Nobody From Nowhere (@i8dc)

Occasional Common Sense

Ph.D. Economist, Class Warfare, and Warren Buffett – Part Two of Two

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or “Mark Perry Continues to Tilt at a Multi-Billionaire Who Pays Even Less Tax Than Perry Thinks.”

I’ve commented previously on Perry’s fascination with Warren Buffett, a billionaire who would dare to advocate for higher taxes on the rich.  Perry’s tried to paint Buffett as mistaken, or dishonest, or addled, or in some way wrong; it got so silly that I challenged Perry to put his money where his argument was: “I’ll bet you,” wrote I, “that the figures stated in Buffett’s op-ed are easily possible.   How large a wager is enough to make it worth your while?”  Perry subsequently stopped that line of attack.

I don’t have illusions about my place in the blogosphere.  It was a coincidence.

After posting a dishonest or lazy chart about tax rates, Perry writes that Buffett’s offer to release his tax return as soon as Rupert Murdoch released his was “consistent with Buffett’s refusal to pay higher taxes voluntarily unless others do the same,” rather than a brilliant parry of right wingers’ refusal believe what he wrote about his income and taxes.

Perry then quotes freshman Rep. Tim Huelskamp (R-Kan.), who joined the fight by asking Buffett to release his tax return: “By sheltering millions of dollars of income from taxation through charitable giving, Mr. Buffett demonstrates that he doesn’t trust Washington with his own money either.”  Apparently in Congressman Huelskamp’s mind, charitable giving is motivated by a distrust of government rather than by a desire to do good.  Interesting.

Here are a few details from Buffett’s letter Perry chose not to include:

  • The math that resulted in the 17.4% figure, which was exactly as I described: take taxes due (line 60), add payroll taxes paid by your employer, and divide by taxable income (line 43).
  • Buffett thanked the Congressman for his offer to release his tax return, but noted that it’s irrelevant to the discussion of the “ultra wealthy.”  Buffett did suggest that the Congressman do the same math on his own tax data, stating that he would likely come up with a number far higher than Buffett’s 17.4%.
  • Buffett offered a wager, similar to the one I offered Perry, that if/when Buffett’s tax return is made public, it would show exactly the figures he published in his op-ed.  The offered stakes?  Any sum.

I have some good news for Perry.  “If Buffett and others in the “super-rich” category are paying 17.4% or less in taxes instead of something closer to the 24% average tax rate for the top 1%…”

Rest easy, Mark, your conditional’s not true.  Using the effective income tax rate calculation Perry used above, Buffett didn’t pay 17.4% last year.   He paid 11%.

Buffett’s calculation was based on taxable income.  Perry’s was based on adjusted gross income.

And why is Buffett’s number so low, compared to the 18.1% of the top 400 taxpayers?  Because he gave a MUCH greater share of his income to charity than most of the very wealthy.  I estimate Buffett gave about $19 million to charity last year, or about 30% of his AGI.  Compare this to the 5.9% average given by those with AGI greater than $10 million, or the 8.3% given by the top 400 taxpayers in 2008.

Perry continues: “…those cases are clearly exceptions usually involving receiving low amounts of wages or ordinary income… and high amounts of tax preferred income… or tax-free income from investments like municipal bonds.”

The problem, my dear Doctor Perry, is that at the very top  almost everybody’s an exception. It is true that the top 1% as a group paid 24% in 2009.  And those with the top 8,180 incomes paid an average of 22.4%.  But the top 400 paid much less; in 2008 (latest data), they paid 18.1%.

And let’s not forget that 2008 and 2009 were very bad years for the super-wealthy, with capital gains way down.  The number of taxpayers with AGI over $10M fell from 18,349 in 2007 to 8,180 in 2009.  In typical years, those at the top end of the income scale would pay less, as investment income (taxed at 15%) would be a higher share of their income.

Perry finishes up: “Other “super-rich” like Buffett may be taking large deductions for charitable giving that run into the tens of millions.  Therefore, rather than taxing the ordinary income of millionaires at higher rates, Buffett might really be making alternative cases for a:) taxing dividends and capital gains as ordinary income, b) ending or limiting the deductions to charity, and c) ending the tax-free status of municipal bonds?”

Buffett isn’t suggesting taxing ordinary income higher.  He states plainly in the interview video that the kinds of minimums he’s in favor of would touch a fraction of millionaires – “50 to 60 thousand” is what I believe he said.  Why does Perry persist in claiming things that are demonstrably untrue?

Quick look at Perry’s three alternate arguments:

  1. Taxing investment income at ordinary income rates.  This is, of course, what Ronald Reagan did when he signed the 1986 tax reform.
  2. Ending or limiting charitable giving deductions.  While I’m sure somebody must be advocating this, it sure isn’t Warren Buffett.  But increasing the tax rates on capital income would tend to increase charitable giving among the wealthy.
  3. Ending the tax-free status of municipal bonds.  Again, I’m sure somebody must be advocating this, but I can’t find Buffett doing so.  Again, look at the incentives; increasing tax rates on the wealthy would tend to increase their holding of municipal bonds, as they’d avoid a higher percentage of tax.

Don’t tinker around the edges.  Simplify it.  Raise tax rates on capital income.

While I disagree with Buffett’s calculation method, the basic premise is true – the changes in the taxation of capital income over the last 15 years has resulted in a flip from progressivity to regressivity at the very top of the individual income scale.  Arguing against this fact is fruitless.

Far better, and more interesting, to argue about the double taxation of corporate income.

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Written by David Clayton

October 13, 2011 at 4:35 pm

Posted in Debunkery

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