While working remotely I had Biden's speech on CNN in the background. Now I have contradicted Biden's economically illiterate rubbish in countless tweets and posts, and I'm not surprised that this would be the "worst of Biden" idiocy speech to his favorite constituency. As I write, I wasn't able to find a transcript of his remarks online, so I will simply write on his well-known talking points repeated here.
Probably my greatest pet peeve has been the Politics of Envy. It's not unique to Biden; Comrade Bernie and Cherokee Lizzie (with her infamous "you didn't build that" rubbish) have made it part of their stump speech. Joe Biden has simply copied the wealthy "fair share" tax burden soundbite.. In particular, one could make a drinking game of how many times he mentions an 8% tax rate that he argues the so-called wealthy pay.
Let's first point out that according to the Tax Foundation that from 43% to up to 61% (during the pandemic) of US households pay or have paid no federal income tax (and we are talking the lower, not upper percentiles.) Now the government itself has figures showing the overall tax rate of mid-20's percentage. Keep in mind there are two principal categories of income, ordinary income (like wages) and capital gains (sales gains on assets). The latter are taxed at a lower rate, but keep in mind those gains in part reflect sales in nominal/inflated dollars, not real dollars. A nominal gain could mask a capital loss in real dollars, meaning the government would actually exacerbate a loss in the sale of an asset..
So in the second source, it tuns out that Biden is grabbing on scholarship which underestimates taxes paid (e.g., corporate and estate taxes) while overestimates income, including including unprecedented unrealized capital gains. This is a horrible idea which could force property owners to sell off parts of properties just to pay taxes, roiling capital markets. And there are all sorts of complications, including illiquidity of certain property and given markets. The small investor could probably easily liquidate 100 shares on a major exchange without materially affecting market prices. But market price of assets like works of art and material positions of stock are intrinsically difficult to establish and can affect markets, not to mention being unloaded at distress pricing (which of course would adversely affect related tax revenue). And do you think the government would refund, say Musk and Bezos, for huge unrealized capital losses they've suffered this year? Of course not. I lost a large amount of my investments in the post-2000 Nasdaq meltdown, and I'm still carrying over my losses because I'm limited to a $3000 net loss per year. But when I made a modest amount of realized gains before the market crash, the federal and state governments wanted their cuts in full then and there.
For many lower wage workers, the only federal tax they may pay is maybe the 7.65% payroll deduction for senior entitlements (plus the employer match). There is currently a ceiling of $147K income basis for the 6.2% of social security. But for all intents and purposes, these are dedicated revenues in which the taxpayer has a direct material interest in future benefits. It has nothing to do with underwriting the operational expenses of the national government, other than the reserves have to consist of Treasury securities.
The "pay your fair share" soundbite is particularly disingenuous rubbish. (Note there are nuances for marital/family states below; I'm simplifying for readability purposes.) Tax brackets (on ordinary income), currently 10%, 12%, 22%, 24%, 32%, 35% and 37%), are tiered, not flat, e.g.,
- 10% tax rate for income between $0 and $10,275
- 12% tax rate for income between $10,276 to $41,775
- 22% tax rate for income between $41,776 to $89,075
So, if you earn $75K, you pay 10% on your first $10K, 12% on your next $30K, and 22% on the remainder.
Capital gains are included in taxable income; currently, if the relevant assets are held for less than a year, they are treated like ordinary income. For assets held over a year, the following rates are flatly taxed for the LTCG portion of taxable income, depending on aggregate income: 0% for income up to 41K; 15% for roughly the next 400K of income, and 20% for higher income.(At high levels, another 3.8% NI surtax may be applicable.)
It is understandable why high earners would prefer to defer the bulk of their income in property (stock/options) versus millions in salary taxed (for simplicity I'm sidestepping the complications of the alternate minimum tax) at the 37% rate (never mind any additional applicable state and/or local income taxes).
Despite Biden's demagoguery, the wealthy in America already bear a disproportionate net tax burden under the most progressive tax regimen among the developed democracies:
Most Americans would be surprised to learn that a 2008 study by economists at the Organisation for Economic Co-operation and Development (OECD) found that the U.S. had the most progressive income tax system of any industrialized country at the time.[1] Their study showed that the top 10 percent of U.S. taxpayers paid a larger share of the tax burden than their counterparts in other countries and our poorest taxpayers had the lowest income tax burden compared to poor taxpayers in other countries due to refundable tax credits such as the Earned Income Tax Credit and the Child Tax Credit....According to the latest IRS data for 2018—the year following enactment of the Tax Cuts and Jobs Act (TCJA)—the top 1 percent of taxpayers paid $616 billion in income taxes. As we can see in Figure 1, that amounts to 40 percent of all income taxes paid, the highest share since 1980, and a larger share of the tax burden than is borne by the bottom 90 percent of taxpayers combined (who represent about 130 million taxpayers).
The fact is that even under a more efficient, simpler flat tax system, if a higher income taxpayer makes 10 times the income, he pays 10 times the tax. Let's be clear: I've never been a higher-income taxpayer, and I have never made a penny from my blog or any person or entity representing them. I've lived fairly frugally; I've never owned an expensive car, a house or luxury apartment, I rarely travel or eat out, even fast food. Even on company or client expenses, I was a tightwad . I recall I was authorized on up to $200/night at a local hotel, and I booked a $43/night Extended Stay; I could have booked a $1200 United round trip between Chicago and SF padding my frequent flier account, and I found a minor airline to book a $450. I could book a compact rental and drove a subcompact. At dinner, per diem might allow me to buy the ribeye (the most expensive item on the menu), and I probably settled for the more modestly priced chicken or pasta entree. I could go on, but the pattern is clear. The truth is, I've always preferred diners to fancy restaurants. The fact is I would have happily spent a full career as a modestly paid professor. To be sure, I wanted enough income to live comfortably. But envy was never my thing. My middle brother was on the fast track as a chemical engineer for a major oil company, already a homeowner going on Club Med vacations while I was a struggling graduate student with $100 in my checking account. But, you know, he decided in high school he could make a good living as an engineer and I (with my 2 math degrees) could have made a similar choice. But I was not envious; he worked hard for his professional success. I was proud of him.
The wealthy could have retired early in life, passed on the torch of business leadership, and live a pampered life of luxury. I personally prefer that the wealthy keep the bulk of their wealth in the productive economy in the production of a variety of competitively priced goods and services. Warren Buffett, the 80-odd year old CEO of Berkshire Hathaway, is still a working billionaire who for years has lived in a modest house, driven an older car, and paid himself just a $100K salary. So the bulk of his income is on the capital gains side. Now around 2007, he (a registered Dem) intervened in the comparative tax rate kerfuffle, noting it was unfair he paid about 18% compared to about 33% for others in his office. That is such a disingenuous comparison. I might need to look at old tax rates at the time, but under current tax rates, if you are in the 32% tax bracket, you are making over $165K in income. If Warren was making 100K, he was probably in the 24% bracket. So his comparison is misleading in multiple perspectives: he probably was paying others in his office much higher salaries, and he was calculating an effective tax rate based on the bulk of his income being from long-term capital gains taxed at a lower rate.But rates can be misleading; keep in mind the income brackets are tiered, not flat. For example, they pay a higher tax burden on wages over Buffett's $100K; the tax burden on the first $100K is equivalent. It is probable that the taxes paid on Buffett's qualified dividends exceed the taxes on others' higher bracket income, but the effective rate is lower based on the magnitude of dividends relative to salary. But for Buffett to pay below 18% in taxes, it is clear s huge portion of his taxable income came from investments, not wages.
There were other predictable talking points including but not restricted to :
- his bashing of obstructionist Republicans opposing his agenda
- his taking full credit for the pandemic recovery
- his blaming inflation on "Putin's price hike"
- his taking credit for "good union jobs" in his infrastructure bill
I'm not going to go into depth on these points since I've already tweeted or blogged about them extensively. But a quick response:
- I oppose Big Government, regardless of party. But Biden wanted to spend trillions more, and the GOP in blocking or lowering the price tag (infrastructure) has been helpful.
- Most of the economic recovery had more to do with state/local restrictions liberated. National policy, including premium unemployment distributions, has been morally hazardous and has hampered hiring. In the meanwhile, Trump's tariff wars remain in place exacerbating inflationary pressures, and immigration reform could ease labor shortages.He has done nothing on regulatory reform.We had a minor first quarter contraction, we still haven't reached pre-pandemic job levels, and inflation is at the highest level since the early 80's.
- The Fed wrongly regarded last year's inflation as transitory. Biden does not have direct control over the Fed, except he renominated Powell as chair and is not focusing on the currency stability mandate. Progressives want to add to the Fed's mandates with climate change and other mandates. . Yes, global supply chains are tight and fragile (consider China's pandemic issues), but Biden excluded Russian imports and we are more self-sufficient, say, compared to Europe. In fact, Biden has anti-fossil fuel policies There are other things he could do, like lift the China tariffs imposed by Trump. The infant milk shortage is another example of how protectionist policies have adversely affected markets. I firmly believe sound money, free markets and free trade are the best prescription for economic growth and an increasing standard of living.
- Restrictions like prevailing wages and buy American add to relevant project costs at the expense of the American taxpayer and are intrinsically politically corrupt. Not to mention the last time I checked figures, only about 7% of the "infrastructure bill" was really infrastructure.
