Obtuse Observer

December 14, 2011

The Rich?

Filed under: 1%,Gold Homer,Income Tax,The Rich,Warren Buffett — Tags: , , , , — Obtuse Observer @ 8:39 am

Having recently read the snide partisan ramblings of an author asserting that the Republicans, the party of greed and the rich don’t'cha know, have created a toxic political atmosphere, bamboozled millions into voting for them against their own best interests (which were of course best served by Democrats – though apparently civility demanded that he only mention the parties by transparent allusion) through the use of divisive tactics focusing on race, class and hate filled rhetoric I had to stand back in awe at the magnitude of irony on full display.  In this caustic, fully partisan rant soaked full of sweeping and overbroad generalizations on facebook casting scorn on “the rich”; the author regarded challenges to and dissent from his proclamations from on high as the hallmark of incivility and badgering.  It was something to behold.  I kinda enjoy bringing it up because it amuses me but it actually serves as a decent example of exactly what we (any of us) shouldn’t do.

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Perhaps a couple comments.   For my part, I’ll use the top 1% of wage earners as the standard for “the rich” because it is easy to identify. 

When one fills one’s rhetoric with references to “the rich” without ever bothering to define what is meant by “the rich” is a very clear example of demagoguery, that is, using a device of argument to create “us” and “them” which is to say that it is specifically the practice of divineness.  Neither party is above it.  Thinking so requires self-delusion.

“The rich” do not have secret meetings and decide the fate of the world and place elected officials to do their bidding – though individual rich people do.  There is a big difference between those two points of fact.  Beware politicians and talking heads who ignore this distinction.

“The rich” are as politically divided as the not rich.  George Soros is rich – he is not a Republican nor a Conservative.  Mr. Soros has spent a great deal of money on politics in order to influence election results (perfectly legal – donations to campaign funds etc).  He’s by no means an isolated example; nor are rich Republicans.  It is stupid to believe that either side of the political spectrum has a monopoly of membership by “the rich.”  Believing so is an expression of frustration that the other side is winning (whether they actually are or are not).

“The rich” is a remarkably fluid group whose membership changes often.  Those who enter don’t stay long.  This means many more than 1% of wage earners have occupied that bracket at one time or another.

“The rich” do not control everything but many of them are attracted to power and as such are attracted to politics.  See the Soros example above.

We tax income not wealth.  Taxing a person’s wealth would be a “taking” for legal purposes – can’t do it.  Income taxes would be too but for the 18th Amendment authorizing them.  Pay attention to politicians sliding too easily from one notion to the other without bothering to make that distinction clear.

47% of Americans pay no federal income taxes.  That those 47% pay payroll taxes does not distinguish them from the other 53% who also pay those taxes.  Beware when Warren Buffet holds that distinction up as reason that some people (he never actually tells us) should pay even more in federal income taxes.

The top 5% of federal income tax payers paid 60% of income taxes collected.  Good, bad or ugly it is true.  When deciding if “the rich” have paid their fair share it is appropriate to keep actual facts in mind.


August 26, 2011

Mr. Buffett Stop Misleading Your Readers pt. III

Filed under: Taxation,Warren Buffett — Obtuse Observer @ 1:10 am

Mr. Buffet’s op-ed distinguishes several different taxes but fails to observe that these are taxes every wage earner pays without regard to income level.  Income taxes are not payroll taxes are not sales or gas taxes.

Payroll Taxes include social security, Medicare (FICA and SECA)  and federal income tax withholdings .

Social security withholdings are collected from the employee and, theoretically at least, deposited into the social security trust fund to be withdrawn at a later date.  While the employee doesn’t get these funds immediately they do, theoretically, get them back in the future.  Social security withholdings are 6.2% up to $106,800 for 2011.  The withholdings are capped because benefits are capped.  This is not as much a tax as it is compelled savings, at an awful rate of return. 

Medicare withholdings are 1.45% (see p. 1 of this IRS document.) and are collected to provide health insurance for people over 65 and others meeting statutory requirements.  It is a specifically collected “tax” for a specific benefit received by the employee; another type of compelled savings.

Federal income tax withholdings are collected based on one’s W4 filing.  Depending on individual circumstances one can set this level high or low.  When the employee files their yearly income tax return they may owe additional money, own nothing or get a return of some, all or more than the amount withheld.  As noted previously 47% get all or more than all of their withholdings returned.

Sales taxes are all state taxes and are flat taxes paid at the same rate by everyone.  The more one buys the more tax one pays.  Gasoline taxes are a complex bundle that include state and federal taxes but are again based on consumption not the income of the buyer.

Mr. Buffett is correct that his employees (all wage erners) pay payroll taxes.  However, of those taxes 47% receive a minimum of all of their income taxes returned and the remainder are a form of forced savings for future benefits.  One may argue that payroll taxes have a regressive effect the further down the income ladder one goes but one cannot ignore that everyone pays them and at equal rates for FICA taxes and progressive rates for income taxes.

What is most important to note is that EVERYONE who gets a paycheck pays these taxes regardless of their income level.  To refer to them in the case of earners at one level and not at another is again comparing apples to oranges.

..next.. in no particular order… dual taxation scheme (why tax on dividends is lower than ordinary income), who are the 47% and can’t some afford to pay their fair share, the effect of raising taxes on capital and businesses that create wealth and provide jobs, progressive/regressive impact of taxation

August 24, 2011

Buffett: Stop Misleading Your Readers pt. II

Filed under: Effective Tax Rate,Income Tax,Warren Buffett — Tags: , , — Obtuse Observer @ 1:23 am

Warren Buffett paid $6,938,744 in federal income tax for 2010.  He then tells us that his is 17.4% of his taxable income.  The 17.4% is known as an Effective Tax Rate.  Taxable income is technically referred to as Adjusted Gross Income (AGI) rather than gross income.  He then tells you that this was lower than any of the twenty people in his office who paid 23 and 41% but averaged 36%.  He does not tell us how he calculated those rates.  His op-ed.

The bulk of Mr. Buffett’s income comes from investments in either sales  of assets or dividends.  While assets held less than a year receive ordinary tax treatment assets held longer are taxed at 15%  and the rules just get murkier from there.  However, on this point, that investment income is often taxed at lower rates, we completely agree with Mr. Buffett.  Whether this is reasonable is subject to debate but we are discussing what is not what should or should not be.  

The income for the vast majority of Americans comes from wages.  Wages are taxes at ordinary rates (2010 tax brackets).  Only 53% of Americans pay federal income taxes.  Of the 53% who do pay federal income taxes 87% of those earning less than $100,000 have an effective tax rate of less than 10%.

This leads us to ask some interesting questions.  Is Mr. Buffett wrong when he tells you his employees pay at egregiously higher rates then he does, does he pay them far and above $100,000 a year in wages or is he comparing apples to oranges?

Let me suggest to you that Mr. Buffett is offering his rate based on AGI and his employees’ rates based on their gross income.  Effective tax rates don’t come out in whole round numbers.  They have lots of little decimal points at the end.  See for example; Mr. Buffett’s effective tax rate of %17.4.  Does an honest dealer try to persuade you by offering as same things not same?



…tomorrow more on taxes and how Buffett continues include other forms of taxation and mischaracterize them in order to further mislead his readers so he may generate their antipathy for the super-rich; whomever they may be.

August 22, 2011

Buffett: Stop Misleading Your Readers

Warren Buffett recently wrote an article telling us to Stop Coddling the Super Rich during these difficult economic times.  His article was strong on class baiting and weak on providing the reader with a well rounded picture on the issues.  You can find the article here.  I’ll respond to the article in a series of posts rather than one big article that no one will read.  My purpose is not to suggest that billionaires can’t afford to pay more taxes; they can.  My purpose is to illustrate that popular views about who pays federal income taxes and how much are skewed and that Mr. Buffett’s article played on those misconceptions. 


To Buffet’s claims.

While the poor and middle class fight for us in Afghanistan and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.” 

I really don’t know what relevance this could have in an article about taxes.  Either Buffett included a non sequitur making his credibility suspect or he did it for a reason.  I’m going with he did it for a reason.  Mr. Buffett is setting up an us vs them dynamic, not hard when  one group is the mega-rich.  This is commonly known as demagoguery.  Although Mr. Buffett waters his assertion down quite a bit to escape getting hammered on facts they way Charles Rangle did after writing in a NYT Op-Ed asserting that, “A disproportionate number of the poor and members of minority groups make up the enlisted ranks of the military, while the most privileged Americans are underrepresented or absent.” they both used the same rhetorical device.

Buffett and Rangle are not very strong on the facts when using this trope but it does allow allow the opportunity to correct the record about who actually serves.  From an exhaustive study by Dr. Tim Kane at The Heritage Foundation regarding the demographics of the US Armed Services:

The household income of recruits generally matches the income distribution of the American population. There are slightly higher proportions of recruits from the middle class and slightly lower proportions from low-income brackets. However, the proportion of high-income recruits rose to a disproportionately high level after the war on ter­rorism began, as did the proportion of highly edu­cated enlistees.

The facts are that Mr. Buffett makes an unsustainable claim of fact in his second paragraph in order to put the reader into the mind-set of a victim to encourage enmity for the subject of his attack; himself and others in the undefined class of mega-rich.  This is not how an honest dealer should begin his efforts to clarify a complex issue.

Buffett’s “federal tax bill” next time

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