Buffet rule - Class Warfare or Simple Math?

I received this today from the Obama administration after President Obama announced the "Buffet rule" at a Rose Garden ceremony today:

This morning, the President proposed the "Buffett Rule," which would require those earning more than $1 million a year to pay the same share of their income in taxes as middle-class families do.

This proposal makes sure millionaires and billionaires share the responsibility for reducing the deficit. It would correct, for example, the fact that Warren Buffett's secretary currently pays taxes at a higher rate than he does.

The other side is already saying it's "class warfare" -- that's their rhetorical smokescreen for providing millionaires and billionaires special treatment.

As the President said this morning, "This is not class warfare -- it's math."

The wealthiest Americans don't need further tax cuts and in many cases aren't even asking for them. Requiring that they pay their fair share is the only practical way forward. The Republican alternative is to drastically slash education, gut Medicare, let roads and bridges crumble, and privatize Social Security. That's not the America we believe in -- but many in the Republican leadership actually prefer those policies, which explains their refusal to act.

That's why they'll say "tax increase" over and over again, trying to muddy the waters and trick ordinary Americans into thinking the Buffett Rule will hurt them. And if we don't speak out right now, they just might get away with it.
Of course, the Buffett Rule won't really touch most Americans -- only 0.3% of households will even be affected.

And without it, the only way to reduce our debt is to savage the programs that seniors and middle-class families rely on.

That's exactly what the President refuses to do -- in fact, he's said he'll veto any bill that changes benefits for folks who rely on Medicare but doesn't raise serious revenue by asking the wealthiest Americans or biggest corporations to pay their fair share.

This isn't just a commonsense approach to cutting the deficit -- it's the only way to make sure we can provide security to people who work hard and play by the rules.

So right now, I'm asking you to say you'll stand with the President on something that won't be easy. Get the President's back today:

http://my.barackobama.com/Buffett-Rule

Thanks,

Messina

Jim Messina
Campaign Manager
Obama for America

My question is why do we distorting the facts? It is true the Warren Buffet effective tax rate is less than his secretaries nominal rate but if his secretary is making under $60,000 there is a very good chance that she pays 0% in an effective tax rate. So why don't we all get on the same page when talking about these rates. That being said it is widely accepted that our revenue, no matter the tax rate, ranges between 16-18% of GDP historically. The other widely accepted truth is that our current spending is north of 22% of GDP.

To get a handle on our deficit spending is not to raise revenue as President Obama would like for us to think; rather we need to get our spending under control. Notice that President Obama is not out there trying to defend the $535M given to Solyndra from the last Stimulus package that has now gone belly up! Perhaps we could use that money to help fix Medicare, Medicaid or SSN. Instead the notion is to raise taxes on the wealthy and claim it is not class warfare.

If we want to get serious about our deficit then start with the tax code. Flatten the tax code to 8% and eliminate all tax credits and deductions for everyone. Eliminate the corporate tax rate, and all tax credits and incentives, as corporations simply pass along those taxes onto the consumer. Then on investment income - raise short term capital gains to 55% while putting long term capital gains at 15% - this will curb some of the hedging that exists and encourage people to think long term as well.

Blue Print to Sustained Growth and Job Creation

At the Federal and State level we are hearing the phrases "job creation" and "job growth" being tossed around. Thus far the bills tied to either phrase are increasing the debt load of the Federal or State government to only create temporary work. My son was working on Social Studies the other night. The topics were the Soviet Union, Lenin, Stalin, Communism and the Cold War. The book noted how class warfare led to the fall of the Czar and the rise of Lenin. People of Russia embraced Communism because it took control of the farms and factories and gave the people (lower and upper class) an equal share of the output. In theory the ideals of Communism work in so far as people will be no better or worse than any other member of society. The trouble, as the Russians soon discovered, is that the focus is placed to heavily on durable goods while consumer goods are ignored. Plus, with output being evenly distributed the need for excessive output (growth) was not required.

A lot of discussion is taking place on how to get America back to work. President Obama is using the old adage of Big Government, increase spending, and the expansion of entitlement programs to accomplish this. The result has been an unemployment rate that rose above 10%. Even though the unemployment rate has trended down in recent months, do not be fooled by the trend as it is merely an illusion of facts. While the unemployment rate has dropped below 10% the number of part-time and/or disenfranchised (those no longer counted as unemployed) workers has increased to heights not seen before. A friend of mine reminded me that consumerism is the key to a robust economy and sustained recovery. To counter the lack of new job creation, President Obama wants to give small business tax-credits for hiring new workers.

On the surface that is great news for the small business owner but when we dive deeper bigger questions are raised for the small business owner. What will these new workers do? How do I pay their salary in the future if business doesn't pick up? How will additional workers increase traffic for my wares? All valid questions, ones those Ivy League educated politicians seem to not address. Many have touted Obama the most intelligent of all Presidents even if he cannot read from a teleprompter all the time. Remember the last Bush we had was from an Ivy League school too. Now I was not as highly educated, true I do have my MBA but it is not from Harvard or Yale, as the recent men to hold the office of President but I do have a solid education in business, economics, history, philosophy and ethics.

Now, if the catalyst to a robust economy is consumerism then who is it that should be spending money? You and I is who. How do we get more money to spend, legally? We need to have more of our money we earn available to use on discretionary spending. Outside of a raise or lowering our debt, how can we increase our discretionary spending? Rather, how can government help us increase our discretionary funds? Simple, they can lower our taxes.

The trouble is that in a few years when the economy gets going again, the government will want to collect more because they believe it will not harm the economy. That is where the logic falls short. To sustain our robust economy the consumer still has to be able to consume. To ensure we can consume we need to alter our view on taxation. Taxation is a necessary evil to run our government, to keep us safe, and to protect our freedoms. That being said, does it make sense to tax someone more because they have bettered themselves financially through whatever legal means they have, no! A person seeking the American dream ought not to be punished for being successful; rather they should be rewarded for their efforts. At the same time should someone be punished by a rough start to life or a raw deal along the way, no!

So how do we allow both parties pursue their dreams without hindering them or taking away from their efforts? Simple actually, we trash the current tax code and replace it with a flat tax and consumption tax. The consumption tax is simple. We tax every purchase of non-essential items 2%. Now to help with a little social engineering I am open to additional "sin" tax on non-essential items of 3%. That takes care of the consumption tax. The flat tax works like this.

On your first $60,000 you get taxed nothing. For every dollar you make past $60,000, Uncle Sam gets $0.12. So if you made $70,000 this year that would mean that Uncle Sam would get $1200. To make it even easier to monitor, track and control all tax credits would be eliminated. Meaning, that no more credits for mortgage interest, child care, child, education, etc… It would also eliminate a large portion of the IRS as tax returns would be a thing of the past. With no tax credits allowed and a flat tax in place, no one would have to file a tax return. The concept can be applied to Corporations as well. By allowing people to keep all of their first $60,000 we open up the consumer market for health care expense, investment activity, luxury consumption and other desires of consumerism too.

States then can do the same as well. The State, such as Minnesota, can follow suit by establishing a flat tax of 5%. To expand upon the example above, the person making $70,000 would now see their total tax liability to both Federal and State rise to $1700. With the elimination of tax credits so would we phase out Medicare and Medicaid. Those turning 55 or already older than 55 this year (or the year the tax change takes place) will continue along the Medicare and Medicaid process. The rest of us will see our contributions to these programs shift to a Medical Savings account (MSA) that will be tied to our Social Security Number. The amount currently taken out would not need to be changed. It simply will go into a private account that the individual taxpayer can use to offset any expense related to medical needs.

The taxpayer could use the funds for co-pays, medicines, clinic visits, hospital visits, etc. By moving toward a MSA it will allow for greater portability of health care "insurance" and allow the taxpayer to dictate when, where and to whom their medical dollars go to. Imagine the competition it would breed among clinics, hospitals, pharmacies, and other medical facilities if ever they knew every taxpayer determined where their dollars were spent. All of these locations would need to post their fee schedules and will allow doctors and nurses to get back to providing medical care and away from administrative work. Insurance companies will be able to offer tiered plans.

Granted many of those in their late 30's to earlier 50's will not see the greatest benefit but we will set up future generations with a better system for medical as well as taxation. The next phase of this plan is to apply the MSA model to Social Security. When Social Security was crafted the funds collected went into a separate account that Congress was unable to touch. At some point in our glorious history our Congress saw the war chest of dollars being amassed. The temptation was too great for them and a change was approved. The change brought the Social Security funds from a separate untouchable account to the general slush fund. To eliminate or mitigate future destruction and temptation of Social Security funds by our politicians it is time to move it back into a separate account. Just as with the MSA, our own Social Security contributions will be designated by an account with our SSN.

No longer will Congress or any government agency have access to those funds. Taxpayers will have access to those funds just as they have access to them now. All that will change will be the account in which the funds sit. I understand there will be growing pains with this notion but that is what the original intent of Social Security was to be anyway. All I am suggesting is to undo the harm that we have allowed Congress to do over the years. Some of you may be asking yourself, "How will this create jobs?" That is an excellent question to ponder.

The best part is the answer is short and simple. By allowing you, as a taxpayer, to keep more of your first $60,000 earned you will have more money to improve your home, go to the local restaurant, purchase new consumer items, take an trip, etc…Plus if you know that taxes will no longer change one can plan their money better. By fixing the taxation it will allow our members of Congress and State Legislatures to focus on items that a critical to keeping their oaths to the United Sates Constitution and State Constitution they serve under. The switch from Medicare and Medicaid to a MSA will bring down costs through increased competition thus making health coverage affordable to all taxpayers. Combine these: the flat tax, consumption tax, and the MSA with an accounting switch on Social Security and we have a financial core that will be the envy of the World while ensuring the safety, prosperity and advancement of those living in the United States now and in the future.

Flatten the tax

Across the United States many state governments are dealing with fiscal shortfalls. In a knee jerk reaction the decision is overwhelming a raise in taxes. In Minnesota the Senate is looking to create a 4th tax tier while increasing the tax rates of the other three. When people are struggling to make ends meet, housing prices plummeting, unemployment rates raising, and runaway inflation just around the corner, why then are so many governments looking to raise taxes?

The cigarette tax just went up more than $0.50 a pack and discussion at the Minnesota State Capital is to increase it again. Really? We all understand that smoking is not a healthy vice. The purpose of the original tax, which just went into effect, was to raise tax while making it less economical for the youth. The proponents of tax increases, especially on cigarettes, will have diminishing returns. Sure, the state will reap a short term gain. Is the short term gain really the type of tax system we want?

NO!!! The trouble with Congress, both state and nationally, is the focus on short term goals. I agree we need a change and increasing taxes is not the change required. It is time to scrap the current tax code and replace with a flat tax. The reason why more taxes are being sought is due to Government becoming too large.

Minnesota Legislature is going to drive business from the state and discourage the wealthy from staying in Minnesota by implementing a 4th tier tax rate. The focus of the debate will be on partisan politics as Gov. Pawlenty has warned the state legislature that any tax hike would be met with a veto. When will the DFL party wake up and realize that taxing Minnesotans more will only make Minnesota less attractive to future investment while driving our young to other states where they can keep more of their money.

Representatives and Senators of Minnesota do something brave and implement a flat tax that encourages business development and puts Minnesota in the lead of attracting top talent – business and personnel – for years to come.

A New Tax Policy

According to the IRS website in 2008 over $11B was spent on operations, enforcement, and collections of taxes. Congress is looking to achieve ways to trim the budget so President Obama can spend $3T. A way is to rethink the IRS and the tax system. The current tax code is rooted with language that the common man cannot understand. To service the current system, the IRS has created 893 forms. It is time for Congress to take a hard look at the tax code.

It is time for a flat tax rate. The current system punishes success through a higher tax rate as one earns more. Moving to a flat tax rate will level the playing field and give the vast majority of Americans more money in their pockets. We hear of tax credits and Congress uses them as chess pieces. Part of going to a flat tax system is the elimination of all tax credits. I know that opponents will argue that a flat tax is not fair to the lower class. Well here is the solution to that.
The flat tax rate, 10-15%, will not start until the one earns $46,001. All the income prior to that will not be subject to taxation. By starting the flat tax at $46K negates the argument that the lower and middle class are hurt by it. It will also allow the lower and middle class to promote their standard of living since the Government will not be taking any of their money.

As for the upper class and parts of the middle class, the flat tax will lower their tax rate but may increase their overall dollars to Government as all tax credits are eliminated. The flat tax and elimination of tax credits will eliminate the need to file taxes on April 15th as no refund will be given. The only person that need to file in April is one that has a 1099 form issued to them.

The flat tax is a green policy change too. The IRS can reduce the number of forms required; currently 893. Unfortunately the flat tax will result in a slightly higher tax burden for the upper class as tax credits are eliminated but it will be offset by the ability to earn more and keep more of it. In the end America will see a less complicated tax code, reign in the need to cheat the system, reduce the size of government, reduce the amount of paper used on a yearly basis, and strengthen the economy by putting the money in the hands of those that spend it.