Obama Gets the Numbers Wrong In His Tax Plan

The justification for President Obama's new proposed tax on the wealthy is wrong on the numbers. Despite the president's claims, millionaires don't pay lower tax rates than middle class workers. His proposed surcharge on capital gains and dividend taxes will raise already high tax rates on high income individuals and force even more investment outside the United States. The so-called "Buffett rule" is based on Warren Buffett's claim:

"The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.” . . .

But much more importantly, Buffett's claim ignores why the capital gains and dividend tax rates are set at the level they are: corporate income has already been taxed once when the company earned it. In the United States the combined federal and state corporate tax rate is 40 percent, the highest rate in the world. . . .

I fear Obama just doodled higher than a kite in math.

Teacher: Barack would you please show the class how to graph this quadratic equation. Here's the chalk kid.

Barackodoodler:'None plus me equals Hopey Changy! Walk like a buterfly and sting like a flea I'm so happy I'm me, now about meth, umm yeah I took it to get high, wasn't that the point? Check my grades in school, oh wait I made certain no one knows I had troubles since that madrassa...I AM THEE ONE. Take a looky me now!'

Teacher:*Head pound x5*

Qui bono?

The banks benefit here. Taxing dividends that individuals get means they are fully taxed twice, which just increases the advantage the banks get.

Where I work, it was explained that the interest rate we need to use in figuring payback for a project, is 8% for a loan or bond, and 12% for dividends. Doubling the tax on dividends puts the tradeoff at 8% vs 16%. This new tax will just mean more business for the banks, and a shafting for the stockholder as the price of the stock collapses.

If the Republicans were going to take a risk, I suggest the offer to accept this tax, but only if dividends are deductible at the corporate end, thus taxed only once.

That would shake things up a lot. Equity and debt would be on a more even playing field. Shareholders are more patient than banks, you can cut a dividend without bankruptcy, but you can't not pay the banks the interest they demand. If a dividend isn't paid, the managers might get thrown out. If interest isn't paid, the company might get foreclosed on. This just might reduce some of the short term thinking of American managers (or not, as much is driven by bonus payouts).

But, since it's an idea that can't be fully expressed in a 3 word sound bite, I expect it will never be considered.

The bankers seem to be the only folks neither party is willing to offend.

As someone who knows a little about math, Herman Cain had a response to Obama today:

Today, the Obama Administration's assault on the private sector continued. In yet another speech, he called for America's job creators to shoulder an even heavier burden than they must already. President Obama promised that his efforts were not "class warfare," but instead "math."
Perhaps he could learn a lesson or two on math from me. I have a degree in mathematics and spent the earlier days of my career as a supervisory mathematician for the Department of the Navy. Then, I worked for 40 years as an executive in the private sector where I balanced budgets, saved failing companies and created jobs. Both obviously demanded a command of advanced mathematics.
Here's what I can tell him about math: raising taxes on anyone, no matter their income level, will do nothing to stimulate our economy, create jobs or balance our federal budget. Increasing taxes on the private sector will destroy jobs, further damaging our economy and sending even less revenue to the federal government.
His eagerness to punish the private sector indicates he doesn't understand the most important truth of basic economics: the private sector creates jobs. These are the jobs that pay for the food for our families, the roofs over our heads, the heat for our homes, the clothes on our backs, the schools for our kids and the plans for our retirement.
Perhaps his ignorance of basic economics is due to the fact that both he and more than 90 percent of his Administration have no private sector experience at all. Thus, they are all too willing to continually punish America's job creators, all in the name of "fairness."
President Obama's once said, "You can put lipstick on a pig, but it's still a pig." I agree. It doesn't matter that he calls it "paying your fair share." It's still class warfare.

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