The White House has clearly not won over Congress or the American people in its belief that the federal government should hit small businesses and job creators with higher taxes to pay for floating defunct companies such as Solyndra, for stimulus programs that have not moved the needle on unemployment, and for cutting the deficit by $3.6 trillion over the next decade.
Continue Reading Below
So, the Administration has now resorted to rebranding tax increases on job creators the Buffett Tax, in order to correct a perceived injustice, that billionaire Warren Buffett pays a lower federal tax rate than his secretary.
Trouble is, both the White House and Buffett are misleading you, because IRS data show the rich already pay more in federal taxes than the lower brackets. Which is why even Europes Organization for Economic Co-operation and Development says the U.S. tax system is one of the most progressive in the world.
Buffett wrote in a recent column for the New York Times that the tax rate he paid last year was lower than that paid by any of the other 20 people in his office.
But if Buffett paid himself a millionaire's salary, and not the annual $100,000 salary he pays himself annually, then he would pay federal income taxes at the higher federal tax rate. Buffett cites a low 17.4% rate, but that's the capital gains tax rate he pays when he sells his stock or other assets.
And the federal income tax rate for that $100,000 salary level is 28%, lower than the 35% millionaires pay. If Buffett paid the highest federal tax rate, he would see that the upper brackets pay most of the federal income taxes in this country.
However, why let the facts get in the way of a re-election narrative?
President Barack Obama has said. "Middle-class families shouldn't pay higher taxes than millionaires and billionaires ... That's pretty straightforward. It's hard to argue against that."
The Buffett Rule says: "People making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay."
FOX Business news director Ray Hennessey says: Tax the rich, make them pay their fair share, and make sure that the secretaries of the world -- good proxies for teachers, firefighters and construction workers, by the by -- never find themselves paying more in taxes than Warren Buffett.
Hennessey adds: Trouble is, it is all a lie. Perhaps thats too strong a word, but, at its most charitable, it is an untruth.
Hennessey notes: To be fair, supporters of the Buffett Tax have never overtly said she (the secretary) pays more. Rather, they say she pays a higher rate, which is different. But many folks no doubt have been confused into thinking that she pays more, and she doesnt.
We are knee-deep in a policy debate around an inequity that doesnt exist in front of a Congress that wont pass it anyway. All because Warren Buffett decided to write an apocryphal story in The New York Times instead of writing a check to the IRS and clearing his conscience that way.
So lets break this down (we reported this data from the IRS to you earlier this week in Buffett's Fastball on the Buffett Tax):
*Again, Warren Buffett pays himself just $100,000 a year in salary. His 17.4% tax bill is due to the lower, long-term federal capital gains tax rate on his stake in Berkshire Hathaway, a stake valued at an estimated $38 billion. Buffett only pays taxes on that stake if he sells his shares. Since he sits on them, his tax bill is low.
*His tax rate is likely higher because company, Berkshire Hathaway, first pays corporate capital gains taxes on that stake. Factor that in, and Buffetts actual rate likely nets out in the 25%-plus range.
*The top 1% of federal taxpayers footed the bill for 38% of all federal personal income taxes, according to IRS 2008 data. The top 5% paid more than half of federal income taxes, 58.7%, and the top 10% paid 69.9%. The $50,000-$75,000 crowd will pay an average 15% of their income in federal taxes; the $40,000 to $50,000 crowd will pay an average 12.5%, says the Tax Policy Center.
*The really high earners, taxpayers with annual incomes at $10 million or more -- call them the top 0.1% of all federal income tax returns -- accounted for 4% of all taxable income in the country, had an average federal income tax rate of 26%, and paid 6% of all personal federal income taxes, according to IRS data as of 2009.
*As of 2009, the top 2% of taxpayers who make $1 million or more were responsible for a 20.5% share of personal federal income taxes, even though they accounted for just 13% of all taxable income in the U.S.. The average income-tax rate of those earning between $1 million and $10 million was 24.6% in 2009.
*As of 2009, taxpayers with adjusted gross income at $500,000 or more a year accounted for 0.5% of all federal income tax returns, earned 19% of total U.S. taxable income, but paid 29.8% of all federal personal income taxes. They had an average federal income tax rate of 24.5%.
*Taxpayers with adjusted gross income at $200,000 or more a year accounted for just 2.8% of all federal income tax returns, but footed the bill for 50.2% of all federal personal income tax revenues even though they earned a third of all taxable income in the U.S. They had an average federal income tax rate of 22.2%.
*Middle-class families, those earning between $34,000 and $50,000, paid an effective 14.3% of their income in all federal taxes in 2007, according to the Congressional Budget Office [CBO]. Those making $100,000 to $125,000 paid an effective federal rate of 9.9%.
*Nearly half of all taxpayers do not pay federal taxes, although they pay state, local and payroll taxes, depending on their bracket
*The Presidents tax increases would hit small businesses hard. At least 75% of small businesses file taxes on business income at individual rates, says the National Federation of Independent Business. Two thirds, or 65%, of joint filers with income above $250,000 and 50% of single filers above $200,000 earn business income.
*About half of those subject to the Presidents tax increases are small businesses with employees. This tax increase would directly cut job creation. Already, annual federal regulations cost the countrys small business $1.1 trillion annually, says the SBA.
*The President's new tax on the rich is a sort of new alternative minimum tax for the upper brackets. Just as the first AMT, enacted in 1969, is not indexed to inflation, it's likely that this new tax would not be either. For that reason, the old AMT is increasingly hitting the middle class. Inflation is key here -- all of the Federal Reserve's money printing creates inflation. Because the AMT bracket is not indexed, the money printing hurts taxpayers -- a flip side that shows how recklessly hurtful loose monetary policy really is.
*Tax data show that when Congress increases rates on the upper brackets, federal tax revenue from those brackets falls because the rich shelter their income.
What is really the issue for both corporations and individuals are loopholes and tax breaks that benefit people at every income level, according to the nonpartisan Joint Committee on Taxation. Flatten the code, get rid of the loopholes, the rich will pay more, and you wont see anomalies such as single-digit tax rates.
For example, General Electric (NYSE:GE) paid nothing in taxes last year due to write-offs associated with losses from its financial services arm; GE is a master at lowering its tax bill.
Google (NASDAQ:GOOG) paid an effective rate of 2.4%, far below the 35% statutory corporate rate for publicly traded companies. Goldman Sachs (NYSE:GS) paid $14 million last year on its billions of dollars in revenues.