Even 5th Graders know--BUFFETT RULE IS BS

The Buffett Rule IS BS

President Obama has been proposing the passage of what he calls The Buffett Rule.

He sites the “fact” that Warren Buffett, one of the richest men in the world, has a lower tax rate than his secretary. What he either doesn’t know or doesn’t want us to know is that Buffett’s rate is the tax on Capital Gains and his Secretary’s rate is an income tax rate. Either way he is floating apples and oranges.

Buffett has earned and has paid income tax on the amount earned. He then can invest some of his income in securities like stock, mutual funds, bonds, etc. If he sells the securities he pays a Capital Gains tax on the profit, if there is any. If he loses money he doesn’t pay tax because there was zero profit. Currently the Capital gains tax is 15%. It was once higher. Obama wants it increased to 30%.

Buffett’s secretary’s income tax rate is probably around 30%.

What is the amount paid by each in DOLLARS? That is the significant question.

Show a fifth grader two stacks of $100 bills that represent Buffett’s payment and his secretary’s payment. Ask which stack is the greatest. The dumbest kid you ask would get the right answer.

Why does the president think adults will believe him?

Oh yeah, if we disagree we are misinformed (STUPID)!

Somebody should ask the President to look at the business page of most any newspaper. There are thousands of businesses listed in the New York, American, and Nasdaq stock exchanges. These are businesses that have sold stock to start, expand, or improve their business. The majority of people who own these stocks are people like you and me. We realized that the money we were putting aside for the future could possibly grow better if we invested in stocks. We are not "the richest" people. We are just thoughtful.

If you are smart enough to invest in a good public company and the company makes a profit the government steps in and collects a tax on that profit. The problem is that the managers of the business don't own the company, the stockholders do. So the company makes a $1,000,000 profit; the government takes $300,000 in taxes. The managers may decide to set aside some of the remaining $700,000 for research and improvements. If there is any money left it is paid to the stockholder as dividends, usually amounting to pennies per share. Then, guess what, the stock holder pays personal income tax on the dividends. When you sell the stock to use it for college tuition etc., the government again steps in and collects a Capital Gains tax on any increase between the purchase and selling price. The fact that inflation has diluted the gain is ignored. The net result is that you are penalized three times for working and wisely investing your money.

I suspect that the Buffett rule would only be applied to people who make over a government decided “fair” amount. Sure would discourage me from investing if I thought the Government was going to take 30% of any gain. That would certainly discourage investing in anything or expanding a business.

It has been pointed out that if the Buffett rule is applied to the top earners it would pay for a few days of government spending.

What’s the point? Why not cut spending?

On a personal note, I sold a Dairy Queen Brazier that I had owned and operated for twenty years. Over the years we had tripled the size of the facility, expanding from a small walk up to a modern restaurant with indoor seating and a full fast food line. My son and I are both handy. To save money we did as much work as we could ourselves. Friends and family helped and we subcontracted the rest.  I sold the store for twice the original investment. My sale price was the best I could do in a depressed market. We knew that because of inflation, personal and friend’s labor, and the investment in training of new employees, we should have sold at three times the original cost. The tax laws took none of this into account and we paid a huge Capital Gains tax.

            I held the mortgage on the store. The Capital Gains tax consumed all of the buyer’s down payment remaining after real estate agent and lawyers fees. To make matters worse, my accountant called me to tell me how much the capital gains tax was going to be the same day the local newspaper announced that the federal government was going to spend a million dollars to repair a government subsidized housing project that had been trashed by its tenants.  Much as I object to unfair taxation, I would have been partially satisfied if I could have directed the money to someone deserving.

            To those of you that nod your head up and down when your President, representatives and the media are justifying tax increases, just remember, eventually it is going to affect you, causing higher prices, layoffs or businesses to close or relocate.. Don't buy into the propaganda that profits are bad and that hard working people, businesses and stockholders must be overtaxed.