Obama's Taxing Psychology

Obama needs the Gandhi Rule, not the Buffett Rule, if he wants the rich to pay more taxes.


President Obama has been on the stump condemning Senate Republicans for the defeat of the so-called Buffett Rule, his plan to make high-earning Americans pay at least 30 percent of their income in taxes. The naysayers, Obama thunders, chose "once again to protect tax breaks for the wealthiest few Americans at the expense of the middle class."

But if the president is serious about making the rich pay their "fair share"—as opposed to scoring political points in an election year—he needs the Gandhi Rule, not the Buffett Rule. In other words, he ought to apply the Gandhi quote that he repeated ad nauseam during his first campaign—"Be the change you wish to see"—to his own tax returns.

Obama's latest tax returns show that he paid a lower tax rate than his secretary, just like his billionaire buddy Warren Buffett. Buffett created a stir last year—spearheading the Buffett Rule—when he complained in an op-ed that he was not being taxed enough. His secretary paid a whopping 35.8 percent tax rate on her $60,000 annual income, while he paid a paltry 17.4 percent rate on his multimillions. There is some fuzzy math involved in this claim. But if this inequity was Buffett's real concern—as opposed to doing quid-pro-quo propaganda for the billions in bailout money that he received from Obama, as Peter Schweizer documented in Reason—he could have simply gone to the Treasury website and voluntarily paid more taxes.

If Buffett has trouble putting his money where his mouth is, he's not alone. Obama's tax returns (released last week) show that he paid a 20 percent effective tax rate on his $790,000 income—slightly lower than his secretary's and a whole four points lower than the average rate for people in his income category. He could have easily avoided this by filing his tax returns the way he advocates millionaires do—by forgoing all deductions. But he didn't. Not only did he claim a $47,564 mortgage deduction on his $1.6 million home in Chicago, he also claimed tax breaks on the $172,130—about 22 percent of his gross adjusted income—he gave to charity.

This would be perfectly legitimate for someone who didn't believe that the government is the best vehicle for doing good. But the president does. He has repeatedly said that the Buffett Rule is not about raising revenues to pay down the country's massive deficits and debt.

After all, 250 years of Buffett revenues wouldn't so much as pay for last year's deficit.

Rather, Obama insists that the rule is about "fairness," ensuring that the rich pay at least the same tax rate as middle-income people. But if that's the case, why didn't he hand Uncle Sam the donations he gave to charity or at least not take deductions for them?

It seems as if the president would rather give his money to literally anyone but the government. He didn't break any laws in the process, but many of his fellow tax-and-spend liberals in fact do. Indeed, Buffett himself is engaged in dueling lawsuits with the IRS over nearly $1 billion in unpaid back taxes. Treasury Secretary Timothy Geithner conveniently forgot to pay his taxes (even though the International Monetary Fund, his employer, gave him the money to do so). And in 2010, 41 White House aides owed $831,000 in unpaid taxes.

This is not to suggest that liberals are more dishonest than anyone else. But they are also no better. Despite all their lofty talk about using the tax code to ensure equity and fairness, they want to fork over as few of their hard-earned dollars to the government as possible—just like everyone else.

This isn't about selfishness or stinginess. Americans are the most charitable people on the planet and rich Americans give a bigger share of their income to charity than low- and middle-income Americans. Tax avoidance rather has more to do with the desire to retain control over one's money, to ensure it is used effectively for one's most valued causes (which, for most people, do not include $800,000 soirees in Las Vegas for General Services Administration personnel).

The blindness of many progressives to how this desire affects their own behavior perhaps makes it hard for them to understand the economic downside of higher taxes, the real issue here. Jared Bernstein, Vice President Joe Biden's chief economic adviser, was on the air this week insisting that letting the Bush tax cuts expire in January—the real tax battle, in which the Buffett Rule was just the opening volley—won't affect investments and growth.

But consider this: Sen. John Kerry, husband of the heir to the Heinz ketchup fortune, docks his yacht in Rhode Island instead of Massachusetts, his home state, where it would be subject to hefty taxes. Can anyone seriously believe that if the Bush cuts are scrapped and Uncle Sam once again starts taxing capital gains and dividends at 20 percent instead of the current 15 percent, Kerry won't put his money in tax-free muni bonds, blow it on expensive vacations, or stick it under his mattress? This will misallocate capital and reduce investments, none of which the economy can currently afford.

The point is that if you won't do voluntarily what you want to compel other people to do, your policy is unlikely to succeed. Call it the Gandhi Test. And the Buffett Rule flunked it—as will the coming liberal jihad against the Bush tax cuts.

Shikha Dalmia is a Reason Foundation senior analyst and a columnist at The Daily, where this column originally appeared.

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  1. Even though this article is a fine example of the tu quoque fallacy, I think the point still stands: many on the left want others to contribute their fair share, but what they earned they got fair and square and shouldn’t have to give it up.

    1. They earned it? I don’t know, that sounds a bit pompous.

        1. Because it makes them sound better than people who DIDN’T earn it, and every good liberal knows we can’t have that.

  2. It would be a fallacy to say “He says he wants the rich to pay extra taxes. He doesn’t pay extra taxes, therefore the argument to pay extra taxes should be dismissed.”

    I don’t think that’s what’s being said here. It seems more like, “He wants the rich to pay extra taxes, but he doesn’t pay extra taxes himself, therefore he’s not worth listening to on this issue,” which is not a logical fallacy.

    1. Actually, either one is the tu quoque (appeal to hypocrisy) argument. The first case is more overt, but the second on still falls prey because that is just a second-hand way of dismissing the argument. It’s cetainly OK to point out hypocrisy, but it doesn’t tell us anything about whether the proposed rules are good or not on their own merit.

  3. His secretary paid a whopping 35.8 percent tax rate on her $60,000 annual income,

    Why does this not set of alarm bells?

    What kind af mental gymnastics have to be done to come up with this? “fuzzy math” my ass, I say utter bullshit.

    1. Googling around, the best I can come up with is that ol’ Warren is including Debbie’s payroll taxes, including the employer’s portion.

      Well, fine but it just follows that these questions need to be asked:

      Let’s get the biggest out of the way. Is FICA a tax or is it an insurance premium and/or pension contribution?

      Which leads to, is Social Security a pension that beneficiaries have contributed to and earned, or is it just welfare for geezers?

      All the liberals can get back to me when they’ve made up their minds which is true.

      If it’s a tax they need to explain why it is that they have imposed this regressive tax.

      If SS is welfare for geezers they need to explain why millionaire geezers like Buffett are collecting it.

      1. SCOTUS has already ruled that SSI is not insurance and that you have no right to any of the funds you’ve paid into it. It’s just another tax, one which by the liberals own definitions is deeply regressive, dressed in wolves clothing, so yes, the SSI deduction is a tax, not an insurance payment, and yes, it’s essentially welfare, you have no right to it at all.

        1. Well, I know that and you know that, so why doesn’t anyone else? 😉

          1. It’s all extortion.

    2. That sentence stopped my too. The 35% tax rate kicks in at $388,350.

      They must be playing games with Social Security, Medicare, state taxes, etc…

      Or, she owns stocks such as berkshire hathaway that paid out big dividends – so here real income is several times higher than the $60k they claim.

      1. Yeah. I make about the same as her, and I pay nowhere near 35% in taxes… not even close, and I only take the standard deductions. But I also get to deduct insurance premiums and retirement contributions from my taxable income.

        I dunno, something seems fishy about the numbers.

        1. And yet, this old saw is repeated over and over.

          And yet, no one ever asks, “WTF?”

      2. When the story first broke, it was leaked that she actually does not make 60,000 but approximately 100,000 not counting stock in bershire hathaway. That is why she is in the 35%, but I am not sure since I did not fact check the article that claimed this.

        1. As Drake notes above, “The 35% tax rate kicks in at $388,350.” The only way she can be hitting a 36% tax rate is to include FICA (She probably pays the same absolute amount in FICA, since both of them appear to be making above the limit*).

          Also, she has some serious deductions if she’s turning a six-figure gross into a 60K taxable income. It’s pretty hard to present her as one of the oppressed, in that case.

          I guess in the end, what’s more alarming to me than Buffett’s gall at trying to present Debbie as one of the 99% is the unwashed masses gullibility in accepting it hook, line and sinker.

          *That is if, as seems to be widely agreed, her gross income is far more than $60K.

          1. I can’t be bothered to check, but IIANM the 35% tax rate actually kicks in at half of $388,350 for single filers.

            But even so, the story just stinks of bovine excretia.

      3. That’s not really unusual. Neither reporters nor the general populace has any understanding of even basic mathematics. I’ve seen incredibly and very obviously flawed numbers used in news reports and seen both liberals and conservatives use those numbers without ever noticing what should be obvious inconsistencies. You can print that $30 was spent for every $100 and that’s 87% and not only would most think to question that, most would repeat it and use it to defend their view.

    3. I don’t know why they used this BS number when they didn’t need to. I made $67,770 this year and paid 22.8% Federal after all was said and done (Not including SS, State, etc.) – which is STILL higher than Buffet paid. Why don’t they just use the REAL numbers which illustrate the point just fine. Instead they have to blow all their credibility with stupid, stupid numbers…

  4. Warren Buffet is the quintessential greedy billionaire. Every word that leaves his mouth is designed to make Warren more money, and squeeze the wealth out of his competition.

    The cattle of the world follow him because he smells like candy.

    1. ^^THIS^^

      Remember, Warren Buffet is the guy who offered a bailout deal on LTCM that even the Fed stepped in to say was unduly favorable. His original proposal set regarding taxes was tailor made to undermine his private equity competitors and pressure privately held business owners while leaving Berkshire largely unscathed. I respect his acumen as an investor, but I won’t for a minute pretend that Warren Buffet’s first, last and only priority in policy advice is the further enrichment of Warren Buffet.

      1. This was my thought. If Buffet is calling for it he’s probably going to profit from it somehow. Even if it costs him a bit more money (which I suspect he will arrange for a deduction against to lower his loss) it will have a negative enough effect on his competitors that he’ll come out positive.

        1. Well, just remember something, Buffet’s salary from Berkshire is a total of $100,000. A large part of his lifestyle (private jet, 5-star hotels, etc.) can get paid out of Berkshire’s corporate expenses. As, by far, the largest shareholder and with the rest of the shareholders pretty safely in his pocket, it’s not like Buffet is going to face a revolt for taking his comp this way. Heck, it’s probably even tax efficient. Moreover, he’s the PM of the company. It’s not like his investment of savings could be expected to be drastically different from what he’d do at Berkshire. The bottom line is that Buffet’s return from Berkshire is largely in the capital gains he gets from his holdings. Now, all of this has an intresting implication. While Buffet hasn’t released his tax return (and I’m not calling for him to do so), it’s entirely plausible that Buffet has a taxable income well below the Buffet rule’s $1 million threshold, even in years where he sees his wealth increase by billions of dollars.

    2. Otherwise known as the height of moral rectitude. But only for non-Democrats I guess.

      1. Actually, I made no judgement about the morality of Mr. Buffet’s behavior. I might fault his willingness to make use of government policy to advance his interests. But, I really don’t have a problem with the fact that he’s self-interested. But, when a guy I know is wildly self-interested is telling me he wants to rais taxes because he’s just so damned public-spirited, I know enough to hold onto my wallet.

      2. Let me add, I’ve learned a long time ago that you can trust a guy telling you up front that he’s out to make a buck over the guy telling you how he’s a martyr and he’s here just because he’s such a sweetheart.

  5. If Obama really wanted to be like Ghandi, he’d have naked 13-year-old girls sleep in his bed.

  6. NO – I repeat NO democrat or republican politician/business person/or 1%er truly wants “fairness”. If they did, we would have had a flat consumption tax years ago. This concept has been out there for years, yet when was the last time ANY politician put it up for a vote? These guys know that they could make the top tax bracket 75 or 90% and the rich would still pay less due to tax deductions and loopholes. There are no loopholes with a flat consumption tax. Doesn’t take a genius to figure out that they are not at all serious about being “fair”.

  7. The funny thing is that the welfare states from Canada to Scandinavia have long ago given up any pretense of progressiveness or “fairness” and have taken to levying high sales or value added taxes and high payroll taxes on employers as well as income taxes (which they have made much less progressive than in years past.

    I recall reading somewhere that France levies a payroll tax on emploers that comes out to about 42% on an employer making the equivalent ot $30K a year. Of course, even when they’re known people often acept the notion that payroll taxes are imposed on fatcat employers.

    Most of it lies in conveying the belief to the people that someone else is paying the taxes that pay for their benefits. But in the end taxation tends to distribute itself thhroughout the population. The rich just end up being proxy tax agents collecting money from the poor through higher prices and lower wages.

    1. Of course, to placate the people into accepting these rates of taxation more and more benefits are paid out to a bigger and bigger group so that even with these tax levels the countries still tend to run huge deficits to finance them. Canada and Sweden for two seem to be exceptions but it remains to be seen for how long. And Norway is an outlier because of petrorevenue.

  8. Sems to me like those guys know what they are doing.

  9. This article reminded me of the writings of former presidential candidate Harry Browne. I am paraphrasing here, but he basically said: “The only role of government is coercion. That is, forcing other people to do things they don’t want to do (or to not do things they want to do).” Kind of like taxes. Or health care. Or whatever. As mentioned, Buffet or Obama or whomever can always write an extra check to the gubmint. I’m sure it would get cashed. No, the only reason to talk about changing the tax code is to force OTHERS to give more – not themselves. Surely, they will work hard behind the scenes to make sure the changes benefit themselves – which brings me to another quote I like: “The world revolves around individuals pursuing their individual self-interests, independent of whatever governmental or societal system is in place.” (a Milton Friedman paraphrase, for anyone here unacquainted).

  10. the government is the best vehicle for doing good

    Strawman. The president (and other sane people) just realize it can be effective, rather than epitomizing all evil, which is not a strawman. That is the entire libertarian philosophy as far as I can tell. The point isn’t that government should do things, but that it must do certain things, and thus it must be paid for. What those things are should be subject to democratic debate and then paid for in a fair way–fair being people pay according to their ability. If we have a massive deficit, you have to go to the rich first.

    Voluntary giving is perfectly fine, but think about NPR. It’s a great service paid for by donations. But how many people don’t ever donate but still listen? If you are going to have a universal service, you have to do something about freeloading, and taxation is the logical means of paying for such things. This is not a big moral question, it’s just a matter of practicality. If you don’t like that government is involved in healthcare, fine, convince granny and gramps to give it up via informed choices at the ballot box. Don’t lecture us that we have no other moral or fiscal choice. We can choose to have government do whatever we want it to do, because it is a free country.

    1. Tony,
      Most libertarians do believe that, while the only role of government is coercion, some of the coercion is justifiable. For example, the government forcibly holding a convicted murderer behind bars is seen as perfectly acceptable to most libertarians. Regarding your statement: “We can choose to have government do whatever we want it to do…”. Who is the “we”? Remember, the only reason to ever involve government is coercion. Thus, “we” cannot be everybody, because if it were, government would not be needed since everyone would comply voluntarily. Democracy is tyranny of the majority. Also, why do you presume that a “universal service” is necessary? NPR could easily become a Sirius XM channel and be only accessible to those who foot the bill. If I wanted access, I’d pay.

      1. Another point. You state that we should PERSUADE granny and gramps to give up gubmint healthcare via the ballotbox. You believe that granny and gramps have a moral right to healthcare? If individuals have a right to healthcare, then one cannot have a right to property since the gubmint forcibly taking my property pays for granny and gramps healthcare. I think the burden is on granny and gramps to PERSUADE me to help them out rather than using the gubmint as a weapon of coercion.

        1. As you said above, some government coercion is necessary. I see no real black line between using it for police and courts and using it to provide universal healthcare. Why, after all, is property so special that it gets taxpayer-funded protection, but healthcare–an actual lifesaving necessity everyone will need at some point–is somehow less important?

          If you claim a right to my money to pay for men with guns to protect your stuff, I don’t see how you are different from me demanding you help pay for my healthcare. Besides, we only do it that way because it’s the most efficient way known. Elderly people in the private insurance market would mostly be SOL. Old-age single-payer healthcare was invented for a reason. Other, more civilized, places have extended to logic to apply to everyone. Because it’s cheaper. Whether paid for by monthly insurance costs or taxes, we still pay. Oddly enough all evidence suggests that when paid in taxes, we get off cheaper.

          1. Oddly enough all evidence suggests that when paid in taxes, we get off cheaper.

            This is only true because countries with national healthcare play cost benefit analysis with human lives. If you’re 88 and wanna get hip surgery, forget it! The resources needed to save you are better spent somewhere else. Some countries go even further and prohibit a private medical system from serving such a case even if they could pay.

            Rationing is also another way they save money. Since the cost of medical care is free, there is artifically high demand for it. Procedures such as MRIs that are performed in a week or two in the US take months in Canada because of waiting lists.

            The costs cannot be avoided simply because of who the payer is. Either we pay for it in dollars or some other way (wait times).

    2. “because it is a free country.”

      Free is pretty fucking expensive these days

      1. You mean these days of the lowest tax rates for everyone, and especially the very rich, in many decades?

        1. I suppose if we are strictly talking Federal Income tax. But alas, other taxes do exist both at the Federal and State level. Not to mention the future taxes we’ll inevitably have to pay because of too much spending.

          Still though, your definition of “free country” is pretty loose I would say.

        2. When government revenue is at one of the highest levels in many decades? It’s weird. It’s almost as though you can raise tax rates and still not gain a lot of tax revenue. Somebody should study that some time.

    3. Your NPR example is contrary to your point. It’s surviving and receiving voluntary donations, despite the freeloaders. It’s proof that coercion isn’t necessary (in some cases).

    4. That is the entire libertarian philosophy as far as I can tell.

      Yes, your oft-stated and even more oft-demonstrated utter and complete inability to comprehend what you claim to deconstruct is a testament to the remarkable impenetrability of your mind against honest inquiry. Here, let me try:

      The president (and other sane people) just realize that reducing tax rates can be effective, rather an epitomizing all evil, which is not a strawman. That is the entire liberal philosophy as far as I can tell.

      The president (and other sane people) just realize that private property can be effective, rather than epitomizing all evil, which is not a strawman. That is the entire liberal philosophy as far as I can tell.

      Wow! That was easy! You just make an authoritative declarative statement, pretend it’s objectively true, and then reference the objective truth of the statement to prove it. It’s almost like a big circle!

  11. This argument would work if (a) Obama was trying to pass a law that exempted him or (b)Obama was disobeying, or planning to disobey, the law.

    As it is, the argument is nonsense.

    Obama is:

    (1) playing by current tax rules;

    (2) advocating a prospective change to current tax rules, to be applied equally to all who are similarly situated, without distinction; and

    (3) reasonably expected to play by the changed rules he is advocating should they come into effect.

    This article serves only one purpose: revealing the author as some one who cannot think straight.

    1. It does sort of diminish your credibility, though, when you propose to be the champion of a proletarian revolution while you live the lifestyle of an aristocrat. Kinda like, well, the champions of every proletarian revolution in history, thus far. “Slave owners against slavery” has this certain disingenuous ring about it.

      1. If people tainted with the ownership of slaves had never advocated against slavery, we would not have had Ben Franklin, President Lincoln or General Grant on the side of freedom.

  12. Anybody else notice the threshold for the Buffet rule is just above Obama’s income? Somehow he thinks he is not rich, it is just the guys with more than him who should get nailed with this tax.

    1. Obama has made millions before, and will make millions after his presidency. This year was not representative of his likely annual income going forward.

  13. I think the article seemed to get off track to the point he was trying to make. Takers want others to give more so they can take more. On the face Obama wants wealthy people to pay more taxes, while privatly he pays somebody a lot of money to pay as little as possible. The secretary’s salary is of no relevance to that. My Take: Both parties want to show taxes to the everyman out front to show their base something to support. Then they close door behind them and do whatever keeps them in control and continues their march to wealth!

  14. I don’t get it. What kind af mental gymnastics have to be done to come up with this? “fuzzy math” my ass, I say utter bullshit. I bet some government correction is necessary!

  15. Most libertarians do believe that, while the only role of government is coercion, some of the bet coercion is justifiable. For example, the government forcibly holding a convicted murderer behind bars is seen as perfectly acceptable to most libertarians.

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