As always, these are real emails exchanged by real people:
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Matt: Steve, rumor has it that Senate Democrats plan to bring the Buffett Rule up for a vote this week. You're with Harry Reid on that one, right?Stephen: Oh of course. You know I love nothing more than taxes that manipulate the data to appear reasonable. Although, I'm a bit disappointed Buffett doesn't understand the tax system better. I always thought he was a super smart dude.
Matt: Full disclosure - I'm not the biggest fan of the Buffett Rule either. Do I believe in raising taxes on the rich? Yes. But I think the Buffett Rule is a bit of a red herring that is more symbolic gesture than serious tax policy. Ideally I would like to see us raise all taxes on incomes above $250,000 (including capital gains) to Clinton-era levels - given the success our economy enjoyed during that period - 23 million new jobs - and the massive dent that would make in the budget deficit, I think you'd be hard-pressed to justify the argument that these moderate tax increases would hurt the overall economic situation. Indeed, they may improve it. Speaking of capital gains, is that what you mean by manipulating the data, or Buffett not understanding the tax system? Explain.
Stephen: Matt, increased taxes on all those "millionaires and billionaires" making over $250k is ridiculous. It certainly wouldn't aid the economy, you've got an accusation problem here. It also wouldn't take that much of a dent out of the deficit. How they would hurt is by cutting the savings rate which would reduce the money banks can loan, mostly to small businesses- which in turn creates new wealth and jobs. As for the Buffet rule, it will essentially bring the capital gains tax for those making over 1M to 30% but capital gains (esp long term) are basically just profits from a business... which have already been taxed at rates that the president acknowledges are the highest in the world (35%). So basically if you made 100, corporate tax would take 35% and capital gains already takes 15, leaving you 55.25... an effective 44.75% tax rate. With this it will jump to 54.5%!
More snark after the jump...
Matt: The Tax Policy Center, which is non-partisan, estimated in 2010 that allowing the Bush tax cuts to expire for high earners would approximately $700 billion over the next decade in additional new revenue. Not exactly chump change. And since individuals tend to hold on to those tax breaks rather than re-invest them, that money could be better put to use growing the middle class, which is ultimately better for the economy as a whole. You're also lumping individual and business taxes together, which is misleading. Corporate taxes, which Obama wants to lower to 25%, apply directly to businesses, but the Capital Gains tax only affects profits individuals earn from investing, which is where the wealthiest Americans make most of their money. That's how someone like Mitt Romney can make $48 million in each of the last two years and pay just 14% of that, by his own admission, in taxes.
Stephen: Matt, you understand how stock ownership makes one rich, correct? Either through dividends (business profits passed through) or higher EPS (earnings per share) both of those are directly related to cooperate profits...as for the Tax Policy Center - which is about as "nonpartisan" as Fox News is "Fair and Balanced" - its study it's terribly flawed for a debate post-crisis. It uses income projections based on 2004 tax returns. Now I'm sure you're aware that in 2008 those projections of growth stopped being valid. And destroyed $14 TRILLION in personal wealth. That's going to alter their numbers, just a bit right?
Matt: What I'm saying is that Capital Gains and Corporate taxes differ because one taxes the individual directly and the other is a tax on the actual profits of a business. You've taken two taxes that are nominally related and acted like they target the exact same thing. Yes, the individual makes his/her investment profits based upon the success of the business, but taxing those investment profits and taxing the profits of the business itself are significantly different. You could argue that taxing investors will make them less willing to invest, but when we're talking about people who earn millions of dollars in their investments every year, I find that scenario unlikely.
Stephen: I actually never did argue that capital gains taxes reduce willingness to invest. However it's undeniable that it's a double tax. Go re-read the second thing I said to you. Profits are taxed at the corporate rate, then again at the capital gains rate. What's hard to get here? At least for investors it's just that. For small business owners who sell for a one time capital gain of $1M it's even worse. Ultimately, despite your best efforts every reason for taxing these people is essentially a rephrasing of "they have it so we can take it and it won't hurt that bad."
Matt: Thank you, Steve, for distilling my argument into an almost bumper sticker-sized soundbyte - "they have it so we can take it and it won't hurt that bad" is exactly what I'm arguing. And when Republicans argue for cuts in government programs that affect the lives of real people, they are employing essentially the same reasoning in the other direction. Ultimately, where do we repair our balance sheet? People who agree with Paul Ryan believe cuts should be made mostly on the backs of low and middle-income Americans. I believe that people with lots of money should pay more back to the country that helped them earn it. For investors with high incomes, I think it's absolutely reasonable to ask that individual to pay more in taxes until you can actually show me that this is a deterrent to further investment.
Stephen: Judging by your changing tone and abandoning the topic did you just try to concede? To recap: the tax study you gave was misguided; it double taxes the same earnings; Obama expects the taxes collected to equal a minuscule 0.5% of the deficit (showing why saying "it will eliminate the deficit" is nonsense. Sounds to me like the Buffett Rule is pure trash. Now do you want to move into the general idea of taxing the rich more?
Matt: I don't think I abandoned the topic... I'm still trying to figure out why you believe the middle class is more equipped to have things taken away from it than wealthy investors. Although the Buffett Rule, to me, is insufficient, I support the law on balance because it at least makes it so that multi-millionaires cannot continue to exploit the Capital Gains loophole in order to pay a lower tax rate than teachers, firefighters, and other members of the middle class.
Stephen: Why does being opposed to new taxes for the rich mean I want to impose higher taxes on the middle class? Unfortunately for you, it's the middle class that usually get burned by these tax increases as they rarely adjust for inflation (like the original alternative minimum tax). Let's also it forget that the small business owner is about to get burned here too (please please ask why!). As for the wealthy, stating capital gains (which undeniably re-taxes the same wealth as corporate taxes) is a loophole is just absurd. Why does it seem to bother you so much that the wealthy are allowed to keep their hard earned money? Why must they be compelled to hand it over to the government? And we already discussed... they don't pay a lower effective rate than all the middle class professions you mention. This concept is ridiculous and if you don't get it yet you are just being stubborn, because I know you are smart enough to understand this.
Matt: Smart enough to understand your reasoning, but not foolish enough to agree with it :) I'm not saying you want higher taxes on the middle class, because you probably don't want higher taxes on anyone. What I am saying though is that the government has to pay for itself somehow. You want to do it by cutting programs that benefit the middle class. I want to do it by rolling back tax breaks that benefit the wealthy. As for the tired argument about taxing the rich hurting small business, according to the IRS the average small business owner earns $100,000 annually, far under the top bracket threshold, so under my or Obama's or any other top Dem's tax plan, many if not most small business owners would not be affected.
Stephen: Haha well played sir. But let's face it, either it's double taxation or it's not. And the facts support the claim it is. As for small businesses, first that's exactly why these rules would screw them. They aren't the 1% because they earn about 100 annually. But what happens when one day they sell that small business (that is worth over $1M) and get slapped with your new tax increase? Well sir, you just f*ed them, you f*ed them good. Also let's not forgot more money in the bank = more loans that the tax payer doesn't have to front to keep liquidity flowing. As for social programs helping the middle class, they are definitely not the biggest recipients of these programs on a per capita basis. No way. I wouldn't be shocked if they benefited least.
Matt: According to an analysis that CBO did last year, the bottom 20 percent of American households (those earning less than $18,500) received just 36 percent of total government benefits in 2007, down from 54 percent in 1979. This should actually come as no surprise, because median wages have stagnated while costs and standards of living have continued to steadily increase. People are literally clinging to the middle class for dear life, and now that ever-increasing household debt is no longer an option (we saw how that turned out), where else do you propose people turn, all while your cherished investor class holds on to its extra millions? I'm not arguing that a reliance on these benefits is a good thing, but it's simply the reality. The question is how we once again ensure that people have jobs that pay well enough so that they don't need help from the government. Not only do you want to cut programs that people have come to rely on, but you also want to curtail the government's ability to make the kinds of public investments in research, infrastructure, education, and other areas that built the middle class in the first place.Stephen: Matt, you realize you are first discussing how much the poor get in federal spending? Here's another fact: the bottom 40% receive $8.21 for every dollar they put in the system. The middle class (60-10%) received just $1.30 for ever $1 while the wealthy get just .41 cents. Until you can articulate an argument that is more than "these people have the money I want therefore we can tax it from them to give to those who don't have it" there's not much to debate here. You want a quasi socialist state that redistributes from the wealthy to the poor. I don't see a single example of one that's ever worked. While I see many capitalist examples that resulted in prosperity (please please refute this with France or Sweden, I have a really good comeback if you do!) Until this happens though, you'll continue to be living in a dream world. Have you noticed yet that while I argue with facts (or tear down your findings as terribly misrepresented) you just argue for redistribution because the wealthy could survive with less? Not because there is any legitimate reason for them to pay even more, just that they have what you want and you plan to take it for yourself without earning it. Damn, I thought you always say they are the greedy ones.
Matt: Am I missing something? Were we a "quasi-socialist state" under Clinton-era taxes (39% top income rate, 20% top capital gains rate)? Because that's what I'm proposing. Yet any talk at all of moderately higher taxes on the wealthy brings cries of socialism and redistribution to the poor. You accuse me of ignoring facts, and then go and make a claim like that when my entire argument has been focused on the middle class. And I'm not even advocating for government handouts. I'm promoting the widely-accepted view that the public sector needs to support the free market in order to allow the greatest number of people to take advantage of its opportunities. Here's a fact for you: at a time of high unemployment, when over half of the country's employers say they want to hire but can't find skilled workers, why are job training programs harder to get into (5 percent acceptance rate because most are underfunded) than an Ivy League school? And why are their budgets being cut further (thank you again, Paul Ryan)? This isn't "redistribution" - it's making investments that give more people the means and readiness to individually benefit from the opportunities in a capitalist economy, so they don't need help from the government.
Matt: As is our wont, we have not only turned the conversation off topic, but the length of our responses is growing faster than federal entitlement spending. I propose closing statements in 50 words or less.
Stephen: Yes, I think we've gotten to the bottom of things. The facts remain- the buffet rule is nonsense(numbers went unrefuted) and the fact that capital gains is a double tax on business profits is also standing. The poor overwhelming benefit from taxes. I'm feeling good about this one.
Matt: Indeed, as am I, which is a good sign for the future of this blog! Buffett Rule is admittedly gimmicky but a start nonetheless. Capital Gains taxes should still be higher. Middle class eating up a growing amount of government benefits - a pleasure, as always, to disagree about what to do.
More email debates next week. Stay thirsty, my friends...
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