Obama's Tax Suggestions

The strangely named "Buffett Tax" has some fine print in the discussion that is of value. No millionaire pays less taxes on income than his secretary does. But there is a way for a millionaire--or anybody--to pay 15% of their earnings in taxes. Through the capital gains tax, capital gains is taxed as regular income if it is gained in less than one year, 15% if more than a year. There are reasons for this distinction. First the money invested has already been taxed. Second, there is often significant risk involved and losses are poorly accommodated in the tax law. Similar taxation exists on dividends. That money has already been taxed previously at the company level. Municipal bonds are tax free so they don't compete with corporation bonds.

All the talk about this Buffett inequality omits these little facts. And there is good reason for that, too. Most of the people who have capital gains and dividends do it to supplement their income; this includes many retirees. Who wants to create conflict between Buffett's secretary and a bunch of old people on a failing Social Security System? Do we really want to restructure these tax systems? Do we really want the municipalities to compete on the open market. How will these markets react if we change the capital gains rules midstream? Clean up the deductions and get rid of mortgage deductions? What will that do to home sales?

Who do these people think they are kidding? The tax system is a mess but fixing it will be hard and likely will require grownup supervision. Buffett has done irreparable damage to his reputation by allowing himself to be associated with this scam. But it is a clever ploy. And it will likely work because the problem is a bit complicated for the news and there is nobody worse in an interview than a Republican politician.

Maybe we could bring back the late lamented AMT as well.