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September 21, 2011

The “Buffett Tax” Won’t Work

I neither like nor dislike “the rich,” because I don’t judge people by their income.

But I do know that tax hikes are harmful, even if they’re confined to rich people.

That’s why I wrote my representatives in Congress telling them TO cut spending rather than support the “Buffett Tax” on millionaires that President Obama HAS proposed.

I encourage you to do the same, and you may borrow from or copy this letter…

The OECD reports that the U.S. has the most “progressive” taxes in the world. (http://tinyurl.com/3mxwgc6) That means we already make our rich people pay more taxes than any other country does.

And yet President Obama recommends what amounts to an “Alternative Minimum Tax” on millionaires.
(http://tinyurl.com/3lrblpf)

I urge you to reject this misguided idea.

The President complains that the rich are not “paying their fair share.” He apparently dislikes job-creating investment. I know this because he’s said that wealthier Americans earn less of their income from salaries, and more from their interest, dividends, and investment appreciation – as if that’s an evil to which none of us should ever aspire.

Warren Buffett, who apparently disdains competition, is currying favor with the White House by claiming his taxes are too low. Interestingly, his privately-held company is currently combating the IRS about whether they owe more than a billion dollars in taxes.

Both Buffett and Obama are wrong.

Still, most millionaires are NOT like Buffett, who pays himself a salary of only $100,000 a year. This is the smart thing to do when dealing with the present tax structure. It means that he’s only paying significant taxes on investment income at a rate of 15%. The wage scale on salaries, bonuses, and business income is 35%. If Buffett thought he should be paying more, he could simply up his salary.

But Harvard economist Greg Mankiw noted that “Even Mr. Buffett probably paid a higher effective rate than he claimed… because much of his income came from corporate income that had been taxed before it was paid out to individuals.” (http://tinyurl.com/3ecutfk)

Obama wants to saddle these people with even more tax burdens. Not only will they have to pay a “minimum” tax that’s higher than what current laws permit, but they’ll also have to spend even more on lawyers and CPA’s to figure it all out. No new goods or services will be created to make all of our lives better.

Thus, the question isn’t whether THEY can afford it. It’s not even whether or not you like the rich: You can hate them, for all I care. The real question is whether WE can afford it. The more money taken for taxes and tax compliance means less money there is for…

  • Job-creating investments
  • Charity and philanthropy
  • Running businesses and meeting payrolls
  • Providing profits that serve as retirement funding for elderly people

I would rather that rich people put their money into these productive and socially valuable endeavors instead of taxing them to pay for useless wars and wasteful programs. The federal government has a spending problem, NOT a revenue problem.

Instead of tax increases…

  • Slash the Pentagon budget
  • Abolish unconstitutional departments and agencies
  • Reform entitlements

Stop taxing. Begin cutting!

END LETTER

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Jim Babka
President
DownsizeDC.org

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