It's ironic. In the column he talks about "voodoo economics" and "Enron-style accounting" -- but that's precisely what Buffett has no choice but to stoop to in order to justify his position that eliminating dividend taxes "would further tilt the tax scales toward the rich." Tilt? Further? According to the Internal Revenue Service, the top 10% of American households by income pays 66% of all the income taxes, and according to the Congressional Budget Office, the relative burden on the highest income-earners has gotten heavier over the last two decades.

Yet Buffett starts by making the extraordinary claim that he and his receptionist currently both pay the same 30% of their very different incomes to the federal government. This is pretty much impossible unless receptionists in Omaha are paid more than the CEO's of the companies they work for. Buffett takes a salary of $100,000 from Berkshire Hathaway (according to the company's most recent proxy statement) -- and assuming that his receptionist makes the same amount, then her average federal tax rate would be something like 16%, according to the IRS's online calculator. Adding the 6.2% payroll tax paid by her employer, we get to about 22%. Her salary would have to be about $250,000 to get up to the 30% Buffett claims. Can I have her job?

Okay, let's give Buffett a pass on that one and assume he's got the highest paid receptionist in Omaha (or anywhere else). Even if he and she are both paying 30% of their income in federal taxes, are they in any sense equal as taxpayers? No -- because the dollar amounts of their payments are vastly different. At 30% of $250,000, the reception is paying $75,000 in taxes. Working backward from figures provided by Buffett in his column, we can guess that his income must be something like $50.3 million dollars. 30% of that is $15.1 million.

Buffett isn't paying the same as his receptionist -- he's paying 201 times more.

Now let's see how that would change if taxes on dividends were eliminated. Buffett looks at a scenario in which Berkshire Hathaway declares a $1 billion dividend (it actually pays no dividend currently), to which 31% stakeholder Buffett would be entitled to $310 million tax free. That would raise his total income to $360.3 million, on which Buffett says he'd pay an average tax rate of 3%. Buffett says, "And our receptionist? She'd still be paying about 30 percent, which means she would be contributing about 10 times the proportion of her income that I would to such government pursuits as fighting terrorism, waging wars and supporting the elderly."

But 3% of $360.3 million is $10.8 million -- still 144 times what the receptionist would pay.

But be that as it may, here's Buffett's big accounting trick: what he doesn't tell you is that, because Berkshire Hathaway pays no dividend now, if it were to pay one tax-free in the future nothing would change! Yes, Buffett's money would be transferred from his corporate pocket to his personal pocket -- but if he wanted to transfer it back, Berkshire Hathaway could issue more stock and he could buy it. Nothing would change -- except that he’d probably get some capital gains tax savings, potentially in the distant future, because the cash will have been paid out of the company.

Buffett's average tax rate would not even change in the way he claims it would. Yes, income from dividends he's already receiving would become tax-free. But other than that, if he claims that his new tax rate would be 3%, then it must be pretty close to 3% now -- except that Buffett is choosing to arbitrarily not consider as income his money already being earned inside Berkshire Hathaway that is simply not being paid out. It's still his.

In that sense, Berkshire's failure to pay that money out to him right now and subject it to today's dividend tax rates is, at heart, a tax shelter (of which Buffett says in the column "I've never used any").

And Buffett pulls another big accounting swindle when it comes time to recommend what he would do rather than eliminate dividend taxes. "Instead, give reductions to those who both need and will spend the money gained… Putting $1,000 in the pockets of 310,000 families with urgent needs is going to provide far more stimulus to the economy than putting the same $310 million in my pockets."

The swindle? Buffett pretends the proposed tax cut was the entire $310 million value of the dividend, not just the elimination of the current tax on the dividend. Bush's plan wouldn't have ever have put $310 million in Buffett's pocket -- all it would have done is save him the tax on $310 million, call it $110 million. Sound familiar? Paul Krugman makes Bush's tax cuts look expensive by "forgetting" to divide by ten; Buffett's not a Ph.D. economist, so he only "forgets" to divide by 3.

Buffett moralizes, "When I was young, President Kennedy asked Americans to 'pay any price, bear any burden' for our country." Yet for all his moralizing, Buffett's column never deals with the moral problem at the core of the current double taxation of dividends. Money paid out to shareholders as dividends was the shareholder's money all along -- money that has already been taxed when the corporation pays its corporate income tax. The payment of a dividend is nothing but a transfer of someone's already taxed money to himself.

If Buffett wants to make the judgment that the rich should pay more for government services to be enjoyed by all, then let him do so, and let him suggest optimal ways that such taxes should be levied in the future. Hey, in the meantime, he should feel free do a little leading by example by personally paying more taxes voluntarily. But even if he's not quite that sincere, if he has any moral convictions about such things he should at least refrain from the hypocrisy of making his arguments using the kind of accounting tricks he damns others for.

Correction [5/21/2003]: An alert reader points out that while paying out a tax-free dividend to Buffett from Berkshire Hathaway would not change the amount of dividend taxes paid by Buffett, since no dividend would have been paid anyway, it would likely reduce his capital gains taxes at some point in the future because the stock price would reflect the payment of the dividend. The text above has been amended from the original to reflect this.

Posted by Donald L. Luskin at 5:07 AM | link  

Eagle-eyed reader Thomas O. Miller has come up with evidence that definitively proves that Paul Krugman never believed -- from the very beginning, and by his own admission -- the theory necessary to underpin his multiple self-justifications for the lies in his now-notorious April 22 New York Times column. In that column, he claimed that the 1.4 million jobs created by President Bush's $726 billion ten year tax cuts would cost $500,000 per each $40,000 per year job they create. To justify not dividing the $500,000 by ten, Krugman was forced to pretend that he believed all along the jobs created would only last a single year (a case he tried to make over ten increasingly desperate apologiae spread over eight postings on his personal site: one, two, three, four, five, six, seven, and eight).

Miller discovered a transcript of Krugman's January 31, 2003 appearance on PBS's "Wall $treet Week", in which he was interviewed by Geoff Colvin.

"KRUGMAN: ...of course, it's an enormous expense. The administration's own estimate -- we're now told we don't know how they get this -- is that this thing is going to add half a million jobs in the next year. Now you take that or leave that, but a $674 billion plan for 500,000 jobs, even with fuzzy math that's more than $1 million per job. Something is wrong here.

"COLVIN: Well, but it's going to go for longer than just this one year, right?

"KRUGMAN: Well, yeah, but then the question is, if we're thinking about the long run, we've got to ask ourselves how are we going to pay for this thing?"

Back then Krugman was working with a smaller number of jobs expected to be created, so the lie was $1 million per job, not $500,000. But it's the same lie, and Colvin immediately caught Krugman at it when he asked "it's going to go for longer than just this one year, right?"

And how does Krugman respond? Does he talk about liquidity traps and IS/LM curves and all the other econobabble he's spewed up in all his apologiae? Does he even simply say "No, Geoff, I can't explain all the details but those jobs will vanish after one year."

No... he admits it! He says, "Well, yeah, but then the question is..." ...is...something else.

He admitted it!

So much for all the Ph.D. elephant shit, so much for the "I have been telling a consistent story" lies. I can't wait to hear the inevitable eleventh apologia in which Krugman will try to find some way to lie his way out of this.

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But sadly, another alert reader has found another example of the propagation of Krugman's lies through the spread of KARS -- Krugman Adaptive Repetition Syndrome (a virus spread by contact with newsprint, which causes the victim to repeat Krugman's lies until his eyes roll up and his head caves in).

Bret Swanson caught Congresswoman Sheila Jackson Lee on CSPAN speechifying with these visual aids:

As Swanson says, "Think, with $550 billion, we could put 14,850,000 cops on the streets..."

Posted by Donald L. Luskin at 12:02 AM | link  

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Monday, May 19, 2003

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MUTANT KARS!    Alert reader Matt Craighead has detected the outbreak of mutant strain of the KARS virus -- a previously unidentified form of Krugman Adaptive Repetition Syndrome. Here's Mark Shields on CNN.com's Inside Politics:

"Rep. Rob Portman, R-Ohio, a close Bush ally, predicts, 'This (House-passed tax-cut) bill will create 1.2 million jobs by the end of next year.' Given the $550 billion that the U.S. Treasury will have to borrow and add to the swelling national debt to cover the cost of the bill, that would figure out to approximately half a million dollars per job -- not cheap."

Craighead says "Unbelievable. Truly unbelievable." Yep. Almost a month after I demolished the lies about President Bush's tax cuts in Paul Krugman's April 22 New York Times column, they're still bouncing around the media echo chamber.

Why? Well, Krugman’s pod-people just won’t take their defeat with dignity and move on to the next lie. For example, I'm told that "Bobby" -- the proprietor of the fawning online shrine to all things Krugman, "The Unofficial Krugman Archive" (I kid you not) -- has sent dozens of emails to my editors at National Review Online, begging them to fall for Krugman's after-the-fact ad hoc neo-Keynesian arguments designed to reduce his lie to merely bad economics. I guess this mini denial-of-service attack against NRO's mail server is his little form of shock and awe. Call it Operation Infinite Sycophancy. No statues have toppled yet, at least as far as I know.

Posted by Donald L. Luskin at 11:59 PM | link  

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Sunday, May 18, 2003

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CORNEL WEST RELOADED    Cornel West, who describes himself as a "radical democrat" and "one of the most preeminent minds of our time", who has acted as director of Al Sharpton's presidential exploratory committee, who has starred in the rap CD Sketches of My Culture, and who is Paul Krugman's colleague as a professor at Princeton (having been forced out of Harvard by Lawrence Summers, whom West called "the Ariel Sharon of American higher education"), now appears in the new film The Matrix Reloaded.

According to the New York Times, "He delivers only one line, but it's a doozy:"

"Comprehension is not requisite for cooperation."

I haven't seen the movie, so I have no idea of the context -- I'll give West's character, "a wise councillor [sic] of Zion," the benefit of the doubt and assume he's a good-guy speaking of the evil of The Matrix, the all-encompassing system of illusion designed to enslave the human race (you might say The Matrix is the ultimate conspiracy to keep you poor and stupid). But whatever the context, the irony is inescapable. West's single line is a near-perfect confession of the way academics like West and Krugman have corrupted and weaponized their respective disciplines, and put them at the disposal of the political warlords who mastermind today's all too real conspiracy to keep you poor and stupid.

I say near-perfect because the perfect version looks like this:

"Incomprehension is not requisite for cooperation."

Posted by Donald L. Luskin at 2:57 PM | link  

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