Learning and the Buffett Tax

Learningis acquiring new or modifying existing knowledge, behaviors, skills, values, or preferences and may involve synthesizing different types of information. The ability to learn is possessed by humans, animals and some machines. Progress over time tends to follow learning curves.
Human learning may occur as part of education, personal development, school or training. It may be goal-oriented and may be aided by motivation. The study of how learning occurs is part of neuropsychology, educational psychology, learning theory, and pedagogy. Learning may occur as a result of habituation or classical conditioning, seen in many animal species, or as a result of more complex activities such as play, seen only in relatively intelligent animals.[1][2] Learning may occur consciously or without conscious awareness. There is evidence for human behavioral learning prenatally, in which habituation has been observed as early as 32 weeks into gestation, indicating that the central nervous system is sufficiently developed and primed for learning and memory to occur very early on in development.

Everyone told me in 2007-08 that Obama was “pragmatic”, “different”, “smart”. I knew better.

His economic programs might have more appropriate adjectives to describe his persona and style of leadership. You might call him, “unimaginative”, “dense”, “fixed”, or “bourgeois”.

The new economic package combined with today’s speech on what’s being called the Buffett tax is just more evidence of how backward Obama really is.

The economic package he announced last week is simply more stimulus. It does nothing for anyone, except state and local governments allowing them to shore up short term budgets. The multiplier effect of government spending is 0. It will have no effect, and the targeted tax cuts he offers with regard to hiring will have no long lasting, or even short term effect on employment. In February of 2009, we tried stimulus. It didn’t work. We have tried payroll tax cuts. They haven’t worked. As many have said, “My dog has created more shovel ready projects than Obama”. Instead of pivoting and trying something different, we get more of the same.

Now he brings the Buffett Tax to try and pay off the deficit. Just a point, if we capriciously seized all the assets of all the millionaires, and billionaires in the US we wouldn’t even begin to pay off the deficit. This is just a different attempt at higher taxation. Throughout the campaign, he said he would only raise taxes on people that made $250,000 a year or more. That flew over like a lead balloon when the public woke up and realized that $250,000 isn’t a lot of money in certain areas of the country. Now he has just changed the benchmark. $1,000,000. Nice round number and a smaller group to isolate.

Many liberals have made this argument: A millionaire won’t quit working if there is an extra 5% tax on income. I think they are wrong.

The majority of people that make over a million a year are not guaranteed to make that amount in perpetuity. Income mobility is very real in the US. A fair amount of top corporate management jobs do make over $1,000,000. They are not the bulk of high earners. In fairness to the top corporate fat cats that haul in the cash, they hold in their hands the ability to make or lose billions for shareholders. That responsibility should go with it a high level of pay.

Let’s look at the others. Independent people like myself, fund managers, small business and medium size business owners, professional people (like consultants, lawyers, and doctors) and entrepreneurs. That is really who this tax is targeting. Our income is extremely variable.

People in that second category don’t make a million dollars every year. Some years you do, some years you don’t. They also assume a high degree of risk to make their money. Trading my own money, I have had extremely variable income over the last 25 years. The volatility of income is off the charts. Just like other entrepreneurs, there is no contract on January 1 that says you are going to make a dime. As a matter of fact, usually you have a stream of fixed and variable costs that you have to overcome before you net your first dime of income. Then there are taxes!

Entrepreneurs assume a lot of risk for their money. Raising the tax increases the marginal cost for the next dollar. It changes the risk parameters by quite a bit.

Ask yourself, if you were a trader and up $999,999 for the year, would you take the risk to put on a position to try and make or lose another $100,000-knowing that instead of giving away 40% to the government, you would now be giving away 45%? Doing back of the envelope calculations, your net income could look like this.

Don’t do any more trades for the year: 999*.61=609 (my net income)

Do the trade gives me two possibilities. 100*.55=55K; 55+609=664

or 999-100=899*.61=548

Where is the trader better off?

I am risking a loss in net income of 61k to make an income of 55K (-6K). Do you do the trade? Is your life any better or worse with the extra money should you be successful? Is there a faster jet, a better first class seat, a better boat, a better hotel room, a better restaurant that you couldn’t already afford?

Entrepreneurs will make similar calculations with investment in their businesses. In most cases, they won’t invest, or won’t work. In the case of independent litigators, they might not take on new cases. Doctors may close their doors to new patients. Independent Venture capitalists might not make investments. No investment means no expansion. No expansion means no jobs.

So, yeah, people will work less. They will take less risk. Is this a good policy when the economy is in a Depression?

  • Berniecongress

    Your wrong, in my opinion, this was all planned, Soros style… 
    first you destroy the wealth…housing,
    damaging govt intervention houseing, CRA, fanny fraud,  bank regs, Acorn, etc.
    then you destroy savings, mm funds 0,  FED reserve quantitative easing 12,3,4, twist, shout, devalue,
    put the old people in the same poor as the food stamps 47 mio and 60 mio seniors, then you trott out
    class warfare, and   regulations that extinguish 7 million small businesses;  75% of jobs,w ith Obama care,

    I think they re doing it on purpose and doing a good job, with as Perry said a complaint FED reserve
    printing and devaluing capitalism, jobs, savings, investment, and  sink it wihh europe with Greece
    as an anchor

    let Greece go under with the Peoples Republic of Illinois,  the 3rd worst business climate voted by Corp Execs, in the country; Tribune poll, today

  • PJH10

    One thing I’d like to understand better is why someone supposedly as smart and pragmatic (as I’ve never believed he was) consistently bases policies on outliers of a population. With this tax proposal, he uses Warren Buffet as the basis of the policy. Warren Buffet is representative of Warren Buffet, and to a smaller degree perhaps 0.0000001% of the population of “millionaires”. Even if you looked at fund managers, Buffet would not be representative of the norm. 

    It would seem obvious to a smart and pragmatic person that a policy that is designed to affect an outcome for such a small percentage of the population will inevitably result in an imbalance for the remainder of the population. Its like doing regression analysis on a data set that threw out the data points within < 2 standard deviations of the mean.

  • Wow, that is a new one – don’t tax a millionaire because he won’t always make a millionaire?  Hate to tell you this, but according to the IRS:  

    1.   The 235,413 taxpayers who reported earning seven digits or more in 2009 took in a total of $726.9 billion — yet 1,470 paid not a penny of income taxes. The Average income was $3,087,7642.  In 2007, 959 Americans earning $1 million or more paid no income taxes3.  97% of taxpayers — reported incomes of less than $200,000. The average income was $54,283,And you want the remaining 99.9% of American tax payers to cry for them? 

    Your wealthy ingrates made their money because they live in the United States, not in-spite of the United States.  Let me bring back an old Conservative slogan from the 60s – “America:  Love it or Leave it.”

    • I wouldn’t characterize them as wealthy ingrates.  The US wealthy are the most charitable people on earth.  http://library.generousgiving.org/page.asp?sec=4&page=161.  They pay well over 50% of all taxes-especially when you include state and local taxes.  47% of people pay 0% of the federal tax!  

      I think that this editorial in the WSJ sums it up really well. Russ Roberts: Elizabeth Warren and the Blessings of Government – WSJ.com  If the government would stop crony capitalism (Solyndra for example), and all the other things it does, we would have more than enough money for everything we needed (roads, bridges, fire, police).  

      I am a textbook example of someone who has extremely variable income.  I can tell you some years I do pretty well.  Others I actually LOSE money.  Yet, I still pay taxes.  
      I never realized that the govt charges me even when I have negative income.  Imagine that.

      • Anonymous

        Jeff, we can’t have an authentic conversation aimed at solving problems if you continue to distort the facts…

        “47% of people pay 0% of the federal tax”  ==>  This is entirely untrue.  If you earn a living via a paycheck, you pay and your employer pays 1.45% for Medicare and 6.2% for Social Security which equals 15.3%.  This is still more than the 15% long term capital gains rate which the mega rich pay.

        I look forward to the day when all income is taxed at the same level as it was prior to 1997. 

        We are the 99%.