Buffett Rules

There’s nothing more dismaying that seeing progressives revert back to the mistakes of the past.  I’m talking about the renewed interest in super high top marginal tax rates.  Rates even the Nordic countries abandoned years ago.  Even worse, they want to apply the taxes to income, not consumption.  As if higher taxes are going to make Buffett move into a smaller house in Omaha, rather than cut back on his donations to the starving kids in Africa.

Of course the Obama administration is leading the charge, with support from multi-billionaire Warren Buffett (and why not, it won’t affect Buffett’s living standard.)

To see just how serious Obama is about going after the hedge fund managers who financed his 2008 campaign, let’s take a look at who he chooses to subsidize.  After all, welfare economics is all about consumption, not income.

Obama’s export-subsidy chief promised a billion dollars in taxpayer-backed subsidies for corporate jets, according to Bloomberg News.

Fred Hochberg heads the Export-Import Bank, a federal agency that subsidizes U.S. exports by loaning money or guaranteeing loans to foreign buyers of U.S. goods.

Those who have taught economics know that some points that are seemingly obvious can go right over the heads of most students.  For example, subsidies are negative taxes, and hence have the opposite effect of tax increases.  If taxes raise prices, then subsidies cut prices.  (I kid you not, many students think a tax will be passed on to consumers, but a subsidy will be pocketed by corporations.  Why you ask why, they actually think it’s in the corporation’s interest to pass on tax increases, and pocket subsidies.  By which logic a $20 tax combined with a $20 subsidy, i.e. a “nothing,” would cause prices to rise by $20.  Go figure.)

Sorry if I’ve insulted anyone’s intelligence, but on questions of taxes I’ve learned it’s better to be safe than sorry.  Since the rich are the only people who use corporate jets, Obama basically wrote a Treasury check for $1,000,000,000 and handed it over to the very wealthy.

And by the way, who else benefits?  Guess who owns a major corporate jet leasing company:

President Obama, Democrats in Congress, and Obama’s billionaire fundraiser Warren Buffett are talking this week about a tax hike proposal that is mostly about politics, but meanwhile, the IRS just issued guidance on changing tax law in a way that is mostly about increasing profits for corporate-jet owners and Obama’s billionaire fundraiser Warren Buffett, who owns a corporate-jet company.

Berkshire Hathaway, Buffett’s holding company, owns NetJets. NetJets is a company millionaires use in order to arrange fractional ownership of private jets — time shares, of sorts. NetJets lobbied like crazy, as Ryan Grim and Ariel Edwards-Levy at Huffington Post explained last month, to change the treatment under the tax code of flights on fractionally owned jets.

Yup, Buffett owns a corporate jet company.  Now you understand the title of the post, I’m using “rules” as a verb.

About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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