Postmodern Nomadism with Children
Sharp Little Teeth

Welfare for the Wealthy: Are Bush's Big Backers Looting the U. S. Treasury?

David directs my attention to two pieces on the Bush tax cuts:

Warren Buffet explains how the Bush tax cut will reduce his personal tax rate to 3 per cent:

Now the Senate says that dividends should be tax-free to recipients. Suppose this measure goes through and the directors of Berkshire Hathaway (which does not now pay a dividend) therefore decide to pay $1 billion in dividends next year. Owning 31 percent of Berkshire, I would receive $310 million in additional income, owe not another dime in federal tax, and see my tax rate plunge to 3 percent.

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. Let me repeat the point: Her overall federal tax rate would be 10 times what my rate would be.

When I was young, President Kennedy asked Americans to "pay any price, bear any burden" for our country. Against that challenge, the 3 percent overall federal tax rate I would pay -- if a Berkshire dividend were to be tax-free -- seems a bit light.

Administration officials say that the $310 million suddenly added to my wallet would stimulate the economy because I would invest it and thereby create jobs. But they conveniently forget that if Berkshire kept the money, it would invest that same amount, creating jobs as well. . .

Supporters of making dividends tax-free like to paint critics as promoters of class warfare. The fact is, however, that their proposal promotes class welfare. For my class.

And here's another piece: What Happened to the 'Fairness' In the Dividend Tax Cut? by Allan Sloan

You can disagree on whether cutting dividends is a good or bad idea. But if you care about telling the truth, you have to be appalled at the president's "fairness" pitch on dividends and with Congress's phony math on the budgetary impact of dividend tax cuts. As a bonus, you can worry about whether the Senate legislation adopted last week has opened one of the biggest tax loopholes in history, a subject we'll deal with later.

You remember back when the push to eliminate taxes on dividends started? President Bush and his understudies and groupies carried on endlessly about ending supposedly unfair "double taxation of dividends." Tax should be paid "once and only once," the mantra went. The Treasury produced an elaborate plan to ensure that dividends eligible for tax-free status had to come from profits on which corporate income tax had been paid.

But guess what: That provision is gone. . . .

Now, to the loophole. Congressional tax staffers, who for obvious reasons prefer to remain anonymous, think they've already found a multibillion-dollar loophole created by the Senate legislation. It goes like this. A corporation can pay investors a huge, tax-free dividend consisting of all its profits since the income tax was created, less any dividends paid during that period. As part of the deal, the company will make it attractive for its investors to buy new shares of stock from the company for the total amount of the dividend. The company's total stock market value won't change because its profits and asset values remain the same. It's like a stock split, with more shares selling at a lower per-share price. But this way, an investor's cost basis for computing capital gains taxes will be greatly increased, because it will consist of the price she originally paid for the stock, plus the value of the dividend. And when the investor sells, her capital gains tax will be smaller. Bingo, a windfall.

Yes, that's a little hard to follow, but it looks to me as if it will work. With a president preaching faux fairness and Congress producing phony numbers, what's a few hundred billion extra dollars of tax breaks among friends?

It looks to me like the U.S. Treasury is going the way of the Baghdad Museum. Do you think we'll be getting our key pieces back?

(See also my previous discussions of the Bush tax cut.)

AND SPEAKING OF THE TREASURY: Oh where oh where has our trillion gone? Oh where oh where can it be?

MEANWHILE: Is there a purge going on or something? Christie Whitman Resigns. Who's next?