More ‘the rich don’t pay taxes’ nonsense

President Barack Obama says he wants to make sure millionaires are taxed at higher rates than their employees.

“Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett. There is no justification for it,” Mr. Obama said as he announced this week’s deficit-reduction plan — a plan under which both deficits and taxes would rise. “It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million.”

But the president has a solution in search of a problem. For this is already overwhelmingly the case.

On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, both in total dollars and as a percentage, according to private and government data. The 10 percent of households with the highest incomes pay more than 70 percent of federal income taxes, according to the Congressional Budget Office.

This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes, payroll taxes and other taxes, according to the Tax Policy Center, a Washington think tank. Households making between $50,000 and $75,000 will pay an average of 15 percent of their income in federal taxes, while households making between $20,000 and $30,000 will pay 5.7 percent.

The latest IRS figures are a few years older, but show much the same thing. So what is the president talking about?

“There may be individual millionaires who pay taxes at rates lower than middle-income workers,” reports The AP. “In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the IRS. But that’s less than 1 percent of the nearly 237,000 returns with incomes above $1 million.”

Mr. Obama trots out Mr. Buffett, the investor and philanthropist, once again to make the populist case for soaking the rich. But what Mr. Buffett and the president neglect to explain is that the billionaire’s low tax rate is likely due to the fact that investment income — a larger percentage of the income of the well-to-do — is often taxed at a lower rate than wages. The top tax rate for dividends and capital gains is 15 percent, while the top marginal tax rate for wages is 35 percent.

Any wages Mr. Buffett earned and then reinvested have, in fact, already been taxed at a much higher rate than his secretary endured. Morally and ethically, it would be easier to argue all subsequent gains from use of those after-tax dollars should be tax-free, than to argue such at-risk investments, needed to grow the economy, should be more heavily punished a second time.

Should the tax code be simplified, removing whole thickets of exemptions and deductions designed to engineer people’s behavior? Sure — providing rates are lowered simultaneously. But protestations to the contrary, Mr. Obama here is preaching class warfare in order to shore up his progressive base, which has been muttering about his betrayals for many months now.

Envy is not pretty, and we are now seeing how bitter can be its poisoned fruit.