Tuesday, January 24, 2012

President Obama Nails State of the Union Speech

      Two things I really liked off the bat is one his taking on the filibuster with the idea of maybe eliminating it for Supreme Court nominees.

       The other thing I really liked was that the effective tax rate for the wealthy should be 30%. Of course I don't get how that fits in with the proposals that have been made by Simpson-Bowles, et al. which he has at least at times seemed to sign off on that calls for lowering the taxes both on corporations and the top rate into the 20s.

        Even if you get away with every single "loophole" known to man for the rich I still don't see how you lower the tax rate from 35% to 26 and somehow it will give you an effective 30% rate because you have eliminated loopholes.

        But the thought is right and it gives Americans-who want the rich to pay higher taxes; including in this group is even the richest Americans, Buffett and Gates-incidentally I was watching a little about Gates tonight, it's amazing how much good he has done in the world over the last 13 years or so.

        I don't care if he has become such a philanthropist to counter the negative public image he had at the time of the anti trust suit in the late 90s. If he has whipped some chronic problems in India, it makes no difference to the Indian people who have benefited what his initial motivation was.

       Of course there is no way for Obama to raise taxes on the rich-unless the political groundswell became irresistible perhaps. But Americans clearly can see that only the election of Democrats in November gives them any chance of seeing their wishes carried out.

       What strikes me is that to have an effective 30% rate on the wealthy it can be achieved in one of two ways. Either raising the nominal rate of 35% considerably or eliminating every loophole in the world for the rich. Historically it seems that effective tax rate for the wealthy is almost exactly one half of the nominal tax rate. Which in that even would call for a 60% rate.

       If it can be achieved at a lower rate you then would have to close all loopholes for real. One thing that could be done to do a lot to move the needle would be to simply tax dividends and capital gains at the same rate as income.

       Really that would do a lot towards satisfying the Buffett Rule.


  1. This comment has been removed by the author.

  2. This is the original comment with a small edit:

    1. How rich does one have to be in order to be one of "the rich" taxed at 30%? Numbers, please.

    2. Please be specific on why a nominal tax rate of 60% is required to achieve an effective tax rate of 30%. Once again, numbers please. I think you may be mixing up the treatment of long-term capital gains (15%) with ordinary income (top rate at 35%-ish). By the way - do you have a view on taxing profits on a primary residence sale? Today you can earn up to $500,000 in tax free gains as a married couple (250,000 if single) when you sell a house at a profit. You must have lived there at least 2 years.

    3. For perspective, I am far from "rich." And through the wonderfully punitive alternative minimum tax I pay an effective rate of 28%. That is effective from Dollar # 1. Numbers are "Taxes Paid / Adjusted Gross Income = 28%. That's about as effective as you can get. My tax deductions are a)small amount of mortgage interest, b) large amount of NJ Property taxes, c) a larger amount of NJ income taxes, and d) charitable contributions. So you can see I am far from a tax shelter maven.

    4. Congrats on the new job.

  3. Hi John! Appreicate your dropping in. I got the idea of the effective rate being about half the stated nominal rate is historical.

    Right now for example the stated rate is 35%-on the top rate-yet the effective rate is about 17.2%-actaully a little less than half that.

    Even back when the top rate was supposed to be 91% the effective rate was only 45%. Historically that has been the relationship.

    Now as I mentioned above the capital gains rate is a big part of why the effective rate is so low today-many of the wealthy pay most of their income in capital gains taxes like Romney.

    I believe you that you're not rich. However that's the whole point of the Buffett Rule. Buffett made the point that his secretary who he pays $60,000 a year pays a higher tax rate than he does. She pays like 28% as her income is earned where he pays 15%.

    If you receive most of your income through wages, etc. then I'm sure you do pay more. You are in the same bracket as his secretary.

    By the way those who say they want to "simplify" the tax system want to take away your mortgage deddcution. They call that a "loophole."

    I'm talking about Simpson-Bowles, etc.

    Please stop by often John.