Social Policy in Ontario

U.S. tax debate approaches battle over billionaires

Posted on August 30, 2011 in Governance Policy Context

Source: National Post — Authors: Kelly McParland

NationalPost.com – fullcomment
Aug 30, 2011.    Kelly McParland

America’s absurdist argument over taxes, temporarily quieted in the compromise deal over the debt ceiling, is soon to be revived.

The congressional “supercommittee’ is beginning its efforts to reduce the deficit and one of the key points of dispute will be the Republicans’ insistence that a bigger tax on billionaires is bad.  Republicans are against taxes on anyone at the moment, mainly due to fear of the tea party’s continued clout. But while it’s easy to justify opposition to tax hikes on the lower and middle classes, it gets trickier when the people affected have lots of money  to spare.

The usual anti-tax argument (other than that taxes are just plain unAmerican) is that higher levies reduce the incentive to save or invest.  But when you’re already worth a billion dollars (or even a few hundred million), saving isn’t usually that big an issue. And while  gouging Microsoft might be bad for the economy, raising personal taxes onPaul Allen or Steve Ballmer or Bill Gates isn’t going to throw a lot of people out of work, unless Allen decides to reduce the crew on his yacht. (He’s selling his private island anyway, so maybe he doesn’t need it as much).

But the GOP hasn’t yet figured out how to be against taxes in general, while making an exception for billionaires. The party is very cut and dried these days, and nuance isn’t its strong suit. Taxes are bad, and that’s that, so it’s stuck trying to explain why it makes sense for Warren Buffett to pay a lower rate of tax than his secretary, even though he’s the second richest man in the country, and she’s … his secretary. Buffett revealed recently that he pays lower rates than everyone else in his office, which he thought was a bit ridiculous.  He also took issue with low rates for capital gains and carried interest, which is the way many rich people increase their wealth, suggesting that people who earn their income from a job should  be the ones getting the breaks, not people who spend their days manipulating money on Wall Street and elsewhere.

That produced a spate of responses from diehard tax opponents, insisting Mr. Buffett was wrong. Actually, most of them avoided the crux of the argument and resorted instead to mockery and insults — like, if Warren wanted to give the Treasury his money, why didn’t he just send them a cheque, har har.

One person who did try to take on the details was Christopher Caldwell, a senior editor at the Weekly Standard. Mr. Caldwell suggested that Mr. Buffett’s position indicated he subscribed to a “religious understanding” of money, and then explained in The Financial Times why he was wrong to do so, on two fronts. One had to do with the philosophy of finance and the nature of interest, which was a bit esoteric for my taste, and, I suspect, missed the basic nature of Buffett’s point.

“It is inconsistent to argue on Christian grounds that paying interest on ‘sterile’ money is sinful and then to argue on Keynesian grounds that thrift in a downturn is inefficient,” Mr. Caldwell argued. That may be so, but Warren Buffett is a guy who lives in Omaha and thinks fine food is a hamburger and cherry Coke. When he says it makes more sense to favour people who produce value via a job, over those who fiddle with money, he probably means just that.

Caldwell’s second point was the more traditional argument that taxing billionaires won’t eliminate the debt or deficit, so why bother. He provides figures to back this up:

If those 400 mega-rich people could be taxed on their earnings at the top 35 per cent income tax rate, it would raise an extra $12bn in taxes. If they could be made to pay 50 per cent – an unlikely scenario, to judge from the UK’s difficulty maintaining such a rate – that would raise an extra $26bn. In an era of trillion-dollar deficits, soaking the mega-rich would get the country between an eightieth and a fortieth of the way to a balanced budget. Taxing the half-million- and million-dollar-a-year men, would help a bit. The rest would be loaded onto the backs of the same upper-middle class whose fury grows by the day.

It would be a good argument if there was any one action the government could take that, in one fell swoop, would end the deficit. But other than closing the Pentagon or cancelling Medicare, there isn’t.  You could make the same case to avoid changing any of  Washington’s wasteful habits. Why ban earmarks, the special provisions attached to bills by individual legislators that funnel millions of dollars to self-aggrandizing local projects, when that alone wouldn’t end the deficit? Why close small regional airports, which may handle only a couple of flights a day, when that would only save millions, rather than trillions, of dollars? Why get rid of the vast array of congressional perks on offer, when the annual bill is a tiny fraction of the savings needed?

The answer is that waste is bad. Needless spending is bad. Letting people deduct theinterest on their mortgage is a luxury the country can’t afford (even though it “only” costs about $100 billion a year). Tilting the mortgage break so the biggest borrowers get the biggest break is just plain nuts. All these things together, and the countless other ways Washington conspires to bury itself in debt, add up in the end. Conservatives should be against wasteful spending, just because it’s wasteful, even if no single reversal will put the books back in balance.

There is also a question of fairness. Whatever the philosophic underpinnings, most Americans, I bet, would agree that Warren Buffett’s secretary shouldn’t have to pay higher tax rates than he does. A party that likes to identify itself with ordinary, grassroots Americans, as the tea party does, should understand that.

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Tags: budget, economy, ideology, standard of living, tax

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