The Talk: Tax Increases or Class Warfare?

The Talk: Tax Increases or Class Warfare?
September 22, 2011

Chip Lebovitz: The president finally released a concrete deficit reduction plan Monday. Taking a populist stance, the president’s plan features GOP opposed tax increases including one specifically on millionaires called the “Buffett Rule,” named after the billionaire hedge fund manager who suggested the idea in a recent New York Times op-ed. What’s your take on the president’s proposal Ross?

Ross Freiman-Mendel: The president has once again proven that he’s either woefully lost or willfully destructive with the economy. Senator Tom Coburn said it best: “The plan is a giant tax increase [with] maybe 81 billion in cuts and 1.45 trillion in revenues.” The best example is the “Buffett Rule,” is nothing but class warfare and political posturing at the expense of job creation.

Chip Lebovitz: The plan just represents what I find to be the current political reality. Republicans would have seized on any concessions the president had thrown out in his opening offer and pulled him past where a natural agreement should lie. The Buffett Rule, however, is anything but class warfare – it’s an idea supported by the people suggested by a member of the truly rich. The basic thrust that the extremely wealthy should pay as much in taxes as someone from middle class – hardly an unfair notion.

Ross Freiman-Mendel: And with what authority can Mr. Buffett speak, when he has relied on bailouts — i.e. Goldman and Bank of America — to make his investments successful? A tax is fundamentally a punishment; President Obama proposes we should take more from rich people because they’re successful and have more of something. But ideology aside, the plan is terrible economics, because the government now demands a share of capitals gains only 2.5 years after Bernanke went to infinite and beyond to pump up the “wealth effect” for the richest 1% of Americans. That’s contradictory.

Chip Lebovitz: That’s a bold statement on the nature of taxes; basically, you are declaring that the payroll tax is punishing people for wanting to have Social Security. Turning back to Mr. Buffett, his investments would still be an overall success with or without the government bailouts of Goldman Sachs and Bank of America. If anything, he realizes the value of government preventing a complete economic meltdown – instead of a very large scale one – and feels that maybe he and his fellow millionaires might contribute a bit to help the government balance its budgets after it took the time to support their industry. Furthermore, the timing of this tax plan is in fact its best part; most economists support stimulus now to get the economy going with long term deficit reduction to prevent a ballooning of debt to GDP over the long run.

Ross Freiman-Mendel: But you haven’t responded to the impacts on the wealth effect. When you say “a bit” that’s totally disingenuous; increasing the tax on capital gains could cut actually income for those invested in the stock market by 25 percent, encouraging all to exit the market at the current lower rate capital gains rate of 15 percent and forcing more downward pressure on the stock market. Crash anyone? I’m all for “smart” stimulus now, but all this plan does is continuing to make the country inhospitable to business and economic growth in the name of “fair share.”

Chip Lebovitz: That’s because the wealth effect isn’t even relevant here. David Backus, an NYU economist, showed that the wealth effect, when people perceive their money is more valuable then it is, isn’t visible in stock prices. But regardless, Republican leadership has ruled out tax reform, the best revenue raising concept, for super committee consideration. How else you would you raise revenue to help balance the deficit.

Ross Freiman-Mendel: I (and I believe basically every member of the Federal Reserve, including the Chairman himself) respectfully will question David Backus’ claim, because the wealth effects applies directly to the stock market. I see two great ways to raise revenue. First, have Mr. Buffett (and his cohort Mr. Gates) donate 90% of their wealth to the Treasury, and second, implement tax reform that closes loopholes and brings individual rates down across the board.

Chip Lebovitz: Speaker Boehner has ruled out tax reform, and a vast majority of Mr. Buffett’s wealth has been marked off for charity. You’re points however sum up an irresponsible view of debt reduction, “Either let someone else do it, or push it down the road so it’s not your problem.” At least the president is trying to create a comprehensive solution now that doesn’t gut a major entitlement or two.

Ross Freiman-Mendel: Any attempt to solve our debt with lots of revenue and pathetic spending cuts implies the president wants to fund current spending levels. As I’ve said before, the he will continue to punt the can down the road, but one day it obstinately will remain motionless. That’s when our real problems will begin.

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Source: Dave Makes

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3 responses to “The Talk: Tax Increases or Class Warfare?

  1. Ross, I think you’re really drinking the kool-aid here. We’re talking about millionaires, people whose income is astronomically high compared to the average American. I agree that loopholes should be closed (but wouldn’t that functionally raise taxes? Sounds like a tax increase to me….what would Grover Norquist say?), but I don’t see anything wrong with making people who can pay more pay more. Taxation is a necessary evil, and it seems to go without saying that if we have to raise revenues (though I agree that cutting spending is preferable), the wealthiest should bear the burden, especially considering that they earn a tremendously disproportionate portion of the national wealth. Obviously it would be great if we lived in a society where we didn’t have to take money away from anyone, but we don’t, so where else are we going to find it?

  2. You’re points are fair, but you haven’t addressed the wealth effect argument. This policy is totally contradictory. One branch of the government — the Federal Reserve (well maybe that’s debatable) — has done everything possible to boost the stock market. Obama’s proposals will retard those efforts. We simply can’t tax our way out of this mess, especially, in the words of Krauthammer, from those “millionaire couples making 250,000 dollars.” And I take issue with your statement that the “wealthiest should bear the burden.” Why? Because their successful, the government ought to take what’s not theirs and use it to subsidize their own prodigality, genius investments in companies like Solyndra, and others. – Ross 🙂

  3. It has already been shown, by hard calculation, that even if you tax the rich at 100% of earnings, the revenue doesn’t come close to meeting our current needs. That’s why “rich” is a moving target, referring to millionaires, billionaires and thousandaires at the outset, and in short order, encompassing the middle class. The alternative minimum tax is a perfect example of this effect, and they are many, many more.
    Class warfare is a ploy to deflect attention from the fact that, by hard numbers, there simply aren’t enough rich people. As ALWAYS, the burden of tax increases will be borne by the middle class. They can’t afford to work less or stop working (as can the rich) and they don’t have the resources to employ legions of advisers to help them avoid the taxes they owe (as can the rich). That’s probably why the middle class isn’t exactly falling for Obama’s current foray into this age old trick. And by the way, would really be worth your trouble to earn that extra $10,000 if you were going to get to keep $1000 of it? What’s the percent taxation where you decide you’d rather go fishing?
    In a country where 51% of the populace pays 100% of federal taxes, I think the debate about fairness needs to be reexamined.
    Politicians from both parties are primarily concerned with re-election and thus, with keeping disaster off of their watch. Until someone gets serious about addressing the very serious problems this country faces, we’ll be chatting about smoke and mirrors, such as class warfare.
    The effect of kicking the can down the road is playing out in Greece and other countries around Europe. It’s likely coming soon, to a theater near you.

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