Freedom Line Blog

Warren Buffett has enjoyed a fair bit of celebrity over the last few weeks, acting as the iconic symbol of President Obama’s proposal for tax hikes by ubiquitously making it known that he hasn’t been debited enough by the feds. Buffett’s rhetorical trope of choice is to invoke the fact that he pays lower taxes than his secretary. That’s because most of Buffett’s income comes in the form of capital gains from his investment empire, which are taxed at 15 percent, not earned income like his assistant’s paycheck, which is likely taxed at a federal rate of either 25 percent or 28 percent, depending on whether her annual salary is above $83,600.

This sounds unjust at first blush — until you consider the fact that the capital gains tax is essentially double-dipping. That is, the money you have to invest is what’s left over after your earned income is taxed. In other words, the investment money on which Buffett is paying the cap gains tax was already skimmed by Washington when he earned it in the first place. If his assistant was investing, she’d be paying the same rate as Buffett. As pointed out by S.A. Miller in the New York Post:

Buffett actually was taxed twice on his investment income.

First, Buffett had to make the money he invested. Those earnings were taxed as corporate income, at about a 35-percent rate.

Then, Uncle Sam took another cut when Buffett invested the money and earned a profit. That’s when Buffett paid the 15 percent capital-gains tax rate.

All told, after combining corporate taxes and capital gains taxes, Buffett forked over about 45 percent of his earnings.

We’ll put Buffett in the same category as Albert Einstein and Noam Chomsky: experts in their field who should have never been given automatic credibility when it comes to politics.

Michael Barone is one of those rare Washington pundits who thinks facts are more important than feelings. That means that when he makes sweeping claims, he’ll always have the data to back them up. And he’ll do so in the dispassionate fashion of a doctor reading an X-ray. That’s part of what makes his new column on the debt ceiling so chilling. In it, he writes:

The bedrock issue is whether we should have a larger and more expensive federal government. Over many years, federal spending has averaged about 20 percent of gross domestic product.

The Obama Democrats have raised that to 24 or 25 percent. And the president’s budget projects that that percentage will stay the same or increase far into the future.

In the process, the national debt as a percentage of gross domestic product has increased from a manageable 40 percent in 2008 to 62 percent this year and an estimated 72 percent in 2012. And it’s headed to the 90 percent level that economists Kenneth Rogoff and Carmen Reinhart have identified as the danger point, when governments face fiscal collapse.

Barone’s words are a bracing reminder of the stakes in this fight. Virtually all Democrats — and even many Republicans — would have us believe that this is a moment defined by pure political philosophy; that it’s simply a question of whether you balance the books through tax increases, spending cuts, or some combination thereof. But it’s more than just principles that hang in the balance. It’s the fate of a nation.

Remember when both Candidate Obama and President Obama promised (on more than one occasion) that no family making less than $250,000 per year would see any of their taxes increase – not “one single dime?”

Well, that promise held true for a little while… yeah… for about the political equivalent of five minutes.

Indeed, according to House Way & Means Committee Ranking Member Dave Camp (R-MI):

Since January of 2009, President Obama and Congressional Democrats have enacted into law gross tax increases totaling more than $670 billion, or more than $2,100 for every man, woman and child in the United States.  The list of tax increases includes at least 14 violations of the President’s pledge not to raise taxes on Americans earning less than $200,000 for singles and $250,000 for married couples.” [emphasis added]

Rep. Camp has compiled all the tax increases in a nice and easy to read chart.  Check it out here.  It will come in handy the next time your liberal neighbor suggests that President Obama is actually working to reduce taxes on middle class families.