Leftist Talking Points of 2011

By Matt Palumbo

Talking points of the left conjured up this year have been about as numerous as they have been wrong.  Many of these talking points previously existed, but never before have they been used with such frequency, and never before have they received so much media attention.

First off, who better to call for higher taxes than a billionaire himself?  Warren Buffett's claim that he was paying a lower tax rate than his secretary helped the left build a case for higher taxes.  After all, even if the average person previously did not want taxes on anyone raised, Americans certainly do not want to be paying a higher rate than a billionaire is.  Then came the analysis.  As the center-left Brookings Institute showed, of the 237,000 millionaires filing taxes in 2009, only around 1,000 paid a smaller percentage in taxes than their secretaries (or a person earning the same salary as the average secretary).  As it would later turn out, these people are the only ones on Buffett's radar.  In a CNBC appearance, Buffett clarified his position, saying:

[M]y program would be on the very high incomes that are taxed very low - not just high incomes, not just some guy making $50 million playing baseball, his taxes won't change.  Make $50 million appearing on TV, his income won't change.  But if they make a lot of money and they pay a very low tax rate, like me, it would be changed by a minimum tax that would only bring them up to what the other people pay.

Buffett then estimated that his plan would apply to only around 50,000 people, but as the Brookings Institute estimate showed, Buffett is far-off in his estimation.   

Whether or not Buffett is even part of those thousand people is an issue that should be raised.  As the largest shareholder in Berkshire Hathaway, the 35% of BH customers' money paid in corporate taxes means 35% less income for Buffett.  It is after that money gets taxed that Buffett pays an additional 15% dividends tax, the tax he complains is too low because it amounts to a smaller percent than the one his secretary pays.  If Berkshire Hathaway were to generate one million dollars in revenues to pay out to Buffett, the million would be reduced to $650,000 after corporate taxes are paid, and then further reduced to $552,500 after the dividends tax is paid.  Technically speaking, the two taxes combined result in about 45% of Buffett's potential income going away to the government.  There is one flaw in this analysis, however: Berkshire Hathaway owes over one billion dollars in unpaid taxes dating all the way back to 2002.  So this analysis works under the assumption that Buffett pays taxes in the first place.

The pay gap between CEOs and the average worker has also become a talking point.  This gap is around 185 to 1, but it has been as high at 298:1 in the '90s and 277:1 in the mid-2000s.  The leftist blog Daily Kos tried to claim that the gap was as high as 475:1, but that is just laughable.

There are two other pay gaps that no one directs attention to.  These involve celebrities, and our friend Warren Buffett.  As the University of Michigan economist Mark Perry has noted, the top 100 celebrities earn on average three times as much as did the CEOs of 386 companies in S&P 500.  Oprah earns three and a half times more than the highest-paid CEO does, but we have yet to see anyone accuse Oprah of being a testament to greed.  Celebrities work fewer hours than CEOs, so comparing their hourly pay would result in an even bigger gap.

Since Buffett has been misused by the left as a champion for higher taxes, I thought it would be interesting to find the pay gap between Warren Buffett and his secretary.  As I blogged earlier, their income difference amounts to a pay gap of 1,048 to 1, far larger than the average CEO-to-worker pay gap -- and the recipient of zero media attention.

Since the rise of the Tea Party brought the issue of excessive taxation to the table, what better way to argue for higher taxes than claim that taxes are already at all-time lows?  If we focus our attention on the top marginal tax rate since the '50s, this argument does seem valid.  No one would question that the top rate was over 90% in the '50s but is below 40% today.  It must be noted, however, that those making $250,000 a year today would be making around $26,600 in 1950 dollars, which would not put them in the top tax bracket at that time.

What is crucial here is not what the tax rate itself is, but what percentage of income that person or household is paying after deductions are accounted for.  After accounting for various factors; such as the fact that most households today have two working spouses (quite different from the '50s), that the social security tax burden has increased heavily over the years, and that there have been changes in deductions, the picture changes.  Peter Schiff calculated that a house making $250,000 pays 40% of its income in federal income taxes, while that household's counterpart in the '50s paid only 22%.  Even the lower brackets are paying more.  The lowest tax rate for married couples in 1950 amounted to $38,321 today, while now, the lowest bracket is $17,000 -- a $21,321 increase in income subject to taxation.  Both the effective tax rate at median income and taxes as a percentage of personal income are higher today than they were in the '50s.

The rich have always been scapegoats, but with the onset of Occupy Wall Street (OWS), the focus has been specifically on the 1%.  Although it is true that income inequality in America is high relative to other nations, the OWS protesters picked the wrong time to complain.  Since 2007, there has been a 39% decline in the number of American millionaires, and the top 1%'s share of all income has declined four percentage points since 2008.  The portrayal of the top 1% being composed of corporate bankers by the OWS crowd is contradicted by the actual statistic, where only 14% of the top 1% is involved in banking or finance of some kind.  To break down the 1% by profession, around 1/3 are entrepreneurs or managers of a nonfinancial business, 16% are doctors, 8% are lawyers, and 6.6% are engineers, scientists, or computer professionals.

One key aspect of the top 1% is that they tend to be older, and thus in their peak earning years.  It needs to be kept in mind that the 1% is just a statistical category, and looks quite different when the individuals within it are examined.  Far from being their own distinct classes, income categories are things that people move into and out of all the time.  If a snapshot was taken of individuals in the top 1% in 1996, we would see people whose income declined 26% by 2005.  This happens despite the 1% category having an increase in its share of national income during that very same time period.  Individuals and categories are not the same. 

It is good news that many of these talking points were recycled and revamped from previous ones, thus requiring much less effort to refute.  As it seems, jobs are not the only thing the left is trying to "save or create."