9-9-9

Leaving aside the difficulty President Herman Cain might encounter getting Congress to slash the top tax bracket from 35% to 9% (and from 15% to zero on their capital gains) . . . and leaving aside the unfairness of funding those cuts with tax hikes on the poor and middle class . . . and leaving aside the irony of allowing “charitable giving” as the one remaining deduction (taxing the poor to fund breaks for the rich seems anything but charitable*) . . . and leaving aside the uncertainty such a drastic proposal would cause as decision-makers wondered whether it could actually pass and, if it did, how long it could survive and what its impact would be (uncertainty, the Republicans tell us, is what’s paralyzing the economy**) . . . leaving aside all that, there is this: Herman Cain told “Meet the Press” host David Gregory Sunday that his 9% federal sales tax – on things like bread – would not cost the poor anything.

He explained that taxes on the corporation that made the bread would be lower, and on the company that delivered the bread would be lower, and on the bodega owner that sold the bread would be lower . . . so, he said, competition would force them to pass on the savings and the price of bread would go down. Don’t you understand competition? he more or less asked David Gregory.

But here’s the thing: Those taxes are not a cost of producing the bread. Yes, if the cost of wheat went down, it’s possible some of the savings would be passed on. Wheat is a cost of producing bread. If bakery or stockroom wages were reduced (say, by allowing child labor and abolishing the minimum wage), competition might drive down the cost of bread. But tax on the profit from making (or delivering or selling) the bread is not a cost of making (or delivering or selling) the bread. Owners will still have the same incentive to maximize profits they always did; and will be no more eager to share their profits with consumers than they ever were. Did your landlord lower your rent, or your parents’ rent, when his tax bracket fell from 70% under Carter to 28% under Reagan? As a shareholder, did you expect management in the bakery you own to lower prices when the tax rate on your dividends fell from 39.6% under Clinton to 15% under Bush?

It’s a fine notion to simplify the tax code.*** I’m all for it. But one piece of the code that could hardly be simpler is having higher rates for rich people than for poor people. It would not in fact strain the nation’s computing capacity to have several rates, with the very highest reserved for income over, say, $10 million a year. That may seem a bum deal for such people; but one day this week I hope to tell you the story of Warren Buffett’s genie.

*And, by the way, a 9% rate would diminish charitable giving, the after-tax cost of which for rich people would spike up to 91 cents for each dollar given, from an after-tax cost of 65 cents today.

**In fact, of course, it’s not uncertainty over taxes and regulation that are paralyzing decision-makers, as the Republicans claim, but uncertainty over whether our political system is up to the challenge of setting the economy on a sustainable path. Things like modernizing our crumbling infrastructure, making 100 million homes and offices energy efficient, and teaching our kids the skills they’ll need to compete in a global economy – things that can’t be done by lowering taxes or laying off teachers.

***In that interview he also said poor people would save on the cost of tax preparation. A cost they do not, of course, have. I think what he meant was that the overall cost of everyone’s tax compliance, including corporate tax compliance, is $430 billion – that was the number he used. To the extent that number is fair – and it seems to me that at about 3% of our overall GDP it must be stretched to the limit of a variety of aggressive assumptions – I don’t think it’s realistic to think business will ever run without accounting of any kind. So just how much of that $430 billion would be saved, and how much of that saving would lower the cost of a poor person’s bread, I hesitate to weigh too heavily. But, yes: let’s simplify the tax code.

WARREN BUFFETT’S CHAIN LETTER

This is not that story.

This is the story of an email I got yesterday from a widely-known national journalist, passed on to me and a long list of others at the purported urging of Warren Buffett, urging each of us to pass it on to a minimum of 20 others.

The email begins this way:

Warren Buffett, in a recent interview with CNBC, offers one of the best quotes about the debt ceiling:

“I could end the deficit in 5 minutes,” he told CNBC. “You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election.”

The 26th amendment (granting the right to vote for 18 year-olds) took only 3 months & 8 days to be ratified! Why? Simple! The people demanded it. That was in 1971…before computers, e-mail, cell phones, etc.

Of the 27 amendments to the Constitution, seven (7) took 1 year or less to become the law of the land…all because of public pressure.

Warren Buffet is asking each addressee to forward this email to a minimum of twenty people on their address list; in turn ask each of those to do likewise.

☞ Well, no.

I checked with Mr. Buffett and he has not in fact encouraged anyone to forward this email.

I replied to my well-intentioned journalist friend . . .

If you read the full CNBC transcript you’ll see that, yes, Warren is frustrated that Washington has allowed our national finances to grow so precarious.

But he is not literally working to amend the Constitution this way. At a two-hour Obama fundraising dinner that he headlined for us recently, he never mentioned it. (Rather, he said now is NOT the time to put a sharp brake on government spending.)

[BTW, this nightmare began when Reagan/Bush quadrupled the National debt in 12 years by overdoing tax cuts for the best off . . . righted itself when Clinton raised their taxes somewhat and moderated military spending, handing Bush 43 and a Republican Congress “surpluses as far as the eye could see” . . . then became a disaster as Bush 43 further slashed taxes for the best off, squandered the surplus, and handed Obama three remarkable gifts: $4 trillion more in debt; a baked-in $1.5 trillion 2009 budget deficit; and an economy on the brink of depression.]

We +all+ share Warren Buffett’s frustration . . . I venture to say none of us more than the President himself.

And we all want simple solutions. (Here’s one I like: how about putting millions of people to work – for private companies – doing work that desperately needs doing? Like repairing 158,000 substandard bridges and 35,000 substandard schools.)

But forcing Congress to limit the deficit to 3% of GDP even during emergencies (like now) is a terrible idea that could, among other things, make the deficit WORSE as it plunged us into depression.

MOST years, for sure, the debt needs to grow slower than the economy, so over time we shrink the debt relative to the economy as a whole. In 1930 it was 30% of the GDP. In 1940, after all the WPA projects and such, it was 40% — but then WW II came along, which we simply had to win (and which many believe provided the stimulus to end the Depression), and we ran the Debt up to 121% of GDP by 1946 . . . when we began a 35-year period of gradually growing the debt slower than the economy . . . handing Reagan a 30% ratio of Debt to GDP when he took office in 1980.

Right now we need LOADS of government spending — ideally, on productive infrastructure that will last 50 or 100 years — to win +this+ “war” to make the country efficient and competitive again. (Which sure beats borrowing to build tanks and bombs to blow things up.)

But leaving aside how insane it would be to throw the brakes on the economy right now — even as we all agree we need to chart a sustainable +long-term+ post-recovery path — what of the +mechanics+ of this Constitutional Amendment?

Kick out all 435 representatives and the entire institutional memory of the place all at once, swearing in 435 freshmen/women and complete political chaos? And when? In the election right after the budget is passed but before it has played out? The election five weeks after the offending fiscal year has ended? (The fiscal year ends September 30.) And with what accounting tricks allowed or not allowed to +calculate+ the budget deficit and GDP? And with what Supreme Court challenges +to+ those calculations? And what if the GDP were revised upward or downward months later, as usually happens? Undo the whole thing if it turns out to have been a 2.92% deficit instead of 3.06%?

  • We need “fair districting” so centrists once again have a chance at being elected and working together.  (The Florida fair-districting initiative many of us worked hard to pass may eventually undo much of the gerrymandering in that state — if we can beat back the Republican attempts to subvert it.)
  • We need to get rid of anyone who signs an anti-tax pledge.  That can be done next November.  (We need to start NOW registering millions of voters and helping millions more overcome the obstacles-to-voting that Republicans have been erecting.)
  • And we need, I humbly submit, to channel our frustration constructively.

Warren Buffett is headlining fundraising dinners to help elect Democrats.  And he recently sent in his own max-out check.

If you think he’s a smart guy and a rational capitalist — and I happen to think he’s the +smartest+ guy (and most rational capitalist) — then I’d encourage you to follow his lead and support the President.  (We take smaller contributions, too.)

Please push back on those who sent you this email.  Their intentions are surely good; and they will want to correct the impression that Warren Buffett has asked them to forward it.

☞ The purported “Warren Buffett email” went on to list 7 other measures – not just the 3% deficit cap – to include in a Constitutional Amendment aimed at members of Congress.  E.g., no Congressional pensions.  Even for those already receiving them.  Just cut them off.

There is anger in the land, and frustration, and suffering.

But can we be clear about one thing?  It is not suffering on the part of the handful of billionaires funding much of the Republican push to shift ever more wealth and power to the already rich and powerful.

 

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