buffet's wealth is locked up in unrealized capital gains - not his paychecks.
2. Nobody understands the current tax code, so the way to make it fair is to make it more complicated?
How about a flat-tax without deductions except for family members? Wouldn't that be fair?
Maxwell| 4.17.12 @ 9:09AM
Old Soldier, I'd go for a flat tax too. Just a few questions tho. If there was a flat tax congress would not be allowed to pick winners (friends) and losers (grunts like me). I don't think those in power like to loose that power.
Second, corporations, flat tax for them too? I know, corporations don't pay tax but humor me on this point.
Lastly, for those that pay no tax and work under the table, they too need to contribute too. A small consumption tax so that everyone kicks in something and doesn't get a free ride.
Does someone, anyone have the stones to do this?
Old Soldier| 4.17.12 @ 9:51AM
One or the other. Sales tax or income tax - not both.
We have the highest corporate taxes in the world. The certainly need to come way down and be simplified.
Harry the Horrible| 4.17.12 @ 10:48AM
Better yet, how about the Fair Tax?
His money can keep working in the markets until he spends it, then the Government gets its cut.
Reward productivity, saving and investing: tax consumption.
benny havens| 4.17.12 @ 8:27AM
Mathematics is not an opinion. When you look at the numbers you can see what BS this president is handing out. And it is true with all of the other subject matter dealing with president narcissist.
Also, this president is no Robin Hood. Robin Hood stole from the King (the government) and gave it back to the people (the taxpayer).
JimH| 4.17.12 @ 9:42AM
"This redistribution of wealth is trickier than I thought . " - Dennis Moore
Hong Kong Henry| 4.17.12 @ 10:00AM
I live in a community where the salaries (income) tax is a flat 16.5% and the corporate profits tax is 17%. Those earning up to US$12,000 are untaxed. Dividends, capital gains and inheritance tax is zero. Result: simple tax filing, minimal tax cheating, and even the "working poor" keep 83.5% of every extra dollar they earn.
Maybe 16.5% isn't the right number for the USA, but surely there is a simple number like this that would be "fair" in the US that would reward hard work and unleash the productive energies of the populace, capitalists and laborers alike, without resort to the sordid demagoguery that plagues the US?
I live in hope.
Von Mises Jr| 4.17.12 @ 10:51AM
Do you notice that Obama never qualifies his statements? Is he talking about effective rates or marginal when citing the bouffant secretary?
If Bouffant gets all his taxes in Capital gains and tax free bonds, his top marginal rate are 15% and effective les due to the tax shelter.
If his secretary has a marginal rate of 25% for taxable income over $35,350, or 28% for over $48,120; then she pays a higher marginal rate, but probably pays less effective tax rate.
But Bouffant pays nothing for all the perks that come along with the job. Besides the wealth accumulation Old Soldier cites, Bouffant lives the corporate life traveling and entertaining on the company dime.
Even at very high tax rates, big shots live big.
For instance, I worked for a European company and when the President of the company came to NYC, he wanted a sailboat for the weekend and $400 bottles of wine at Windows on the World. Since he paid 70% tax rates, another $100K in salary meant $2,500 per month take home pay. At $300K, the guy took home $7,500 per month. Hardly enough to sail and drink old Rothschild Bordreaux very often. Unless the company picked up the tab.
Anthony| 4.17.12 @ 11:08AM
Excellent explaination Von, per usual.
However, Obozo, like the rest of the D class warfare whores, are not concerned about the 2% of Americans that get your point; the brothers and the sisters in the hood, along with the 45% who don't pay income taxes, will send him back to Washington.
Remember that famous street interview, in which the woman, totally ignorant of where " Obozo's stash" was coming from, wasn't the least bit concerned, as long as she got hers!!!
"OBAMA MONEY".
Von Mises Jr| 4.17.12 @ 12:57PM
I am less pessimistic, my friend Anthony. We know that these people cannot be more than one-fifth of the population since only 20% admit to being liberals. And some of them are the intellectuals exploiting rather than working legitimate jobs.
Some 40% are conservative, that leaves another 40% moderate, independent or brain dead. Those people are not experiencing a net positive under Obamanomics.
Their kids won't leave home because they can't get jobs. Food and fuel keep going up due to inflation. And many of those older people on Social Security have to realize that they will get their checks in the short-term no matter what. But if Obanana is re-elected, they won't be getting the little blue pill, but cyanide rather than the cancer operation.
Anthony| 4.17.12 @ 10:55AM
What America needs is a million Robin Hoods storming Washington D.C. and sending our looted money back to the people who created it.
And then, set the place on fire, just to make sure all the vermin have been eliminated.
Even swamps need to be drained now and then, just ask "The Joker", aka, Nancy Pelosi.
Petronius| 4.17.12 @ 12:59PM
Can we move the best parts of D.C. out? The library of Congress, the Folger, the National Archive, Constitution Hall, and the contents of the Smithsonian amassed before 1980 ought to be saved.
Anthony| 4.17.12 @ 2:09PM
Absolutely, save these wonderful institutions, including the Air and Space Museum, where America's once great space program is now a museum relic, thanks to Obozo and Hanson.
The Muslim Marxist is a one man wrecking ball.
c. j. acworth| 4.17.12 @ 11:37AM
The author and several of the commenters all make excellent points, but I think you are all missing the main one. This isn't about raising revenue to pay down the debt, or to spend on more Solyndras, or even about fairness. It's about our great Unifier-in-Chief driving another wedge into the body politic so he can be re-elected. He figures class war works in his favor, just as he figures race war does. He is perfectly willing to throw the whole country off a cliff for his own benefit. The author figures that because Obama wants 30%, it must mean Buffets secretary makes slightly less. You know what I think? Obama picked 30% out of thin air, it had a nice round sound to him. He knows there is no hope of him getting it through this congress, but so what? It gives him something to use to distract a large segment of the people from his own dismal record. THAT is it's one and only purpose.
REM| 4.17.12 @ 12:16PM
One more time. . Robin Hood stole from the government and return the money to the Tax Payers! Who were Prince John and the Sheriff of Nottingham, if not the government?
cvrgrl| 4.17.12 @ 12:17PM
AMT is just redistribution
and social engineering and
more class warfare...its boring
already
as mark levin tried to explain to
a lib tard, what, would it satisfy you
to just put all in 1 mil club in a gulag?
flat tax, flat tax, flat tax, flat tax!
oh sh t, i give up
Al Adab| 4.17.12 @ 12:17PM
Would not a "fair" tax code treat every dollar the same as every other dollar? Why would it penalize those who have more simply based on volume? In fact does not a progressive tax rate system violate the equal protection clause of the 14th by treating different people differntly based solely on the amount they earn?
Since it is in the national interest to see everyone have more and more opportunity for financial success, a policy which works against that goal is counter-productive. We have seen the failure of progressive taxation and it is time to rid ourselves of the parasite which takes the life blood from this economy.
Kingofthenet| 4.17.12 @ 12:40PM
The Conservatives prefer the 'Reverse Robin Hood' where we take from the poor and give to the rich. Get over it, the 99% aren't gonna let you Fat Cats hide behind the skirt of some little old lady who has a few thousand in Capital Gains, she gets to keep her deduction, not you, anything over 100k in Capital Gains or Carried interest is going to be charged at least 30%.
Paul McGrath| 4.17.12 @ 2:08PM
All right King, coupla questions:
1. Has anybody on your side given any thought to what this new tax might do to the stock market? The bond market? Certificates of Deposit? Interest rates? Inflation? Any thought at all?
2. It has been projected that the revenue produced by these Buffet taxes will be 49 billion dollars over ten years. In that the annual federal deficit is currently 1.5 trillion dollars, will these new revenues truly have an effect on the national debt?
3. Given that government has proved to be so grotesquely irresp0nsible with taxpayer money--national debt, annual deficit--why would anybody wish to give them more without first demanding some or any accountability whatsoever?
Al Adab| 4.17.12 @ 2:35PM
King sets the number at 100K. Why not any other number? Who gets to decide when someone has too much?
Sorry King, that is the very nature of tyranny. Remember that from each and to each stuff? Doesn't work.
W| 4.17.12 @ 8:26PM
King
Please explain how money is taken from the "poor" and given to the "rich?"
What is the cutoff income for poor and rich?
The poor do not pay income tax if they do not work. If they do not work and are poor, they get Section 8 housing, food stamps, Medicaid, and other freebies paid by those who work, or as you call them, the rich.
If they do work, they are in such a low marginal bracket of 10% they do not pay tax, but receive money because of tax credits for children, work, earned income credit, etc. With deductions the tax is not 10% but 0.
They may pay the 7% FICA, but as Algore explained that goes into a lockbox for your retirement.
Petronius| 4.17.12 @ 1:03PM
king
Nothing can be taken from those who do not have anything. I can't take the clue you do not have. And nobody with any common sense wants what you do have; an infantile attitude towards life.
Joe D.| 4.17.12 @ 2:56PM
JT, according to what I read Buffet's secretary earned around $500,000 the year in question.
Al Adab| 4.17.12 @ 5:06PM
If I recall correctly, covetousness ie. envy, jealosy, is a sin. A sin is something we should not do.
If Buffets Secretary made a half, more power to her. We each should be glad, not envious, when our fellow citizens prosper.
W| 4.17.12 @ 8:28PM
Al Adab
If Buffet felt sorry for his secretary, he could give her a raise and stock options to buy Berkshire Hathaway stock.
When she cashes in the stock options she will pay the same rate as Warren.
bobmontgomery| 4.17.12 @ 9:22PM
If the RNC would make a video for TV and an audio tape for radio of nothing but Obama babbling over and over again "I propose the Buffet Rule; I propose the Buffet Rule; the Buffet Rule; the Buffet Rule; the Buffet Rule" and let it go on for about 90 seconds, and play it twelve or fourteen times a day, even people who don't have a clue what he's talking about would come to understand he is a whining, undereducated demagogue.
AVCurmudgeon| 4.18.12 @ 4:22AM
The "Buffett Rule" has nothing at all to do with tax reality, revenue reality, or the fiscal needs of the nation. It has everything to do with demagoguery in which perception trumps reality.
POST American| 4.21.12 @ 5:41AM
--Stale
------Stale
---------STALE, '90's Show' formulations
and breakdowns.
IF Buffet, himself a sort of USURY mercenary,
were 'sear--E--us' about rectifying what's
wrong --he'd be crusading for an end to the FED
---and revocation of the TAX FREE status of the
deadly, deadly, deadly capstone foundations.
This --IS-- the head of the serpent, the
source of the poison.
Further, of course, prosecution for a full
century of cultural takedown, sedition,
promotion of genocidal ideologies ---and
even now, the full spectrum quest for
and implentation of democidal
-----------FINAL EUGENICS----------.
----CAPITAL CRIMES OF THE UNTHINKABLY----
-------------------HIGHEST ORDER---------------------