Obama's Math: More Fuzz Than a Peach

He's looking more like a bobblehead every time he speaks.  From left to right, nose in the air, all the while talking down to those of us he views as stupid.  Well, we may be stupid, but we certainly can add, subtract, multiply, and divide better than the POTUS can.

In Obama's fist-pounding, finger-pointing, bellyaching repeat of many previous speeches, he put forth a "plan" to bring down the deficit.  And what an original non-plan it was.  Raise taxes, fake spending cuts -- just like all his other non-plans.  Nothing written, you understand, just promises to cut out fraud and waste.  And, of course, tax the rich.  This time he prefaced his "tax the rich" part by saying, "This is not class warfare; it's math."  Math?  Mrs. Davies, my 1st-grade teacher, would probably take exception to that.  Now, it seems, even arithmetic has joined the sciences taken over and rearranged by the liberal left.

The president: "They should have to defend that unfairness -- explain why somebody who's making $50 million a year in the financial markets should be paying 15 percent on their taxes, when a teacher making $50,000 a year is paying more than that -- paying a higher rate."

Since we all have a tendency (yes, even conservatives) to rush to judgment before we know the facts and what we are talking about (and because I admit I don't believe anything this guy says anymore), I forced myself to have a conversation with my accountant before I went on my rant.  He e-mailed me this:

I ran a 2011 tax projection for the two situations he outlines and this is what it shows:

-Taxpayer earning $50K - pays $4,156 in federal income taxes, or 8.3% effective tax rate (not higher than 15% as erroneously bellowed by the illustrious campaigner)

-Taxpayer earning $50M - pays $17,466,318 in federal income taxes or 34.9% effective tax rate (considerably higher than, well, you know)

Two questions for our brilliant Prez:

1.  Where did you learn math?

2.  Who in your example is paying their "fair share"?  (Note: there are two potentially correct answers here for those challenged by the obvious -- certainly "the taxpayer earning $50M" is correct, but "both taxpayers" is also a correct answer.)

Two observations:

1.  Mr. Obama should be "called out" for being an idiot.

2.  What the heck, man?

Now I am sure my accountant doesn't really want Obama and others like him to learn how to read a tax table -- after all, they might start doing their own taxes.  However, it seems reasonable to expect the president to check with his accountant (like I did) before he goes on national television and makes a fool of himself.

But then, he's used to that.

What?  Pardon me?  You are saying I misrepresented the whole thing by counting only ordinary income?  Click here if you don't know the difference between ordinary income and capital gain and don't trust my synopsis.  Otherwise, please accept my brief explanation.

Ordinary income is money earned from your job.  This can be wages from cleaning windows to being the CEO of a major corporation.  There are other inclusions, but it is essentially as I have described.  Capital gain, on the other hand, is profit from invested capital.  What's the difference, and why is there different tax treatment for the two?

First off, invested capital is, in itself, the remains of earned income after taxes have been removed.  Get it?  Taxes have already been paid on the invested income before the capital was invested.

Next, there is a possibility of incurring a loss when you invest your money, not something readily occurring with your job.  Very few of us go to work, perform our duties, and lose money as a result.

Aren't those two issues enough justification for a different tax rate on capital gains versus ordinary income right there?  Add this: capital gains are taxed at a lower rate as an incentive to invest.  Without investment, we have no new jobs, and no increased productivity, which raises everyone's standard of living.  We have no way to prepare for our retirement (other than to depend on Social Security!), and no way to make things better for our succeeding generations. 

Investment is a good thing.  If you do your job well, save some money, and invest it, it is good for you, the economy, and our country.  Please, oh please, invest some money.  We all depend on it.

Certainly we remember Mr. Buffett's article stating that his secretary paid a higher tax rate than he did.  I'd bet a prix-fixe dinner at Chez Panisse in Berkeley that his secretary has a few bucks invested in equities (maybe some in Berkshire-Hathaway), and I'd bet another dinner at the Clint Eastwood's Hog's Breath Inn down in Carmel-by-the-Sea that his secretary is paying no more taxes on her investment income than Mr. Buffett is -- and paying considerably less on her earned income than Buffet is.  Buffet's argument was blatantly incorrect and deliberately misleading, which is surprising coming from a man with such seemingly good intentions as to leave large portions of his fortune to charitable causes when he croaks.  And, just a hunch here, I'll go one more dinner anywhere that Buffett's capital employs more people than his secretary.

(By the way -- here's a tip for the IRS.  Mr. Buffett's statements imply that he is really making more money from his job -- the managing of his money -- than he is claiming, preferring to receive his earnings as capital gains and not attributing a large enough amount to his labor and expertise.  Do I get a reward for being a tax snitch?)

Here's the sad part: Obama doesn't know what to do.  Neither do his advisors.  They want to keep their jobs, but they have no idea what's going on.  Obama's like a pitcher who has been lit up for 18 runs in one inning and thinks if he keeps throwing his fastball, eventually he'll get someone out.  Unfortunately, the coach can't take him out until 2012, so he's going to keep on throwing that fastball.

And keep on bobbling that head.