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Ralph R. Reiland

Ralph R. Reiland

The B. Kenneth Simon Professor of Free Enterprise at Robert Morris University

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Reflections

Class Envy Via Bad Numbers

by Ralph R. Reiland
 

With economic "fairness" the central theme of his re-election campaign, President Obama recently pitched his "Buffett Rule" tax hike to a student audience at Florida Atlantic University in Boca Raton.

Aimed at those who earn the bulk of their income from capital gains, the plan would double the tax rate on capital gains from 15 percent to 30 percent.

Mr. Obama didn't tell the students that taxes on capital gains aren't adjusted for inflation. He didn't explain how the 15 percent tax rate is actually a 30 percent rate on real, inflation-adjusted gains if price increases have wiped out half the purchasing power of reported gains.

As Wall Street Journal reporter E.S. Browning explained in "Adjusted for Inflation, Dow's Gains Are Puny," based on the calculations of money manager Garrett Thornburg, the impact of inflation on reducing the real value of long-term capital gains is substantial: "Nominally, a dollar invested in stocks of the Standard Poor's 500-stock index at the end of 1978 had blossomed to $22.88 at the end of 2008, including dividends, a sweet gain even after the 2008 meltdown. But once estimates of inflation, taxes and costs are removed, he figures, the investment was worth $3.76."

Mr. Obama also didn't tell the students that the U.S. tax code imposes taxation on capital gains and dividends on top of a corporate tax rate of 35 percent -- a tax rate that became the highest in the world on April 1 after Japan cut its corporate tax rate and moved the United States from second to first place.

He also didn't mention that capital gains are additionally taxed at the state level -- at 9.3 percent in California, 9 percent in Oregon, etc.

And Obama didn't explain that the Buffett Rule would do nothing to fix the runaway federal deficits of a trillion-dollars-plus per year. Congress' Joint Committee on Taxation estimated that the Buffett Rule tax increase would bring in additional federal revenues of $4.7 billion a year -- less than half of what the federal government spends each day.

Continuing to target the wealthy at another stop in Florida, Obama told campaign donors that Republicans want to give tax cuts to people "who don't need them."

Who decides what we "need," especially when it's the compulsory distribution of our earnings that they're pontificating about?

Who decides if I "need" my three cars -- a nice silver Beamer convertible for sunny days, a ruby-red Lexus ES 350 when the dogs aren't along, and an old tan Lexus when the dogs get antsy and want to go to Starbucks?

And what about the double-income young couple on my street with no kids and no dogs? Do they really "need" five bedrooms, an eight-seat Escalade and a yard?

What's next as the Bureau of Equity moves from scolding to punishment -- a tax on the four empty bedrooms, six empty seats and underutilized grass?

We already had Energy Secretary Steven Chu saying "we have to figure out how to boost the price of gasoline to the levels in Europe" ($9.02 a gallon last month in Italy) and Yale professor Kelly Brownell pushing for a 10 percent "fat tax" because we're looking too much like the Pillsbury Doughboy, and now we have Mr. Obama preaching that "the rich" aren't paying their "fair share," even with the top 3 percent of income earners already picking up a larger share of the federal income tax tab than the bottom 97 percent combined.

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Ralph R. Reiland is an associate professor of economics and the B. Kenneth Simon professor of free enterprise at Robert Morris University in Pittsburgh.

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Ralph R. Reiland

Phone: 412-527-2199

E-mail: rrreiland@aol.com

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