As the clock ticks toward a tax increase scheduled to take
effect at year end, expect to hear a lot from the “tax me more”
crowd.
These are wealthy individuals who profess to favor increases in
their own tax bills. A series of recent articles help define the
genre, which was pioneered by Warren Buffett last year in his
New York Times op-ed ;piece ;that
ran under the headline “Stop Coddling The Super-Rich.”
The first ;article,
published at Bloomberg View on November 22, comes from two
money managers, Whitney Tilson and
Anthony Scaramucci. ;
The second article,
published by The New York Times on Novermber 25, is by
Steven Rattner, who
reportedly works managing about $5 billion of Mayor Bloomberg’s
money notwithstanding an order by the Securities and Exchange
Commission in November of 2010 that barred him for two years from
associating with any investment adviser of broker-dealer.
There’s a certain amount of overlap between these articles,
almost enough to suggest a coordinated campaign. Tilson and
Scaramucci write, “we believe the tax rate for capital gains and
dividends, currently 15 percent, should be raised to 20-25 percent.
Finally, while some of our friends might not speak to us again for
writing this, carried interest, which is the primary source of
income for private fund managers such as Governor Romney and
ourselves, should be taxed as the regular income that it is. This
is one of the most egregious loopholes in the entire tax code.”
Rattner calls the current tax rate for capital gains and
dividends “absurdly low” and declares, “Personally, I would go
further and raise the capital gains rate to 28 percent.” Like
Tilson and Scaramucci, Rattner also calls for inceasing what
Rattner calls “the indefensibly low 15 percent tax rate on the
famous ‘carried interest,’ the fee received by private equity and
certain hedge fund investors.”
Rattner ridicules the possibility that such tax increases would
drive Americans offshore, damage small businesses, or adversely
affect the incentive to invest. But consider that such tax
increases would come, as Rattner concedes, in conjunction with a
new 3.8 percent Medicare tax. And consider, too, that many states
also tax capital gains, at rates that in 2013 will top out at 13.3
percent in California and at 12.696 percent in New York City.
Under the Rattner plan, the top federal tax rates on long-term
capital gains would more than double, to 31.8 percent (28 percent +
3.8 percent). New York or California taxes could bring the total up
to the neighborhood of 45 percent. In Hong Kong, Singapore, and
Switzerland, by contrast, which compete against America in the
global economy, the capital gains tax is zero.
Mr. Buffett himself weighed in again on November 26 with another
New York Times ;piece ;that
also targeted “carried interest” (which is how his competitors get
paid) and dismissed concerns that tax increases would deter
investment.
Alas, the “tax me more” crowd wins this debate even if taxes
don’t go up. That’s because every minute spent debating higher
taxes on capital gains and carried interest (which is just a
variety of capital gains) is a minute not spent talking about how
the deficit problem is really a spending problem, the result not of
revenue shortfalls but rather the fact that an extra trillion
dollars or so of annual spending—TARP, the stimulus, the Iraq and
Afghanistan wars—has now become part of the budget baseline. It
becomes an argument about “Why don’t the rich pay more?” instead of
a discussion about “Why don’t the politicians spend less?” or “How
can we increase economic growth?”
How then, to respond? One way for advocates of lower taxation to
reply to the “tax me more” argument is with a variation on what
House Republicans call the “Put Your
Money Where Your Mouth Is Act of 2011.” Leave the tax rates and
rules where they are, but add a line to the tax return for a
VAT—not a value added tax, but a voluntary additional tax.
Call it the Rattner-Tilson-Scaramucci Tax, or the Buffett Tax.
The instruction lines could read something like, “If you think
carried interest is an egregious and indefensible loophole, please
enter the additional tax you would owe on your own carried interest
if it were taxed as ordinary income here. And if you think the
capital gains rate should more than double, please enter the
additional tax you would owe here, too. Remember, this means you
think the politicians and their lobbyist friends can spend this
money better than you can invest it, spend it, or give it away
yourself, or that you think for some reason that the politicians
are not going to spend this money but are really going to use it
for debt reduction.”
The state of Massachusetts tried a similar approach in 2001 when
it lowered its state income tax rate. It added a line to the state
tax return that allowed taxpayers to voluntarily pay the old higher
rate. The Wall Street Journal’s Stephen
Moore ;reports ;that
each year about 1,000 Bay State taxpayers choose the higher rate;
Senator-elect ;Elizabeth
Warren ;was not among them. If a voluntary additional tax
at the federal level, like the Massachusetts one, doesn’t raise
much at all in the way of revenues, at least it would have the
advantage of clarifying that the “tax me more” clamor isn’t really
so much about voluntarism as about trying to force others to
pay.
… Read More
