9/21/2011

Media Matters selectively quotes my piece on the "Buffett Rule," and leaves out what I say is the most important argument


Media Matters quotes my argument first among conservative commentators, but, of course, they do so selectively. They leave out what I argue is "more important."

But much more importantly, Buffett's claim ignores why the capital gains and dividend tax rates are set at the level they are: corporate income has already been taxed once when the company earned it. In the United States the combined federal and state corporate tax rate is 40 percent, the highest rate in the world.
So let's take a simple example. Suppose Warren Buffet invests his money in a company and that company earns $1. The company pays 40 cents in income taxes. If the remaining 60 cents is paid as a dividend, the 15 percent dividend tax rate leaves the stockholder with 51 cents, for a combined effective tax rate of 49 percent. The analysis is the same if the company keeps the money, raising the value of the company stock, and creating a capital gain. The rate would be higher if there is a state income tax. . . .

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