Friday, January 27, 2012

Al Sharpton is an Idiot

America's Panacea for racial Freudian slips, Al Sharpton, had a "heated clash" with a Republican congressman whose identity isn't important since, if he actually agreed with Sharpton, he wouldn't have been on his program in the first place. 

What caused Sharpton to contort his face in such unnatural manner was the following exchange: 
Sharpton: "Is it fair that billionaires pay a lower tax rate than their own secretaries?" To which the Republican replied, "Well they actually don't, according to the IRS." 

Now, if two reasonable people were having this discussion, the conversation might proceed like this, Sharpton:
"Will you please show me the IRS data about which you speak? So I may correct myself"; Republican: "Sure Al; and would you like some motherfucking ice tea?" 

Reality turn out differently, "
Sharpton started to raise his voice and asked the question again. 'Is it fair? Is it fair?' Huelskamp continued to deny the accuracy of Sharpton's question. 'It's not true, Al.' Sharpton then said 'on the basis of the report—if the report is inaccurate, fine, you stipulate that—I'm asking you, is it fair? Is the arrangement fair, in your opinion?'" 

There is only one answer that Sharpton is willing to hear: NO! He's not interested in facts; notice how he continues to seek an answer even after granting that the statement "billionaires pay less than their secretaries" might be false. 

1. Warren Buffett's "secretary" is an idiot.
 Some time ago, Mr. Buffett claimed that his secretary made $60,000 and paid a 30% tax rate. Here's the problem with that: our income tax system is progressive, meaning that we pay higher tax rates as our income gets higher. As the table below shows, there are six tax brackets.

Let's say our income (husband and wife jointly filing) is $112,000. This would put us in the 25% bracket. If the U.S. had a flat rate tax system (and no deduction), we would pay 25 percent of $112,000 in income tax, or $28,000 
(a common misunderstanding of how the tax system functions). Under our tax system we pay 10 percent on the first $17,000, or $1,700. We then pay 15 percent on the next band of income up to $69,000, or $7,800. We then pay 25 percent on the marginal amount over $69,000, for another $10,750 in taxes. When we total the taxes paid on these three bands of income it comes to $20,250, for an average (or effective) tax rate of 18.8 percent. The national average is 11% 
(Note that effective tax rate is what was actually paid. It will always be lower than the marginal tax rate).

According to the bracket for single filers 
(let's assume Mr. Buffett's "secretary" is single), she would have paid $830 on the first $8,300 of her income (10%) and then she would have paid $3,255 for the remaining $21,700 of her income ($30,000 - $8,300). A total of $4,085 would have been paid for an effective tax rate of 13.6% (This does not include deductions and credits, which would have likely lowered her rate to 7%). Clearly Mr. Buffett needs to educate his "secretary" on how to file tax returns; after which, he should fire her.  

2. Who decides what is fair?

How Much Should the Top 1% Pay Before It's Considered Fair?

The top 1% of income earners (those with incomes of
 $343,927 in 2009) paid a larger percentage of the income tax (36.73%) than the bottom 90% combined (29.5%). Also in 2009, the top 1% earned 16.9% of the adjusted gross income (that's down from 20% before the recession). 

On the other side of the coin are the non-payers. 
A non-payer tax return is one filed by an individual or couple who, thanks to legal credits and deductions, owes nothing. In 2009, a record number of individuals (58 million) paid no income tax. That is, 42% of tax filers were non-payers. Only 0.3% (2009 data, table 1.1) of those non-payers earn more than $100,000. 

I'll repeat that since it's mildly important: 42% of the bottom 85% of income earners (i.e., <$100,000) paid no income tax.

Moreover, many of these non-payers also receive "refundable" tax credits even though they have no income tax liability. For millions of these non-payers, these refundable credits exceed their total payroll tax (i.e., social security, medicare, unemployment) contributions. In
 2008, more than a third of all tax returns resulted in complete nonpayment; that is, people got back every dollar that was withheld from their paychecks during the year. 

3. Raising Taxes on Wealthy Won't Fix Anything

Earlier, congress wanted to impose a 5.6% surtax on those with incomes above $1,000,000. According to the CBO, that tax would raise $450 billion over the next 10 years. That's 45 billion a year. Last year's deficit (fiscal year 2011) was 1.3 trillion, the second largest deficit of any nation in the history of the world. After you subtract 450 billion from 1.3 trillion you get 850 billion. If you cut out all non-defense discretionary spending you save $530 billion, leaving our deficit at $320 billion. Only after halving securing spending, will last year's deficit go away.

4. Stop Blaming the Bush Tax Cuts

The CBO broke "down the major components of the $11.8 trillion swing from surpluses to deficits over the ten year period 2002 to 2011."  Higher spending turns out to be the largest factor erasing those surplus projections.

As the chart above shows, the Bush Tax cuts have been declining in significance as a contributing factor to the annual deficits while increased spending and recent tax cuts (e.g., payroll tax cut) are larger contributing factors to annual deficits.

5. The Elephant in the Room
Mandatory spending is consumes 60% of the annual budget. That Social Security (761 billion), Medicare (468 billion), and Medicaid (269 billion). And last*, but certainly not least is Defense spending ($660 billion), which is not actually mandatory spending, although it should be since no one wants to touch it. 

Until people start focusing on reforming these programs and these programs alone, all other talk is a waist of time.   

The information is out there, all you have to do is let it in...

*All other mandatory spending programs combined (e.g., food stamps, unemployment) total over 600 billion.