Dissent From The Majority: Obama’s Tax Proposal A Good Idea

I’m going to dissent from the majority and from our Frontpage article on Obama’s State of the Union address. I think most taxation these days is theft, in that it goes for services we don’t need and I don’t want, like paying government union workers exorbitant pensions, and funding school systems that don’t teach, and providing people who don’t want to work incentives to have children out of wedlock and to create large families condemned to live in poverty, which produce an outsize share of criminals who prey mainly on the working poor. I am against the progressive income tax, because it is basically unfair and provides an incentive to the 50% who don’t pay taxes to support government waste and encourage destructive government policies, like the current system of welfare programs.

However, Obama’s proposal to plug what is essentially a loophole — low tax rates for carried interest income — in the present tax set up is a good idea. Mitt Romney earns $21 million a year but pays at a 15% rate because of this loophole. This is not income he earns as an active investor. He’s a politician and has been for a long time. There are so many people who are multimillionaires and billionaires that taxing them an additional 15% would amount to a significant boost in revenues at time when the country needs them and would hardly be as punitive as a 35% tax rate on someone making $100,000 — which is what unionized dispatchers make as longshoremen.


  • kongMing

    It's only a good idea if one believes big government activists genuinely want to lower federal debt.

    Instead Obama and congressional democrats have shown every intention to use new taxes as a justification for further spending in their wasteful votes for handouts schemes. "Revenues" is a euphemism.

    • http://llmouser.blogspot.com/ Linda Liben

      "Obama and congressional democrats have shown every intention to use new taxes as a justification for further spending in their wasteful votes for handouts schemes."

      I have to agree. Obama already has the money cut from military spending,spent for nation building. What does that mean – more union, government beuracracy and green jobs?

  • mrbean

    There is a distinct pattern throughout American history: When tax rates are reduced, the economy's growth rate improves and living standards increase. Good tax policy has a number of interesting side effects. For instance, history tells us that tax revenues grow and "rich" taxpayers pay more tax when marginal tax rates are slashed. This means lower income citizens bear a lower share of the tax burden – a consequence that should lead class-warfare politicians to support lower tax rates. Conversely, periods of higher tax rates are associated with sub par economic performance and stagnant tax revenues. In other words, when politicians attempt to "soak the rich," the rest of us take a bath.

  • Reason_For_Life

    Raising the tax rate on capital gains would be suicidal. The previous higher rate raised less revenue than the present rate which would exacerbate the debt problem not alleviate it. More significantly, the rise in rates would depress the value of stocks by cutting the effective yield thereby lowering the value of 401k investments and wrecking the retirement plans of seniors making them more resistant to reforming Social Security.

    The only proper course of action is to cut spending. Anything else merely redistributes the pain or worse, as the proposal to raise capital gains taxes would increase the pain.

  • Stephen_Brady

    I rarely disagree with you, David. But this is one of those times.

    Close this "loophole", and yes … it will raise new revenue. And when Congress sees new revenue, they inevitably find something to do with it, rather than lower spending and balance the budget (and there isn't a budget, anyway).

    In the meantime, people of means will move more of their money out of America. It's inevitable. It's human nature. Closing the loophole will result in less revenue, and not more.

  • Randy

    1. Raising the capital gains rate shifts capital from investments in productive business into government bond and notes where it is not taxed.

    2. Also don't forget, the really rich don't need investment income — remember, they're rich. Raise taxes too much and they will be asking themselves, why risk it, markets can turn on a dime and wipe out years of gains in no time at all, but if I am lucky the government is going to confiscate too much of the gain to make investing an unattractive risk/reward ratio.

    3. Higher capital gains taxes inhibits the free flow of capital to where it can be put to a better, more productive use. Everyone in society benefits from productive capital investments that they themselves don't own. Don't believe it? Tell me how you would feed and cloth yourself if there were no investments in your town in stores, inventories or distributions systems.

  • David Horowitz

    This is not a capital gains tax. It’s a 30% minimum on millionaires which is less than what people who make $100,000 pay

    • kongMing

      Low hanging fruit exists with means testing for entitlements and run no risk of further alienating the conservative base. The President and Congressional Democrats already set themselves up with their eat the rich campaign. If we want to end loopholes we should stop sending Warren Buffet a social security check before further hamstringing Americans further.

    • ebonystone

      Glad you pointed that out, David. If you hadn't, I was going to.
      I think I could go along with your proposal as long as the higher rate didn't kick in until after a certain (fairly large) minimum had been reached. Thus people would still be encouraged to save and invest, and the incomes of retirees would be protected. Here's my version: for an individual return, the first $50,000/yr would be tax-free, the next $50,000 taxed at the 15% rate, and everything over $100,000 at the 30% rate. Higher cut-off points would apply for heads of households and married-filing-jointly. Municipal bond interest would remain tax-free.

    • Judahlevi

      David, as with all questions you start buildling from a basic premise. If you advocate for higher taxes for anyone, you need to justify that the government needs more tax revenue. You are agreeing with Obama that he needs more money to spend.

      I disagree. It is government over-spending which is why we have the problems we do. The government has enough money, it needs to reduce its spending, not increase it. Giving Obama more money on this will not solve anything. Forcing him to spend less by not raising any taxes, or reducing them, is a better solution.

  • Brujo Blanco

    I don’t believe anything Obama says particularly when money is involved. He is the typical wealthy liberal that tells others what they can do without. He will not give up his lifestyle but believes that others should change theirs.

  • JWL 817

    In the United States as it currently operates the burden of any significant tax will fall primarily on the middle class. To recognize this all one needs do is to remember the ultimate purpose of taxes, and then look at the world in which we live. Contrary to what appears to be popular opinion, the ultimate purpose of taxes is not to raise revenue. It is to force down private spending so that real resources will be available to produce government services for all, and private goods and services for the recipients of transfer payments. When we look around us do we find a significant part of our resources being used to produce consumer goods for the wealthy? The answer is obviously no. That being the case, we will not be able to divert a significant amount of resources out of this use. We do use a significant amount of resources to produce consumer goods for the middle class and to produce capital goods which will be used primarily to produce consumer goods for this same middle class in the future.

    At present, of course, we have no need to free additional real resources since we already have a significant amount of unemployed resources.

  • PAthena

    Horowitz says that Mitt Romney only pays 15% of his income in income taxes, but this is incorrect. Se the Wall Street Journal explanation. Romney pays 15% on what is left of his investment income after what he has invested in has already been taxed at 35% corporation tax.

    • david horowitz

      I've never quite understood why people combine these two, so it's a little hard for me to argue. The corporate tax rate is a tax on the profits of a corporation. The capital gains tax rate is a tax on investment gains. It's quite possible for a company to make no profit and pay no corporate tax and still appreciate massively in value. The two are only loosely related. Furthermore, it doesn't really weaken the argument, because the person with ordinary income likely works for a corporation which is paying 35% taxes on the profits as it is trying to pay its employees. That actually seems more related.

      • kongMing

        If you take into account all taxes it's about 50%. With inflation its much worse.

      • Dave M

        A company will only appreciate in value if it is expected by the market to be profitable at some point. If it does become profitable it will pay tax and the anticipation of paying those taxes will reduce its value. As a result gain to seller of the stock will be reduced by those anticipated taxes. If the company does not ultimately become profitable the value of its stock will fall and the seller will have a capital loss that can only offset capital gains; therefore he can only benefit at 15%. That is why people relate the two.

    • hajid

      If Mitt pays the corporate tax, he is using the company for investment. After the company paid the tax, the rest (ie. 21 mil) is distributed to him, and he needs to pay 15%.

      I don't think the company has only one person (Mitt), if that's the case, I believe there's other organization structure that can reduce the tax rate and he is smart enough to utilize it. Everyone in the investment business is meant to make money, not charity.

  • Tom

    I agree with the other comments. Sometime back there was a news article that had an unintentionally funny line. It said “tax cuts fuel deficit spending.” The idea that the lack of something can fuel anything seems ridiculous, but the real problem is that it’s tax increases that fuel deficit spending. When government gets an extra dollar they will spend 10 more, and that’s a conservative estimate.

  • Eric

    I think Mr. Horowitz raises an interesting point, but so do many of the commentators who take the opposite position. I think it is important to distinguish between the issue of how carried interests should be taxed and Pres. Obama's proposal, which as Mr. Horowitz's comment clarified, is a minimum tax on people earning over $1 milllion per year. Since a portion (likely a large portion in the case of the very wealthy) of that income consists of capital gains (i.e., returns on investment of money or property), this new minimum tax would increase the tax rate on some portion (possibly a substantial portion, but I would like to see the research on that point) of capital gains in the U.S., which could have a negative impact on the level of investment and growth in the U.S. economy. That is very different from a decision to treat money received in respect of a carried interest as ordinary income, which makes sense. A carried interest is something received on account of effort, not on account of an injection of capital, so it resembles a salary more than it resembles a capital gain. I realize that effort can be seen as an investment of human capital, but returns on human capital have always been treated as ordinary income. A salaried employee who goes to work every business day in return for a paycheck is effectively being paid a return on his human capital, and that is taxed at the tax rate for income, not the generally lower rate at which capital gains are taxed.

    I think these points merit further discussion and I commend Mr. Horowitz, FrontPage and the commentators for exposing a range of informed opinions.

  • Dave

    Why do so many usually right thinking people, like Mr Horowitz, approach this from the left's narrative when asking whether we should raise rates from 15%? Instead we should be pushing the counter argument to lower all the rates, corporate and individual, to 15%.

  • Walt O'Brien

    100 G's is 50 bucks an hour which is what a plumber rightfully makes. A dispatcher with the longshoremen's union does a much tougher job if he is working out of a weighstation dockside or at a roll-on/roll-off terminal. The work is bonded for omissions and errors to the tune of $10 million and up and a typical dispatcher schedules and does the paperwork for as many as 50 trucks, 20-50 dockside traincars, and as many TEU's per day any human being could stand plus 50%. Every day. I worked as a non-union bonded port weighmaster for Nicholson Terminal and Dock in River Rouge for a season while at college and the workload a dispatcher carries on his or her shoulders is staggering.

    No one got bent out of shape when Kennedy ran, and he makes Mitt look like an also-ran adjusted for inflation. FDR married into Eleanor Delano's grandfather's China opium trade fortune and nothing was made of that. Ever hear of Nelson Rockefeller? He took a shot at President once, too, and not a word was said about his personal wealth being looted by the American masses as a precondition for being "clean enough" to be President.

  • sidefillip

    Maybe the tax proposal needs to be made progressive as well. So small potato can keep most of their investment income while rich people can contribute to the society.

  • Flowerknife_us

    Mitt already taxes himself an additional 15%.

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  • watermelonbeast

    My understanding is that "carried interest" is allowing a hedge fund manager to be paid by being granted a larger share of the partnership interest in the funds they manage as opposed to being paid directly in cash. So overtime they accumulate a larger percentage interest in the funds they manage and reap capital gains and dividend from the interest they have in the fund just like other investors/partners. Unfortunately, many family farms are organized and managed as legal entities in exactly the same fashion. It allows family farms to be passed to the next generation by allowing the next generation to be paid in shares of the patnership rather than cash. Otherwise many family farms could not be passed to the next generation without losing them to estate taxes. It is an equal protection argument that allows all partnerships to be treat the same way. I am not a lawyer, but going down the road of changing the way partnerships can operate by what type of business they are in can create huge unintended consequences and really politicize the tax code.

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