A Cheeseburger in Paradise

Wait. Not the same Buffett?

Don’t lie. You thought that the “Buffett Rule” had something to do with prohibitions against trips to Margaritaville or otherwise getting drunk and turning repeatedly. Didn’t you? And, some, hopefully smaller, percentage of you thought it was a ban on one of any of the various forms of acquiring food along an alloy rail of successive vats of gelatinous food product. (Honestly, I thought it was a pro-shoeshine lobby. One too many? I know.)

So Obama has been stumping for the Buffett Rule, named for billionaire Warren Buffett. In short, the proposed legislation would set a minimum requirement that anyone who makes over 1 million dollars would be required to pay taxes at a minimum 30% tax rate. The Senate rejected the proposed legislation today.

I’m not an economist. I’m not even the dopest economics-conversant rapper, unfortunately. In fact, it could safely be said that rap has produced the most inexhaustible and salient library of songs touting our economic model at work the world has ever known. For its ubiquity, think C.R.E.A.M by Wu-Tang; for issues of the glass ceiling and gender equality, think Golddigger by Kanye; for monetary policy, think In Money We Trust by Bun B; for wage and hour policy, think Paid in Full by Eric B. and Rakim; for venture capital and hedge fund management, think Dead Presidents by Jay-Z; um, and, of course, for retail and marketing, consult The Ten Crack Commandments by the Notorious B.I.G. Keynes and Smith are turning their coffins into a from-the-beyond-kaleidoscope for the number of times this blong has made them roll over.

As usual, but maybe today more than ever, this site should not be the last word on the subject of the Buffet Rule in your life. In truth, it probably shouldn’t be the first or any of the interim words either. But, I think this is worth noting.

When we think about the “rich” evading taxes, we imagine a carnival of clever accountant clowns tandem-bike riding stacks of cash through a fiery loophole. As well we should. But, much of the perceived “evasion” enjoyed by the rich is actually a function of how they make their money rather than some sort of unknowable trickery. When rich people get a paycheck, that money, certainly at the marginal dollars, is actually taxed at a much higher rate than most of the income made by people reading this blog (except of course, for you Mr. Billy Gates! My man.) (You probably hear the term “marginal dollar” or “marginal tax rate” all the time without explanation. Most people’s money is not taxed uniformly. For example, and just to make it easy, let’s say $10 is a LOT of money in our hypothetical news rap economy. And, trust me, it is. The first 4 dollars might be taxed at 20%. The next $3 at 30%. The next $2 at 40% and the last dollar at 50%. That last dollar is your marginal dollar and 50% is your marginal rate.) But, rich people make MOST or at least a LOT of their money from interest and dividends and income made off of capital assets, like stocks and bonds. Some of that taxable income is called a “capital gain.” Because it is generated from money that has already been taxed once, i.e. your paycheck, the capital gain tax rate is lower than the regularly applicable rate. So millions of dollars of income for the wealthy are often taxed at this lower rate. I don’t think I’ve ever been out so far on a limb of ignorance. To my HBS friends, please, please show grace.

Anyway, like everything, there are two sides. Our current and graduated tax system recognizes a type of fairness that says people with little discretionary income, should not be taxed comparably to those who have a lot of it. The Buffet Rule is an extension of that idea. It effectively raises the capital gains tax for certain people and not others. At the same time, we understand that the wealthy in our country fuel the economy that gives the rest of us jobs and wealth. Their capital gains make our Capital gain. Of course, this is also all kind of political. And, in the ideological exchange, you can imagine that there are hopes for just good ol’ fashioned (U.S.) Capitol gains as well.

So, choose sides wisely, Blongorians (just coined that). Because, “I spent four lonely days in a brown L.A. haze and I just want you back by my siiiiiide!” Wait, that didn’t make any sense at all.

Performed by ipoetlaureate. Music produced by pumpknFoot.

Today’s song blog here:

The Capitol Gains