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Old 01-20-2012, 05:10 PM   #141
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Compared to his income for Buffet the employer paid portion of payroll tax that dosnt show up on a tax return was essentially 0%. for me it is far from 0% closer to 7% and it dosn't even appear on my tax return.
Apple: Buffett's line 60 divided by Buffett's line 37
Apple: Bob's (or my or Brainy's, et al) line 60 divided by Bob's (or my or Brainy's, et al) line 37

Orange: Bob's line 60 + employer-paid portion of payroll tax divided by Bob's line 37
Orange: Buffett's line 60 + employer-paid portion of payroll tax divided by Buffett's line 37

Buffett's "Apple" is ~11%. We don't know what his "Orange" is.
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Old 01-20-2012, 05:29 PM   #142
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Just posting more articles. Bob Murphy has what appears to me to be a good, nuanced view of the issue.

http://consultingbyrpm.com/blog/2012...ent-taxes.html

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Steve Landsburg thinks he’s got Mate in One in the comments of my previous post, so before he declares victory let me write this follow-up post.
To set the context (again), I am dissatisfied when Steve (talking about Mitt Romney) uses a thought experiment to conclude, “people with investment income bear a higher tax burden, as a percentage of their income, than anyone else.” That statement is simply false, both in theory and (probably) empirically.

First, the theoretical issues: As a fan of the work of Bohm-Bawerk on capital & interest, I recoil in horror when somebody like Scott Sumner declares that “income is a meaningless concept.” It’s true, Steve Landsburg didn’t utter such profanity, but Sumner made that statement during a previous round of arguing over the proper way to calculate tax rates. I’m pretty sure Steve and Scott were tag-teaming each other back in that debate, so if nothing else, Sumner’s absurdity shows the danger of reasoning in terms of consumption and then working backwards. (To see a careful demolition of Sumner’s reasoning–and a defense of the very important concept of “income”–read my article.)

Now then, it is simply not the case that Steve has shown “people with investment income bear a higher tax burden, as a percentage of their income, than anyone else.” What Steve has shown is that people who have a large fraction of labor income, and then save and invest some of it, have a higher lifetime total income tax burden than other people who earn labor income but do not save any of it.

Yet I can just as easily come up with logically possible scenarios where someone facing our current tax code lives exclusively off of capital gains. For example, imagine some guy hundreds of years ago homesteads a big forest full of timber. Every year it goes up in price about 3% (adjusted for price inflation), and he sells 3% of it, in order to rent living quarters and buy food. (He’s not cutting down his own trees, mind you, he just sells off a certain amount of the property each year.) So he consumes the capital gain it yields every year. He passes it to his son, who does the same, and so on until today. Thus nobody in this dynasty ever worked a day in his life, and never earned a penny from selling labor. With the present tax code, comparing this dynasty to a different dynasty where the people all worked in factories, and looking at their consumption streams with and without taxes, we would conclude that the forest family pays 15% in taxes, while the factory family pays 35%.

Now I hope I’ve made my theoretical point: Steve can imagine somebody who earns investment income and pays a higher burden (under our current tax code) than somebody who earns exclusively labor income, and for my part I can imagine somebody where the opposite is true.

Great, we’re tied at this point, and I would argue that I still have a slight edge in clarity, because Steve is still having to invoke someone who gets hit with labor taxes and then wants to invest what’s left over. But let’s move on.

Empirically, which of our stories is more relevant? I don’t know. For sure, it’s ridiculous to talk as if Mitt Romney had nothing at the beginning of calendar 2010, then worked in a coal mine for twelve months, and then in the beginning of 2011 used some of his paycheck and got lucky on penny stocks.

On the contrary, there is a ton of wealth in the United States that throws off investment earnings year after year. A lot of that wealth could be traced back to “ultimate” sources that aren’t labor, for example gold and oil deposits, fish, forests, farmland, etc. I have no idea how much of today’s wealth is “congealed past natural resources” versus “congealed past labor effort,” but I’m pretty sure the answer isn’t “basically 0% / 100%,” which seems to be implicit in Steve’s position.

Now let me throw one other curveball: Even for that portion of current wealth that is due to past labor, we have to ask what the labor tax rate was when that income was earned. For example, the current heirs to the estates of Rockefeller, Carnegie, etc. are enjoying fortunes that were originally created before the federal income tax. So it’s simply not true to casually assert–as Steve does–that he can get his mechanism to kick in, by going back to earlier generations. Empirically that might be true in a lot of cases, but not all, and it’s possible that a huge chunk of today’s wealth was never taxed the way Steve’s thought experiment suggests.

Last point: I’m not doing this merely to be a stickler. I think that to a first approximation, we can understand the history of the U.S. federal tax code by realizing that there were a bunch of powerful people in the early 20th century who wanted their families to stay on top. So they put in place legislation that would kneecap any would-be entrepreneurs who wanted to follow in their footsteps. Since these titans had already made their fortunes, they wouldn’t be hit by the ridiculous marginal income tax rates on labor income that existed at various points since 1913. No, they had all sorts of tax shelters available, including setting up “100 year trusts” or “dynasty trusts” that just coincidentally expired around the time that there was a one-year window of no estate tax. (What a coincidence, those goofballs in DC must have no idea what they’re doing when they write random changes to the tax code.)

I think it’s a mistake to write as if the poor beleaguered guys like Mitt Romney are getting crushed by the federal tax code. No, it’s small business owners who get crushed. They might make hundreds of thousands per year, but when you add up the personal income tax, the employer/employee SS and Medicare contributions (and note that SS caps out, another mechanism to shield the super rich but stick it to the small-time business owner), etc. etc., it is a huge burden. Plus they have to hire accountants etc. to fill out stupid forms that are easier for big businesses to handle.

Yes yes, the average progressive who complains about the “rich getting off scot-free!” from the current tax code is misinformed, and I’m glad people like Scott Sumner and Steve Landsburg are trying to set them straight. But I’m worried that their particular styles of arguing (a) obscure the important distinctions between consumption, wages, and capital gains, and (b) ignore the fact that very rich people write the tax code to solidify their dominance.
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Old 01-20-2012, 06:04 PM   #143
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The only tax cut I ever noticed making a difference in my 31 years in the work force was a 2% payroll tax cut and that did not come from any Republican. Biggest tax increases for me were in the Reagan years before I could even vote. Between Reagan and Bush 1 payroll tax went from 12.26 to the current 15.3%. Plus the tax brackets I was in kept getting higher rates and less deductions. For some reason I still considered myself Republican up through Bush 1.

Bob
Did you make the same amount of gross income in 1994 under Clinton as you did in 2004 under GWB and the same amount in 2010 under Obama? If not, your comparison seems a little thin.

In 1994, taxable income of ~$100k would have been in the 36% marginal tax bracket. In 2011, it would have been in the 25% marginal tax bracket. Damn those tax loopholes for millionaires and billionaires!

In 1994, a retired married couple living on a modest pension and Social Security, plus a few dividends from McDonald's and AT&T (or MaBell) stock with taxable income of about $30k would have owed about $4,500 in Federal income taxes. In 2011, they would have owed $3650 - maybe less depending on how much of their income came from their qualified dividends.
Damn those tax loopholes for millionaires and billionaires!
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Old 01-20-2012, 07:39 PM   #144
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I sold my house, and don't get the same tax deductions this year. Damn those loopholes.
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Old 01-20-2012, 10:25 PM   #145
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Originally Posted by Scrappy Jack View Post
Apple: Buffett's line 60 divided by Buffett's line 37
Apple: Bob's (or my or Brainy's, et al) line 60 divided by Bob's (or my or Brainy's, et al) line 37

Orange: Bob's line 60 + employer-paid portion of payroll tax divided by Bob's line 37
Orange: Buffett's line 60 + employer-paid portion of payroll tax divided by Buffett's line 37

Buffett's "Apple" is ~11%. We don't know what his "Orange" is.
Your calculating it wrong line 60 is total “ income tax" nowhere on your tax return form 1040 is there a line item for the social security and Medicare tax that was withheld that shows up on your W2

To get the real number for tax paid take line 60 and add 2X box 4 and 2x box 6 from your W2’s. Your W2 only shows half the amount of your compensation that your employer sent to the federal government before you got a chance to see it. Most numbers people show doesn’t include the real amount only half. I think some of the numbers thrown around here were asuming half.

Also social security and Medicare comes out before your tax deferred contribution to 401k plans. There are no loopholes. Its 15.3% period taken from income from work before income tax is even considerd.

For me 2010 =25.5%
2008 was 29.3%

For Buffet the social security and Medicare numbers are inconsequential he probably gets the same % number whether they are included or not. He is also currently drawing income from social security and likely to ultimately draw out more than he paid in unlike people who can’t seem to make enough to retire and die trying ending up helping to keep the system solvent.

Bob

Last edited by bbundy; 01-20-2012 at 11:03 PM.
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Old 01-23-2012, 07:13 PM   #146
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Your calculating it wrong line 60 is total “ income tax" nowhere on your tax return form 1040 is there a line item for the social security and Medicare tax that was withheld that shows up on your W2
You are killin' me here, man. First, I understand and appreciate as valid your point on your total Federal taxes paid. However, you are still making an apples to oranges comparison.

Second, it is probably ridiculous to be comparing Buffett's taxes to anyone else's since he is such an anomaly, even among the ultra-super-duper-mega rich.

Third, "[...]the billionaire had adjusted gross income in 2010 of $62,855,038, taxable income of $39,814,784, and a federal income tax bill of $6,923,494. That makes his effective tax rate, as a percentage of AGI, just 11.06%[...]"

The article being used as a reference has clearly defined how they are measuring effective (Federal Income) tax rate as a percentage of AGI.

Since you didn't agree to the bet, you are not on hold for the 1 million. It's cool.
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Old 01-24-2012, 11:30 AM   #147
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This thread is now about the candidates' effective Federal income tax rate as a percentage of AGI (since Santorum won Iowa).

The Romneys donated $7 million over the past two tax years (2011 and 2010). He paid about $6.2 million in Federal income taxes over the same time period. AGI over those two years was about $42.5 million.

For 2010, they had about $3.3 million in qualified dividends but almost no tax-exempt income (i.e. muni bond interest).

Total Federal income taxes owed (line 60) = $3,009,766
Total charitable contributions (line 19 on Schedule A) = $2,983,974
Total AGI (line 37) = $21,646,507
Effective Federal income tax rate as a percentage of AGI = 13.9%
Effective charitable contributions as a percentage of AGI = 13.8%

Link to the Romneys' 1040
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Old 01-24-2012, 11:36 AM   #148
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Romney paid about 1240% more in taxes than i did.
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Old 01-24-2012, 11:39 AM   #149
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For 2010, the Gingriches had...

Total Federal income taxes owed (line 60) = $994,708
Total charitable contributions (line 19 on Schedule A) = $81,133
Total AGI (line 37) = $3,142,066
Effective Federal income tax rate as a percentage of AGI = 31.7%
Effective charitable contributions as a percentage of AGI = 2.6%

Link to the Gingriches' 1040

(I note that he took some LTCG on securities but donated all cash. )
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Old 01-24-2012, 12:12 PM   #150
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For 2010, the Obamas had...

Total Federal income taxes owed (line 60) = $453,770
Total charitable contributions (line 19 on Schedule A) = $245,075
Total AGI (line 37) = $1,728,096
Effective Federal income tax rate as a percentage of AGI = 26.2%
Effective charitable contributions as a percentage of AGI = 14.2%

Link to the Obamas' 1040

I can't find Ron Paul's income tax returns. Anyone got a link?
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Old 01-24-2012, 12:14 PM   #151
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But why are we supossed to care?
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Old 01-24-2012, 12:21 PM   #152
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I can't find Ron Paul's income tax returns. Anyone got a link?
He has stated he won't release his tax returns.

Only info available is general estimates on net worth, etc.

http://www.opensecrets.org/pfds/CIDs...5906&year=2010
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Old 01-24-2012, 12:24 PM   #153
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But why are we supossed to care?
I don't know. Unless it were revealed that a candidate were actually cheating on his taxes (that is, breaking the law, not taking advantage of legal incentives or "loopholes"), I really don't know.

Buffett threw himself back into the news by offering commentary on Romney's tax return. I'm amazed that he repeats the same flawed argument over and over -- I know he's not that dumb to ignore the corporate tax rate with respect to capital gains, which leaves only the conclusion that he'll sacrifice truth for the sake of political hackery.
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Old 01-24-2012, 12:30 PM   #154
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lol CNN is playing in my break room. Apparently Ronmeny has made over 42,000.00[sic] in the last two years!

If I was Romney, I wouldn't have release my records...There's nothing to gain, only unless he held out until Obama release his college records and finicial aid documents.
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Old 01-24-2012, 01:23 PM   #155
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Also, why are we discussing Warren Buffet at all?

But since we are let's talk about how Obama's fiat decision, effectively destroying at least 20,000 jobs from Americans, helps his buddy Buffet profit through his Burlington Northern Santa Fe Railroad...Not to even mention how much Canada benefits from it.

Another example of Buffet profiting from America's failures. Such a patriot.
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Old 01-24-2012, 01:26 PM   #156
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Old 01-24-2012, 01:58 PM   #157
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Also, why are we discussing Warren Buffet at all?
My point was mostly to try and clarify the confusion around the terminology of taxes. I deal with tax returns on a daily basis (not a tax preparation professional) and it can still be a challenge to parse through.

Comparing the different candidates' returns is interesting to me from an investment perspective. I can tell you that Romney is probably getting his money's worth from his people and that Gingrich might not be.

Quote:
But since we are let's talk about how Obama's fiat decision, effectively destroying at least 20,000 jobs from Americans, helps his buddy Buffet profit through his Burlington Northern Santa Fe Railroad...Not to even mention how much Canada benefits from it.
That guy is a mad genius. He has so many people snookered with his "kind grandpa" routine, meanwhile...
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Old 01-24-2012, 02:47 PM   #158
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To boil it down to a small example of one of the few Bain businesses that was successful in not going bankrupt and defrauding creditors.

Are we better off that giant private equity can bring us cheap Domino’s Pizza by taking over a company and making it giant and because its giant the owners can pay next to no tax on income because it is considered an investment as they drive down wages and benefits for workers outsource their suppliers to the lowest cost foreign markets. Give these guys more tax break.

While we are at it lets tax the ***** out of Ma and Pa who started their own local community business likely took out a loan to do so and have to pay their full Social Security and Medicare tax Plus full rate of Income tax and on top of that and try to hire employees while trying to use fresh locally grown ingredients to make a quality product their community neighbors are willing to pay for.

Every one of the republican candidates economic recovery plan involves making Mitt’s taxes closer to Zero while not really changing 99% of anybody else’s taxes especially the ones who do the kind of work that makes Mitt and Buffett rich without them having to work. At least Buffet e acknowledges the system has been rigged to steer the country down a corporate fascist path. He plays the game well. The republicans still don’t think it is rigged enough.

Bob
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Old 01-24-2012, 02:59 PM   #159
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Quote:
Originally Posted by Scrappy Jack View Post
This thread is now about the candidates' effective Federal income tax rate as a percentage of AGI (since Santorum won Iowa).

The Romneys donated $7 million over the past two tax years (2011 and 2010). He paid about $6.2 million in Federal income taxes over the same time period. AGI over those two years was about $42.5 million.

For 2010, they had about $3.3 million in qualified dividends but almost no tax-exempt income (i.e. muni bond interest).

Total Federal income taxes owed (line 60) = $3,009,766
Total charitable contributions (line 19 on Schedule A) = $2,983,974
Total AGI (line 37) = $21,646,507
Effective Federal income tax rate as a percentage of AGI = 13.9%
Effective charitable contributions as a percentage of AGI = 13.8%

Link to the Romneys' 1040

Why not:

Total tax (line 60)
+
foreign taxes (line 47)
+
state taxes and real-estate taxes
+
other taxes (Schedule A, line 9)
+
charitable contributions (Schedule A, line 19)

divided by

Adjusted Gross Income (1040 line 37)

???
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Old 01-24-2012, 03:35 PM   #160
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Originally Posted by Scrappy Jack View Post
You are killin' me here, man. First, I understand and appreciate as valid your point on your total Federal taxes paid. However, you are still making an apples to oranges comparison.

Second, it is probably ridiculous to be comparing Buffett's taxes to anyone else's since he is such an anomaly, even among the ultra-super-duper-mega rich.

Third, "[...]the billionaire had adjusted gross income in 2010 of $62,855,038, taxable income of $39,814,784, and a federal income tax bill of $6,923,494. That makes his effective tax rate, as a percentage of AGI, just 11.06%[...]"

The article being used as a reference has clearly defined how they are measuring effective (Federal Income) tax rate as a percentage of AGI.

Since you didn't agree to the bet, you are not on hold for the 1 million. It's cool.
If you assume enough of his income was from work that he paid the maximum payroll tax, note there is not social security or Medicare taken out for capital gains only for salary wages and tips. There could be another 16 to 20K not showing up on the tax return in revenue he actually sent to the federal government. That would increase his percentage by approximately .0003 % his apples and oranges have ~the same number.

For people making individually less than ~100k by working for it the percentage of income sent to the federal government that doesn’t show up on the federal tax return is closer to 15% and there is no deductions on that even if you gave 100% to charity. Seems like the only way to dig into that is have a lot of tax credits for kids and stuff. I’ve never seen a tax return that has negative income tax. I’d like to see one I’m not sure how it’s done.
how many tax credits are there I think Bush gave me $500 that is the only one I can remember qualifying for and taking.

Bob
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