Streetwise Professor

September 18, 2011

Son of AMT?

Filed under: Economics,Politics — The Professor @ 11:02 am

Obama is floating a tax idea that would ensure that “millionaires” would not pay lower tax rates than the hoi polloi.  It is being dubbed the “Buffett Tax.”

Several quick takes.

  1. I know that some are infatuated with “Saint Warren.”  Not I.  In fact, he makes me want to hurl.  For those convinced of his sainthood, I suggest you look into his activities in silver in 1998.
  2. To me this looks like the Son of the Alternative Minimum Tax.  Recall the AMT was originally devised in response to stories that Ross Perot and others had not paid any federal income tax because they had invested in municipal bonds and the like.  This was deemed to be outrageously unfair–although well within the letter of the tax law at the time.  So the AMT was sold as a means of ensuring that the plutocrats would pay some federal tax.  Over time, of course, the program metastasized, and now catches millions of members of the definitely non-plutocratic class in its clutches.  The “Buffet Tax” propaganda of today is eerily similar to the “Perot Tax” propaganda of twenty-odd years ago.  Don’t be surprised if (on the off chance it actually makes it into law–see 4 below) this very “exclusive” tax will grow like Topsy.  (If you take the time to deconstruct the AMT form, you will see that it is effectively a way of eliminating the lion’s share of any deductions.)
  3. To the extent that it is intended to be a tax on capital, it is a horrid idea.  (Per the administration’s usual MO, few details have been released, and very few will be forthcoming.)  Capital taxation is highly inefficient; we should be moving towards consumption taxes, not jacking up taxes on capital.  And for those who think that capital taxes are a just way of stickin’ it to the man–think again.  Retarding capital formation and distorting capital flows into tax-sheltered investments or into investments in jurisdictions that don’t tax capital as heavily reduces labor productivity and thus depresses wages.  It is a great tax if your idea of cosmetic surgery is cutting off your nose to spite your face.
  4. It is highly likely that this is a purely political proposal that Obama knows has no prayer of making it into law.
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  1. Money doesn’t just grown on trees. The government need to tax the rich to have the money to make investments that will provide permanent jobs and stimulate the economy. I mean, sheesh! You act as if Obama and his team has a bad record at picking economic winners and losers. How can you have a problem paying higher taxes when you know your money is going to fund the next Solyndra?

    Comment by Charles — September 18, 2011 @ 11:18 am

  2. You’re right Charles. I’ll gladly pay double. What *was* I thinking?

    The ProfessorComment by The Professor — September 18, 2011 @ 11:35 am

  3. From Stimulus I to Solyndra, in the big picture and down to specifics, it amazes me that the Obama team can still make the argument that government can make wiser investment decisions than average peope can. What scares me is that this same team is claiming they can also make better decisions regarding my medical care than I can as an individual.

    Comment by Charles — September 18, 2011 @ 12:22 pm

  4. A levy (Crown Rental) on capitalised (long leases) Hong Kong land rental values hasn’t done Hong Kong’s entrepreneurs much harm over the years. And a similar level of local levy on land rental value (not the capital invested privately in the land) – raising about 30% of all government income – worked well for Denmark for a long time.

    Milt Friedman himself said such a tax is the least worst, and it makes sense to me that if I don’t have both a government and landlord monkey on my shoulders that I’ll be more likely to prosper than if I do.

    Presumably you throw land in with capital, Craig? If so, I think your analysis is based on a faulty assumption, albeit a convenient one for land-owners.

    Comment by Chris Cook — September 18, 2011 @ 12:50 pm

  5. @Chris. You sound like Henry George/”single tax.” Land taxes and capital taxes are very different, so no, I would not throw in land with capital.

    The ProfessorComment by The Professor — September 18, 2011 @ 1:18 pm

  6. Chris-

    Your comment is on the structure of taxation. The problem with the latest Obama proposal is that it isn’t proposed to find the optimal structure of taxation. Rather, it is designed to find a source of additional revenues to effect yet another redistributionist scheme from an administration that has offered nothing other than failed policies.

    A property tax in lieu of a higher income tax would be worth discussing. The latest “stimulus” from the administration is to raise $450B in taxes to fund $450 in spending all in the same year. This is not stimulative. Rather, it seeks only to redistribute $450B in an election year. Hence, the resistance to raise any tax to fund the scheme. Many of us would welcome a debate on the most efficient structure of the tax code. Sadly, all we get is a lecture from Obama on our responsibility to fund “investments” where decision makers have no accountability.

    Comment by Charles — September 18, 2011 @ 1:25 pm

  7. To your point #4, SWP, why would Obama think he has any political capital left to throw out one more useless political red herring? I understand that at an equally low level to the content of his proposal. If anything, Obama has moved on from that tired old confiscation of income and has headed straight toward confiscating assets. He’s not learning anything, but just getting worse, as if that’s even possible.

    Comment by Howard Roark — September 18, 2011 @ 11:36 pm

  8. Charles, “Obama’s team” is a list of perhaps the most incompetent advisors who have ever occupied office space in the West Wing. Beginning with that Obama ego defender and all around boob, Valerie Jarrett, this group of “advisors” could tell you how to pour piss out of a boot with the instructions written on the heel. We’re in deep manure until he is gone for the WH.

    Comment by Frank — September 19, 2011 @ 9:09 am

  9. Everything Obama does must be evaluated in terms of his re-election strategy. The fact that this is not passed will provide one of the cornerstones of his billion dollar eat-the-rich smear campaign. I am sure they have polling results supporting the issuance of this program knowing full well it will not pass.

    Comment by pahoben — September 19, 2011 @ 10:15 am

  10. I heard there was an article in a Czech paper last week and the thesis was that Obama is not THE problem in the US. THE problem in the US is the electorate that put him in office. The dole is getting precariously close to 50% if not there already-God help us if he is re-elected.

    Comment by pahoben — September 19, 2011 @ 2:14 pm

  11. Horaaay for the Czech paper!

    Comment by Jan — September 20, 2011 @ 12:22 pm

  12. For that matter God help us if he doesn’t win.

    To reverse the long course will require a difficult slog through a deeply entrenched entitlement swamp. The belief that anyone can provide a pain free solution is just foolish and so will provide the cheery fundamental message of both campaigns.

    I agree with Professor most of the time but deconstruct AMT hits an especially resonant chord. How much is enough is asked. When you add all the federal and local taxes then my answer is that 50% is depressingly more than enough.

    Comment by pahoben — September 20, 2011 @ 8:14 pm

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