Barack Obama and the Democrats clearly lost the battle that occurred in order to do the only smart thing: Raise the debt ceiling. They ended up accepting a deal that did not include any tax increases, contrary to what they had said they would do. Yesterday, President Obama unveiled the big lines behind his latest project; which is being called the “Buffett rule”. Why? Because Warren Buffett suggested that taxes on millionaires were too low and that it wasn’t normal that he was paying a lower tax rate than most of his much lower paid employees. Few would argue about the logic behind such a rule.
It’s Always The Same Story
I always find it interesting when I hear about such ideas as “taxing the rich”, because it is so much more complex than that. Both companies and individuals have clever ways to avoid paying taxes. We mentioned a few examples such as General Electric (GE), Google (GOOG) and Facebook that are paying virtually no taxes to the US government. Such tax avoiding structures can be expensive to set in place but they are not illegal under current regulations. Why? Because many of these structures are made possible by the thousands of loopholes in the current tax system.
Tax Rates Are NOT The Problem
“Either we ask the wealthiest Americans to pay their fair share in taxes, or we’re going to have to ask seniors to pay more for Medicare. We can’t afford to do both,” Mr. Obama said in a speech from the Rose Garden. He said later, “This is not class warfare. It’s math. The money is going to have to come from someplace.”
The United States have the 2nd highest corporate tax rate in the world which is certainly not pro-business or pro-job. Of course, larger companies are able to escape much of the effect of those high rates through different tactics while smaller ones are stuck with paying them. That hardly sounds like taxing the rich to me. Almost everyone agrees that the tax rates are not the issue and that they should even be lowered significantly. Those tax rate declines could easily be paid for by improvements or a complete redesign of the current tax code.
So Why Is Obama Working On Such Legislation?
To me, it looks like a move driven by panic. It’s a very popular thing to do: “Propose taxing the rich”. It is a measure that will get you a few votes very quickly, especially when the economy is as weak as it currently is. That does not however mean that it is the right thing to do. What I dislike is when government officials oversimplify issues that are complex. Mr Obama, please explain to us exactly how you would like to proceed. I’m all for taxes being raised but this should not be done through higher tax rates but through elimination of loopholes and other measures.
Am I alone on this? Does this just sound like a populist measure? I do think that the Rich should pay