Jonathan Krause's Tax Policy Boot-licking

This blog is rapidly devolving into just a series of reactions to the senseless musings of Jonathan Krause and while that certainly does bother me, it doesn't seem to bother me more than the numerous ways in which Krause is wrong on an almost daily basis. Maybe I should pity someone who understands the world we live so little or marvel at the ability of someone so dense to function in society?

Today we were treated to yet another one of Krause oblivious anti-tax rants. As we've noted before, Krause usually confuses economic policy with his own sense of moral indignation and the old boy didn't disappoint this morning:

According to President Obama, 234,000 people are to blame for our current federal budget crisis.  

This is entirely incorrect. Krause can't point to one place where President Obama says this, insinuates this, or comes anywhere close to communicating this idea. This is purely Jonathan Krause putting words into the leader of the free world's mouth. 

Those 234-thousand people are the households that reported incomes of at least $1-million dollars last year.  And--according to the President--they are the ones who did not pay their "fair share" of taxes.

How Krause equates the low tax rates among the highest earners in the country with causing "the current federal budget crisis" is not explained, but there's no need to spend too much time worrying about it: in Krause's mind people who do something wrong must pay a financial penalty. If you're unemployed, it's because you're lazy. If you're paying higher taxes, it's because you obviously must have done something wrong, like destroy the economy.  

Those 234-thousand people are the one's targeted by the so-called "Buffett Rule" that the President is including in his new tax increase proposal.  The "Buffett" referred to there is Warren Buffett, who claims his secretary pays a higher tax rate than he does.  However, the "Oracle of Omaha" actually doesn't need a change in the Federal Tax Code to rectify that situation.  He just needs to raise his salary from Berkshire Hathaway--which is taxed at a rate much higher than what his secretary would pay--and decrease what he claims as income from capital gains and dividends--which are taxed at a lower rate.  Voila, Buffett is paying 35% in federal taxes--while his secretary (assuming she makes between 40- and 50-thousand dollars a year) will continue paying 15%.

And here we have yet another perfect example of how Krause simply doesn't understand what the hell he's talking about. The reason why Buffett cites the disparity in tax rates he and his secretary pay is because his secretary doesn't have the option to claim much of her salary as capital gains. No one who derives their earnings from a salary does and that's most of America. Now, not all millionaires can do this, but many, if not most, can. It's also precisely because capital gains are taxed at a lower rate than income that Buffet is also pointing out a tax code that is replete with loopholes that benefit the wealthy.

According to an Associated Press "Fact Check" story, the top 10% of wage earners in the US pay 70% of all federal income taxes.  The rest is picked up by those of us in the next 44% of wage earners.  46% of all Americans pay nothing in federal income taxes.  And that final group is growing every year.  Kind of makes you wonder who isn't paying their fair share.  Of course, I'm not part of that 46% President Obama needs to scare/placate/over-promise to have any chance of winning election in 2012.

First of all, kudos to Krause for finally learning to cite his sources. Now if he can only learn to process the information he gets from those sources...

Next, let's actually flesh out these percentiles. If you make over $380,000 in 2010, congratulations, you are a part of America's economic ruling class: the top 1%. Among these rare creatures are the millionaires, who make up about 0.13% of all tax-payers. Here's a funky little chart to help us all out (click to embiggen).

Krause seems to think that we already tax the wealthy too much. The fact-checking piece he cites to refute Warren Buffett's claim to the contrary is entitled "The wealthy already pay more taxes." No one denies this and this is not what Warren Buffett was saying. The issue at hand is if the wealthy are paying enough taxes or their "fair share," as the President puts it. Let's look at Krause's numbers one more time:

10% of wage earners in the US pay 70% of all federal income taxes.  The rest is picked up by those of us in the next 44% of wage earners.  46% of all Americans pay nothing in federal income taxes.

First of all, the canard that almost half of Americans pay nothing in taxes is a deliberate misrepresentation of basic demographics. According to the last census, 24.3% of Americans were seventeen years old or younger. That means if they did have a job it was mostly likely a part-time job that likely did not earn them to be taxed (In fact, all of these individuals are considered to be dependents and represent tax deductions). Also, 12.9% of Americans are 65 years old or older. These folks are most likely retired and live off a fixed income like Social Security, a pension or what have you. That's 37.2% of Americans right there, so what we're really taking about are 8.8% of working aged Americans who aren't paying income taxes... if we're using Krause's numbers.

But Krause can't even read the source he's citing correctly. Here's what the story Krause cites actually says:

The Tax Policy Center estimates that 46% of households, mostly low- and medium-income households, will pay no federal income taxes this year. Most, however, will pay other taxes, including Social Security payroll taxes.

Got that? Even the most poor will still pay taxes, a concept that usually evades Krause. Also escaping Krause is the changing nature of these folks. The 46% of Americans who aren't paying taxes this year are increasingly people who paid a lot of taxes in prior years. That's because they are very well-educated people who had relatively high-paying jobs until recently. Krause would have all his readers/listeners believe that the unemployed are lazy leaches sucking dry the producers of society. This is increasingly a remarkably irresponsible way of looking at the situation.

For Krause to portray the wealthy in America as somehow being over burdened by their taxes is absurd.

What Krause funadamentally fails to understand is that the wealthiest 1% of Americans control 40% of the country's wealth. Full stop. This was before the recession. Most people think the income ineqaulity in this country has gotten worse. Now the top 1% does account for abut 40% of tax revenue, but that's hardly the tax burden the average millionaire must bare. Again, according to the very article Krause cites:

In 2009, taxpayers who made $1 million or more paid on average 24.4% of their income in federal income taxes, according to the IRS.

Keep in mind that nobody's talking about returning the rates to the levels of Reagan's first term, when the upper marginal income tax rate was about 50%. Asking millionaires to chip an additional 2-5% shouldn't seem unreasonable by comparison, especially given the howling conservatives like Krause do over the federal debt. Instead we get rhetoric about how the wealthy are the "job creators," the engines that power the economy, but this just talk. They may the masters of the econmic universe, but there's been no correlation between low tax rates for the wealthy and GDP growth:

Now bare in mind that nobody's talking about returning the rates to the levels of Reagan's firt term, when the upper marginal income tax rate was about 50%. Asking millionaires to chip an additional 2-5% shouldn't seem unreasonable by comparison, especially given the howling conservatives like Krause do over the federal debt.

But somehow it is. Somehow folks like Krause erupt into a fit when they hear plans to tax the upper 0.13% of Americans more, even though they are asked to do very little for their country ... like serve in the military, which draws heavily from lower income households.

Not that Krause has any understanding of lower income earners in America. Time and again he seems under the illusion that there's some kind of Big Poverty lobby that's out to screw him out of the money he earns spitting misinformation out over the airwaves. Few things embody this better then these lines:

46% of all Americans pay nothing in federal income taxes.  And that final group is growing every year.  Kind of makes you wonder who isn't paying their fair share.  Of course, I'm not part of that 46% President Obama needs to scare/placate/over-promise to have any chance of winning election in 2012.

No, Krause is a part of he 54% the other side has to scare/placate/over-promise with pledges to never raise taxes under any circumstances, no matter how unlikely it will ever be that Krause ever reaches the upper 1% tax bracket.

The less income one makes, the less likely that person is to vote. In some places this can depress a turnout rate to less than 33% (and that's just what I found devoting 30 seconds to looking for an example -- there are likely far worse case studies out there). Fighting for the poor is typically bad politics, especially when the government already does so much for the wealthy.

If your a businessman who wants to get into China, you can go to the State Department and they will help you out, just like people who go to City Hall for building permit, only what the State Department does is significantly more expensive than what goes on at City Hall. If you have up to $250,000 in a savings account at a bank that goes under, the FDIC will cut you a check for your loses. The FDIC will also cut a check to some who lost $100 from the same bank, and they'll essentially "insure" both of these sums of money for the same price. People with wealth very frequently don't even have to wait in line to be heard by their governments -- all too often they are the first people consulted.

But let's forget all of this for a minute ... if raising taxes on the wealthy isn't the answer, as Krause so dickishly delineates, then what is? Why doesn't Krause tell us what we should be doing to repair the economy and eliminate the debt, because he's obviously has better solutions than the President, God knows how many real economists and Warren Buffett. I won't hold my breath waiting for anything constructive.