Buffet Rule = Circular Firing Squad of Unintended Consequences

By Bob Nox
September 23, 2011
Comments Off on Buffet Rule = Circular Firing Squad of Unintended Consequences

Here’s my take on the fatal flaw of the Obama’s so-called Buffet Rule:

1.  The Buffet Rule is designed to raise tax rates on the wealthy, but it would be better said as raise the tax rates on high income earners.

2.  People with the highest incomes usually make most of their income as dividends or capital gains instead of as wages or salary.

3.  So to be effective the Buffet Rule would have to raise the cut the government takes for dividends and capital gains.

I think there’s nothing controversial here so far but follow me now:

4.  People with wealth often buy Tax Free Bonds so they can avoid paying taxes on the income they earn investing their capital.

5.  Tax Free Bonds = State + Municipal Bonds.   Not all, but usually state and municipal bonds are tax free.  Many are triple tax free.

6.  State + Municipal Bonds finance the construction of schools, roads, bridges, dams and other infrastructure.

That was easy.  These days almost everybody wants more and better schools and infrastructure.  Nothing controversial.  Heck, the tall guy in the good looking suit has been stumping around the country about our need for more of this good stuff.

7.  Here’s the rub:  POTUS wants to build these things but POTUS also wants to raise the effective tax rates of those who buy the very bonds that finance most of these infrastructure projects.

8.  So if implemented, the Buffet Rule would disincentivize people from investing their capital in the types of investments that fund infrastructure projects.

9.  Load Rifles.  Form Circle.  Aim.  Fire.  Repeat Again as Necessary.

The pitch is easy to understand:  millionaires shouldn’t pay a lower tax rate than the working middle class types who make America great.  Check.

Like just about every “Genius” progressive idea, the devil is in the details.  And the end results is often the opposite of that intended by the solons who conjured it.

Especially when it’s done in the name of “Fairness” to the middle class.

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