Liberal Sound Bites Obscure a Danger to Risk-Takers
I recorded the recent State of the Union address to have a full and accurate transcript of President Obama's policy proposals. Actual words count.
I believe that his populist pronouncements are simply not a recipe for long-term success. He claims that the rich act solely for self-interest and that they care nothing for "middle America." The system is not "fair," says the president. And in the name of fairness, he is putting risk takers on the defensive.
The United States of America has traditionally been a nation of individual freedom and risk activities. That sets this country apart from most other nations and served as the foundation of a great, growth-oriented economic system that accumulated vast capital wealth. Successful risk-taking has yielded much higher returns than safe investments. Today, risk-taking is under assault by Obama's tax proposals.
Politics has become a game of sound bites directed to mass audiences via radio, television and the Internet. The users of these sound bites have blurred the lines between good behavior and bad, between production and consumption, between truth and fiction. And they do so without shame.
One party goal seems to be supporting centralized federal government power and control of what had been private decision-making. The other party goal is for dismantling the current structure in favor of returning local decisions to local governments. That second task is easier said than done, because of a century of the transfer of power to Washington and because certain common tasks are best performed by one decision-making body.
The current president finds a stigma in accumulated wealth and feels justified in inserting government dictates on the owners and producers of the wealth. The public is somewhat sympathetic to the president's position, as evidenced by low congressional approval ratings and terms such as "crook" and "greedy" that populate comments about corporate leaders and many in government.
Unfortunately one of the most successful risk-takers has given his support to the assault on capital investment. He is Warren Buffett, a legendary investor. He is a risk investor and a shrewd manager. Buffett is a rich man.
Now one of the most successful investors in modern times has turned his back on a fundamental tenant of capitalism and pronounced the "Buffett Rule." The proposal states that any taxpayer who is reporting income more than $1 million per year from any source should pay a tax of 30 percent on the total - no matter what the source.
The concept is disgraceful to capitalism and to investors from all walks of life. Sound bite publicity lumps capital gain income and ordinary income in one tax basket for upper-income people.
Buffett has said that he pays a lower tax rate than his secretary, as though it was sinful. Comparing ordinary income to capital gain income is comparing apples to oranges and is pure spin. Shame on you, Warren. You are biting the hand that feeds you.
Mr. Obama demands that millionaires and billionaires pay their "fair share." Obama then determines the measure of "fair share." That, too, will not work. Any unchanging politically established measurement will not reflect current times after inflation and is as flawed as the politically established retirement age that has made the Social Security model obsolete.
Ordinary income is income received as payment for employee labor or, in some cases, as payment for services. Capital investment, on the other hand, is made with funds that are generally made available after income taxes are paid. Capital investments are "risk" investments and serve as a storehouse for savings. Investment vehicles permit appreciation without taxation until liquidation.
Most Americans own risk investments either directly or indirectly. The middle-class family home is a risk investment because value depends on the worth of similar properties in the area. The nationwide collapse of housing prices has impacted a broad range of homeowners. Few can escape the broad-based loss of value.
No amount of government intervention in the real estate market will impact price levels, much less create a marketplace for price appreciation. Absorbing the inventory can only happen over time, helped by increasing population numbers and growth of ordinary income. A growing economy will hasten the process.
In the meantime, political leadership claims it will "do something" about the worldwide economic weakness, and then it touts the "Buffett Rule."
Why would any owner of capital pay for a growth strategy when the rewards have been cut by politicians? The sound bite is popular in some quarters, but it is a recipe for stagnation.
Walter B. Bull Jr. lives in Pinehurst.
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