Son of Tax Cuts

Since the 2001 tax cuts did such a great job of reviving the economy, the GOP decided to make a sequel. In this one, like the first, they give most of the money to to people making more than $374,000/yr. (the top 1%) but this one (which includes the elimination of dividend taxes) is being hailed as the “third-largest tax cut in the history of the country”. If it’s that big, then it’ll really help the economy, right? Not if you believe Warren Buffet (who’s worth $36 billion and known as “the world’s savviest investor”) :

What it has put in motion, though, is clear: If enacted, these changes would further tilt the tax scales toward the rich. Let me, as a member of that non-endangered species, give you an example of how the scales are currently balanced. The taxes I pay to the federal government, including the payroll tax that is paid for me by my employer, Berkshire Hathaway, are roughly the same proportion of my income — about 30 percent — as that paid by the receptionist in our office. My case is not atypical — my earnings, like those of many rich people, are a mix of capital gains and ordinary income — nor is it affected by tax shelters (I’ve never used any). As it works out, I pay a somewhat higher rate for my combination of salary, investment and capital gain income than our receptionist does. But she pays a far higher portion of her income in payroll taxes than I do.
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Now the senate says that dividends should be tax-free to recipients. Suppose this measure goes through and the directors of Berkshire Hathaway (which does not now pay a dividend) therefore decide to pay $1 billion in dividends next year. Owning 31 percent of Berkshire, I would receive $310 million in additional income, owe not another dime in federal tax, and see my tax rate plunge to 3 percent.

And our receptionist? She’d still be paying about 30 percent, which means she would be contributing about 10 times the proportion of her income that I would to such government pursuits as fighting terrorism, waging wars and supporting the elderly. Let me repeat the point: Her overall federal tax rate would be 10 times what my rate would be.
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Administration officials say that the $310 million suddenly added to my wallet would stimulate the economy because I would invest it and thereby create jobs. But they conveniently forget that if Berkshire kept the money, it would invest that same amount, creating jobs as well.
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Proponents of cutting tax rates on dividends argue that the move will stimulate the economy. A large amount of stimulus, of course, should already be on the way from the huge and growing deficit the government is now running. I have no strong views on whether more action on this front is warranted. But if it is, don’t cut the taxes of people with huge portfolios of stocks held directly. (Small investors owning stock held through 401(k)s are already tax-favored.) Instead, give reductions to those who both need and will spend the money gained. Enact a Social Security tax “holiday” or give a flat-sum rebate to people with low incomes. Putting $1,000 in the pockets of 310,000 families with urgent needs is going to provide far more stimulus to the economy than putting the same $310 million in my pockets.

When you listen to tax-cut rhetoric, remember that giving one class of taxpayer a “break” requires — now or down the line — that an equivalent burden be imposed on other parties. In other words, if I get a break, someone else pays. Government can’t deliver a free lunch to the country as a whole. It can, however, determine who pays for lunch. And last week the senate handed the bill to the wrong party.

Supporters of making dividends tax-free like to paint critics as promoters of class warfare. The fact is, however, that their proposal promotes class welfare. For my class.

If conservatives are so sure their tax cuts will create jobs, why not add some conditions to the cuts? Instead of cutting taxes, how about giving major tax credits to businesses who want to reinvest in their companies and create jobs? Isn’t that what the tax cuts are supposed to be doing anyways?

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