In 2008, Hilary Clinton spoke of the 3:00am phone call, last night Warren Buffett asked Jon Stewart about the 1:00am phone call. Buffett asked Stewart if Buffett called Stewart at 1:00am with a spectacular money making idea would Stewart ask him what tax rate he'd have to pay on profits.
Stewart responded by saying, "why are you calling ME at 1:00am?," but the point was well taken. When it comes to making money, isn't that the point? Making money, not marginal tax rates.
The true significance of Mitt Romney's unsuccessful Presidential campaign may be in highlighting to Americans the ridiculously low federal tax rate he and many other multi-millionaires pay. Romney's effective federal income tax rate was under 15 percent for the two years he released, and the reason 2011's rate was lower was that he didn't use all of his charitable deductions.
The reason Romney and other multi-millionaires pay such a low rate is that most of their income is generated by capital gains. Capital gains or income on investments is taxed at only 15 percent, whereas regular earned income is taxed at 35 percent for the highest income brackets.
Individuals also pay Social Security and Medicare taxes as high as the 15 percent self-employment tax on all income below about $108,000. These taxes max out at that level. That means that whereas an individual who earns $108,000 pays $16,200 or 15 percent in additional taxes, someone making $1 million a year also pays $16,200, but only an additional 1.62 percent.
The GOP has argued that the "job creators" (the term the GOP uses to describe the richest Americans) have to have low rates or they won't invest. Buffett and a growing number of the "job creators" disagree as illustrated in Buffett's 1:00am phone call.
Buffet suggested a capital gains rate of 30 percent on all investment income over $1 million and 35 percent on all investment income over $10 million. OVC whole-heartedly agrees. The notion that a 15 percent capital gains tax rate is fair is totally misguided, and anyone who really believes that deficit reduction is important should agree.
We live in a nation where income tax rates are progressive, in that the more money one makes, the higher rate of taxes one should pay. The two major reasons for a progressive tax rates is one of fundamental fairness that wealthier people have more money to contribute to the general welfare and one that wealthier people get more benefits from the federal government.
This second reason is sometimes very misunderstood. GOPers tend to think that only the poor benefit from the federal government, but such is not the case. Wealthy people may not get direct benefits as does someone collecting food stamps, for example. However, wealthy individuals receive indirect benefits like roads, bridges, student loans and grants for employees, air traffic controllers, national defense, and other big budget items.
The time has come to make capital gains tax rates progressive. Let's start at 10 percent and make some marginal rates up to 35 percent like Buffett suggested.
*Buzz did not participate in the writing of this post. He has been on assignment in Colorado and Washington, since November 7th. He did check in yesterday, but said it felt like he was only gone a few hours.*
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