Thursday, September 15, 2011

Millionaires and Billionaires

Television personality Chuck Woolery explains how those rich folks like Warren Buffett and Matt Damon who think the rich aren't paying enough in taxes can show their sincerity:
The call by Warren Buffett to make the rich like him pay more is pretty funny considering that according to Money News he himself takes pains to shield his fortune from the IRS:
For many years now Buffett has pointed out that he pays less tax than his secretary. How could the country’s most well-known billionaire, worth $50 billion, get away with that?

Here’s the significant reason — one that Buffett omits from his Op-Ed: He has traditionally drawn a tiny salary from his company Berkshire Hathaway and gives no dividends to shareholders like himself.

So, even if ... income tax rates were raised on the wealthy, he might not pay significantly more in taxes. By keeping his wealth in his company, Buffett has discovered one of the best tax avoidance schemes ever invented. And Buffett never suggests that corporate loopholes that he has personally taken advantage of for decades should be closed.

For example, his Berkshire Hathaway company has acted as an effective holding company for his vast investment portfolio. Last I checked, Berkshire Hathaway was generating over $7 billion in dividend income each year from stocks the company owned.

Due to a special exemption (read: loophole) Buffett enjoys, his company benefits from the fact that nearly 90 percent of the dividend income is exempt from any corporate tax! (I do too, as I am a shareholder as well.)

Buffett is then able to take these wads of tax-free cash and re-invest them, buying more stocks or whole companies — a strategy he’s been employing for decades as part of his wealth-creating money machine.

So Buffett knows that even if tax rates were raised on the income of the so-called “wealthy,” it would have little or no effect on the “super-rich” like himself who put a corporate shell around their assets and never disburse much cash to themselves in the form of income or dividends.
Buffett gives a lot of his fortune to charity which is certainly to his credit but for him to call for higher taxes on the rich when he shields his own money from taxation is pretty disingenuous.

It's also disingenuous of President Obama to keep referring to his desire to raise taxes on millionaires and billionaires. His tax proposals would raise taxes on every individual making more than $200,000 and every couple making more than $250,000. According to the Wall Street Journal the vast number of people who would be paying more taxes under Obama's Jobs Bill are not millionaires and billionaires. Many of them are small business owners who we're counting on to hire people to get us out of the recession:
Almost 4 million people reported income above $200,000 in 2009, and they paid $434 billion in taxes. To put it another way, roughly 90% of the tax filers who would pay more under Mr. Obama's plan aren't millionaires, and 99.99% aren't billionaires.
Four hundred and thirty four billion seems like a "fair share", especially when 47% of Americans pay nothing in federal income taxes.

Raising taxes on people you hope will employ those who're looking for work is a lousy way to get out of a recession. Why doesn't the White House understand this?

Poverty in America

Yesterday we noted a report which stated that poverty in America is increasing. It's tragic that people are losing jobs and income and that others are unemployable, but the report raised a question in my mind: What is the real extent of poverty in America?

Poverty is a relative term. Compared to what I've seen in Central America or conditions friends describe having witnessed in Haiti and Africa, or compared to the amenities even the very wealthy have enjoyed throughout history, the people in America whom we call poor are immensely well off.

A report from the Heritage Foundation gives us some perspective:
[U]nderstanding poverty in America requires looking behind these numbers at the actual living conditions of the individuals the government deems to be poor. For most Americans, the word “poverty” suggests near destitution: an inability to provide nutritious food, clothing, and reasonable shelter for one’s family.

However, only a small number of the 46 million persons classified as “poor” by the Census Bureau fit that description. While real material hardship certainly does occur, it is limited in scope and severity.
  • 80 percent of poor households have air conditioning. In 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
  • 92 percent of poor households have a microwave.
  • Nearly three-fourths have a car or truck, and 31 percent have two or more cars or trucks.
  • Nearly two-thirds have cable or satellite TV.
  • Two-thirds have at least one DVD player, and 70 percent have a VCR.
  • Half have a personal computer, and one in seven have two or more computers.
  • More than half of poor families with children have a video game system, such as an Xbox or PlayStation.
  • 43 percent have Internet access.
  • One-third have a wide-screen plasma or LCD TV.
  • One-fourth have a digital video recorder system, such as a TiVo.
  • 96 percent of poor parents stated that their children were never hungry at any time during the year because they could not afford food.
  • 83 percent of poor families reported having enough food to eat.
  • 82 percent of poor adults reported never being hungry at any time in the prior year due to lack of money for food.
  • Over the course of a year, 4 percent of poor persons become temporarily homeless.
  • Only 9.5 percent of the poor live in mobile homes or trailers, 49.5 percent live in separate single-family houses or townhouses, and 40 percent live in apartments.
  • 42 percent of poor households actually own their own homes.
  • Only 6 percent of poor households are overcrowded. More than two-thirds have more than two rooms per person.
  • The average poor American has more living space than the typical non-poor person in Sweden, France, or the United Kingdom.
  • The vast majority of the homes or apartments of the poor are in good repair.
By their own reports, the average poor person had sufficient funds to meet all essential needs and to obtain medical care for family members throughout the year whenever needed.
The poor in America have access to better schools, health care, libraries, transportation, indoor plumbing and lighting, clothing, communications, than was available to even the filthiest-rich aristocrats throughout history. Louis XVI, lounging at Versailles, would have envied the standard of living of America's poor.

To get a glimpse of what it's like to be genuinely impoverished read a book like Angela's Ashes by Frank McCourt who describes his childhood in the Ireland of the 1950s. Very few people in America live at the level of indigence that was for millions of Irish a matter of course.

The Heritage report closes with this:
Finally, welfare policy needs to address the causes of poverty, not merely the symptoms. Among families with children, the collapse of marriage and erosion of the work ethic are the principal long-term causes of poverty. When the recession ends, welfare policy must require able-bodied recipients to work or prepare for work as a condition of receiving aid. It should also strengthen marriage in low-income communities rather than ignore and penalize it.
What is government at any level doing to address the real causes of American poverty? Not much.