Monday, February 09, 2009

First Came TARP, Then TALF…Introducing RALPH



Iceland told its people to, literally, go fish. Italy is bailing out cheese makers. And the United States is bailing out, well, nearly everybody.

There’s TARP (“Troubled Asset Relief Program”), and TALF (“Term Asset-Backed Securities Loan Facility”), and any day now our new, tax-forgetful Treasury Secretary—how’s that for change we can believe?—will be announcing still more programs to cure what ails the world.

But we here at NotMakingThisUp suggest a far simpler program than TARP and TALF. We call it RALPH (“If Reed And Lots of his Pals want to pay Higher taxes, let ‘em”).

The genesis of our proposal is a recent New York Times Op-Ed piece by Netflix CEO Reed Hastings, in which the purveyor of DVDs by mail pleaded with the Feds to raise his income taxes:

Please Raise My Taxes
I’m the chief executive of a publicly traded company and, like my peers, I’m very highly paid. The difference between salaries like mine and those of average Americans creates a lot of tension, and I’d like to offer a suggestion. President Obama should celebrate our success, rather than trying to shame us or cap our pay. But he should also take half of our huge earnings in taxes, instead of the current one-third….
—Netflix CEO Reed Hastings, The New York Times, February 5, 2009



Now, we here at NotMakingThisUp admire the job Mr. Hastings has done building an unlikely business model (DVDs by U.S. Mail) into a thriving public company.

And we are all for tax fairness.

Indeed, the current gap between the capital gains tax rate of 15% and the top earned income rate of 35% has created what Warren Buffett likes to point out is the unsavory spectacle of well-paid hedge fund managers and private equity mavens paying 15% tax on income, while the cleaning lady toiling in those same offices is paying as much as 35% on her meager salary.

Of course, Buffett does not mention that he himself ran a hedge fund before devoting himself to Berkshire Hathaway in 1969. Back then, the top income tax rate was 90%, and Buffett the hedge fund manager received the same favorable capital gains tax treatment that he now criticizes.

Furthermore, when Buffett was asked via email by “Douglas from Alexandria, Virginia” on CNBC last year why he doesn’t just pony up the extra cash and send it to the Feds, Buffett fumbled:

“Well, I don't—I don't say generally people. I think the lower class, the middle class, even the upper middle class are paying more than they should be paying. I think that the super rich, like myself, you know, my tax rate was 17 and a fraction percent in 2006, and everybody else in the office was paying way more. I'm not advocating tax increases across the board at all. I'm advocating a redistribution to the super rich….”

Still, we think Douglas was onto something.

So we propose RALPH.

After all, if Reed Hastings and Warren Buffett really want to pay higher taxes, why not let them?

Last we checked, the IRS Form 1040 allowed taxpayers to check a box sending $3 to fund the Presidential Election Campaign. And there are lines allowing adjustments for foreign tax credits and child care credits, self-employment taxes and AEIC payments.

Why not a line called “The Reed Hastings 50% Tax,” in which any taxpayer may voluntarily authorize a 50% tax rate on Mr. Hastings’ “huge” earnings, Warren Buffett's billions, and anyone else who wants to pay more?

Mr. Hastings would be happy, Warren Buffett would be thrilled, and the U.S. Treasury might get fatter.

And “Douglas from Alexandria,” and the rest of us, would find out exactly who shares the desire for a higher tax rate on their declining income.



Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

11 comments:

Dan said...

The nice thing about the checkbox is it probably doesn't require Congress to debate, add earmarks, and eventually vote along party lines. The treasury can just add the box. The downside is that giving the government more money is like giving an alcoholic a bottle of liquor. Congress has no self control. Every dollar they get is an invitation to spend $1.38.

Anonymous said...

I would argue for a flat tax across the board that is reasonably low, 10%-15%, which would likely bring in more revenues because the government would tax a smaller piece of a much larger pie (Laffer Curve). The last place I want more of my money is in the hands of the government, as they tend to be wasteful allocators of capital.

Here is an example of the poor capital allocation skills of politicians that I think you might enjoy. On Greta Wire on Friday evening (Yes, I know pretty sad I'm watching this, I'll admit it) Greta asked a pretty good question to the Republican Senator from Maine Susan Collins (I think) about how they come up with the amount of money that is needed for the various projects. Her reply basically was something like we just sort of arbitrarily guess. And I'm not making this up.

Lyon Jewett said...

Jeff,

I think your "RALPH" idea could turn into a facebook phenomena.....

Do you mind if I run it up the flagpole with my friends?

Tom said...

The government could give lower-level wage-earners a few hundred a month and get it back in taxes on the higher income brackets. Those in the higher brackets would make more money as wage-earners spend it so there would be more money to tax. Just an idea anyway.

Jeff Matthews said...

LJ: Run it up the virtual flagpole, see if anyone salutes, by all means.

JM

Lyon Jewett said...

Jeff,

I started a group on facebook named
RALPH and invited 100 of my friends to join. Of course I credited you with the idea.

This should be amusing to say the least.

Thanks,

Lyon

Lyon Jewett said...

Jeff,

Here is the link to your creation....

http://www.facebook.com/profile.php?id=1031076417&ref=profile#/group.php?gid=49067153243

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Steve G said...

I agree with Warren B. Capital gains taxes needs to be brought in line with income tax, and marginal rates for high earners need to be increased. Other countries do this with no negative impact on capitalism. Extra revenues mean lower deficits and more spending on infrastructure and health.

Someone earning $33k pa pays a top marginal rate of 25%, while some getting more than 10 times that, $373k pa, gets a top marginal rate of only 35%. What would be wrong with a new marginal rate of say 40% or 45% above $450k or 500k pa?

Anonymous said...

The treasury already accepts contributions. There is no need for anything new-- Reed and Warren can do it right away. I believe it's even tax deductible.

http://www.treasurydirect.gov/govt/reports/pd/gift/gift.htm

Paul Kane said...

I'm all for voluntary, but if they try to make it mandatory, then I would say the income threshold for any higher marginal rate can't be lower then the median value of the nutties proposing it. As I scramble to build a little personal wealth, I am tired of mega-billionaires telling me to pay more taxes on my good but not otherworldly salary.