Suffer the little billionaires

Consider the plight of the fabulously rich....

I was just able to find former Council candidate Terri Tyson's spirited commentary on billionaires that aired yesterday on WCHL, and it's so perfect in a twisted way, I thought I would publish it here, with annotations

(But first, let me just say that I too hope to be a billionaire someday!)

This is Terri Tyson.

There are not enough billionaires living in North Carolina or Chapel Hill. Billionaires pay taxes like the rest of us, and often contribute lavishly to charities universities and other public needs. They certainly stimulate the economy. If billionaires are not living in our state, they're not benefiting our state. I believe more billionaires would choose to live in North Carolina if our state and local taxes weren't so high. Forbes recently released its list of billionaires, and only five of 587 live in North Carolina. It might make us feel good to place heavy state taxes on the wealthy, but they don't have to live here, and based on the Forbes list, they don't. For example, Florida has no state income tax, but has a small percentage tax on wealth, that produced enormous revenue. Many wealthy people might prefer to live in North Carolina than Florida, but are not willing to pay high state income taxes. North Carolina also imposes an estate, or death, tax; twenty-five states do not. A town like Chapel Hill with its beauty and cultural amenities should have quite a few billionaires. I know we all know of people who can't afford to live in Chapel Hill, or move away, because of the high taxes. What are the alternatives for our state and town? I hope our elected officials will give this a lot of thought.

By the way, I hope to be a billionaire someday. This is Terri Tyson.

1. Billionaires pay taxes like the rest of us... It's true that billionaires pay taxes, but they don't pay them like the rest of us. According to the non-partisan Institute on Taxation and Economic Policy, a recent nationwide study reveals the following:

The average state and local tax rate on the best-off one percent of families is 7.3 percent before accounting for the tax savings from federal itemized deductions. After the federal offset, the effective tax rate on the best off one percent is a mere 5.2 percent.

The average tax rate on families in the middle 20 percent of the income spectrum is 9.9 percent before the federal offset and 9.6 percent after -- almost twice the effective rate that the richest people pay.

The average tax rate on the poorest 20 percent of families is the highest of all. At 11.4 percent, it is more than double the effective rate on the very wealthy.

2. ...and often contribute lavishly to charities universities and other public needs. Undoubtedly true. Most of the five North Carolina billionaires have given lavishly to either N.C. State or UNC-CH, or Duke. The richest man in the world -- Bill Gates -- has also given lavishly to Duke University. And he doesn't live here in Chapel Hill either! Clearly, where you live and where you send your charitable dollars are not directly correlated for billionaires, but never mind. Moving on.

3. They certainly stimulate the economy. They certainly do. In fact, billionaire C.D. Spangler, one of the five North Carolinians on the list, started a small burst of land speculation and price inflation when he bought a house on Franklin Street for three times its likely market value, or a little more than $1 million. That's skewed the asking prices for houses in that neighborhood ever since, and who knows what sort of trickle-down effect it's had in surrounding neighborhoods? I know Mr. Spangler to be a good man (who is charming over pizza and beer at Pepper's) who loves this town, and who has a long history of using his money, influence, and participation on the Charlotte School Board and as president of the UNC System for the common good around North Carolina. But I also believe that he would be living in North Carolina whether he was a billionaire or merely (!!) a millionaire.

4. If billionaires are not living in our state, they're not benefiting our state. The Gates example above clearly refutes this. Furthermore, the list does not track where billionaires are investing their money, or in which companies. If a billionaire invests $100 million in a North Carolina company, or a company employing North Carolinians, doesn't that benefit the state? Does he not bleed? Our governor seems to think so, given his desire to give away taxpayer money as an "incentive" to big industries and their billionaire backers.

5. Forbes recently released its list of billionaires, and only five of 587 live in North Carolina. Let's clean up that number a little bit. The Forbes number counts billionaires worldwide, less than half of whom live in the United States. On the latest list, 277 of the 587 billionaires are U.S. citizens, and only 245 of those actually live in the United States. Let's be charitable and add the five foreign residents of the U.S. to the list, and make it an even 250. With five North Carolinians on the list, our state accounts for 2% of all billionaires living in the United States. Florida, which is apparently Ms. Tyson's dream state, boasts 16 billionaires, or 6.4% of the total. On a per capita basis, North Carolina slightly lags, since the state's population is about 2.9% of the national population. Clearly we're in a crisis. We need three more billionaires, STAT!

Of course, we need to leave aside the fact that billionaires are added and dropped from the list with alarming regularity, due to fluctuations in their portfolios that are beyond their control. One day you're a billionaire, and the next day you're just an also-ran multi-millionaire! In the last five years, we've had as few as two billionaires on the list, and as many as five, always the usual suspects: James Goodnight and John Sall of SAS; C.D. Spangler; Leon Levine of the Family Dollar fortune; and Ollen Smith, the godfather of stock car racing.

It's also worth noting that the methodology of the list makes it unclear how they count family fortunes. For instance, you'll notice that members of the Duke and Reynolds families aren't on the list, likely because Forbes only counts individual fortunes of over $1 billion, not fortunes shared by extended families.

But, OK, we're experiencing a billionaire shortage statewide. But remember that house that Mr. Spangler bought on Franklin Street? He and his extended family use it, and so let's call them residents in effect, if not in fact. That's one billionaire in a town of 48,521 according to the latest state population estimates. That rate is 6,000 times the national rate! It's 250 times the rate in the state of Florida! Let the rest of the country eat cake, baby!

6. It might make us feel good to place heavy state taxes on the wealthy... It would if we did, but we don't, so it doesn't. The wealthiest one percent in North Carolina, whose average annual incomes top $813,000, pay 8.9% in state and local taxes, and an effective rate of 6.1% after deductions. Families earning between $25,000 and $39,000 a year pay 10.1% in state and local taxes before deductions, and 10% after deductions. Those North Carolina families earning less than $15,000 pay about 10.6% in state and local taxes. That's called "regressive."

7. For example, Florida has no state income tax, but has a small percentage tax on wealth, that produced enormous revenue. The first part of this statement is true, and is written into the state's constitution. It's why my Marine buddies who went to flight school in Pensacola have retained their Florida residence, even though they've never lived there since. (This is possible if you're in the military.) If you ever wondered about all the Florida license plates on sports cars zooming around Cherry Point, that's why.

The second part of that statement is entirely misleading, and the third part is flat-out false. I'm not sure what a "small percentage tax on wealth is," but I do know what a sales tax is, and I know that Florida is dependent on it to an extent unrivaled around the United States. That makes Florida's tax system the second-most regressive in the nation, according to the Institute on Taxation and Economic Policy. Even Governing magazine, the nonpartisan trade journal of state and local government, gives Flordia poor grades on its tax system:

The state constitution prohibits enactment of an individual income tax, so Florida depends on general and selective sales taxes for about three-quarters of its revenue. This, inevitably, means the state is extremely regressive.

Meanwhile, corporate taxes have declined, the estate tax is being phased out, and ballot initiatives and court decisions have mandated billions in additional spending. Forty years ago, when the state’s population was about 5 million, tourism provided enough sales tax money to finance most of what the government wanted to do. Now, with triple the population, milking hotel guests and restaurant diners won’t balance the budget anymore. “It’s pretty darn hard to run the 2002 state government on a 1949 engine,” says John McKay, Florida’s former Senate president.

The magazine give out report cards: here's the one on Florida, and here's the one on North Carolina. (It's not a pretty picture in North Carolina, either.)

8. Many wealthy people might prefer to live in North Carolina than Florida, but are not willing to pay high state income taxes. Name one.

9. North Carolina also imposes an estate, or death, tax; twenty-five states do not. Well, this isn't true either. Technically, North Carolina doesn't have its own "estate tax"; it charges a "pick-up" tax in the amount of the eligible Federal estate tax credit -- just like Florida and, until 2001, 37 other states. In 2001, the U.S. Congress repealed the Federal estate tax, to be phased out over ten years (but, allegedly, reinstated in 2011), with an accelerated schedule for phasing out the Federal estate tax credits. As a result, many states have chosen to "decouple" their estate tax system from the post-2001 Federal system, choosing to continue to use the rules contained in the pre-2001 Federal tax laws. Florida has not chosen to decouple, and although they continue to charge estate taxes, those will be phased out by 2010, which even the conservative TaxWatch Florida considers to be a looming disaster for the state. By the way, neither North Carolina nor Florida charges an inheritance tax.

Leaving all that aside, if estate taxes are so universally dreaded by billionaires, why are some of the wealthiest people in the worldin favor of them, and why have they protested the 2001 repeal? William Beach of Capitalism Magazine, which claims Ayn Rand as its guiding spirit, has an explanation, but it doesn't exactly uphold the notion that estate taxes are a burden on the super-rich:

Arguments to keep the tax by the rich may sound persuasive, but actually carry little weight. Let’s face it: Unless the government creates a tax that soaks 99.5 percent of their incomes, changes in tax law don’t affect them. They can literally afford to take any position they want.

They’re also the ones least likely to wind up paying death taxes. Their armies of tax lawyers and financial consultants work to shelter every penny from the taxman. That’s why you don’t see second, third or fourth generation Rockefellers, Vanderbilts or Kennedys working at your local 7-Eleven. [They are instead working in congress to raise our taxes!--Editor]

Oops. When the libertarians scoff at the idea that billionaires are penalized by estate taxes, you know your argument is in trouble. So, what does Warren Buffett himself (who has been to Chapel Hill and has friends here) say about the subject? (From the 2003 Berkshire Hathaway annual report):

On May 20, 2003, The Washington Post ran an op-ed piece by me that was critical of the Bush tax proposals. Thirteen days later, Pamela Olson, Assistant Secretary for Tax Policy at the U.S. Treasury, delivered a speech about the new tax legislation saying, “That means a certain midwestern oracle, who, it must be noted, has played the tax code like a fiddle, is still safe retaining all his earnings.” I think she was talking about me.

Alas, my “fiddle playing” will not get me to Carnegie Hall – or even to a high school recital. Berkshire, on your behalf and mine, will send the Treasury $3.3 billion for tax on its 2003 income, a sum equaling 21/% of the total income tax paid by all U.S. corporations in fiscal 2003. (In contrast, Berkshire’s market valuation is about 1% of the value of all American corporations.) Our payment will almost certainly place us among our country’s top ten taxpayers. Indeed, if only 540 taxpayers paid the amount Berkshire will pay, no other individual or corporation would have to pay anything to Uncle Sam. That’s right: 290 million Americans and all other businesses would not have to pay a dime in income, social security, excise or estate taxes to the federal government. (Here’s the math: Federal tax receipts, including social security receipts, in fiscal 2003 totaled $1.782 trillion and 540 “Berkshires,” each paying $3.3 billion, would deliver the same $1.782 trillion.)

Our federal tax return for 2002 (2003 is not finalized), when we paid $1.75 billion, covered a mere 8,905 pages. As is required, we dutifully filed two copies of this return, creating a pile of paper seven feet tall. At World Headquarters, our small band of 15.8, though exhausted, momentarily flushed with pride: Berkshire, we felt, was surely pulling its share of our country’s fiscal load. But Ms. Olson sees things otherwise. And if that means Charlie and I need to try harder, we are ready to do so. I do wish, however, that Ms. Olson would give me some credit for the progress I’ve already made. In 1944, I filed my first 1040, reporting my income as a thirteen-year-old newspaper carrier. The return covered three pages. After I claimed the appropriate business deductions, such as $35 for a bicycle, my tax bill was $7. I sent my check to the Treasury and it – without comment – promptly cashed it. We lived in peace.

I can understand why the Treasury is now frustrated with Corporate America and prone to outbursts. But it should look to Congress and the Administration for redress, not to Berkshire. Corporate income taxes in fiscal 2003 accounted for 7.4% of all federal tax receipts, down from a post-war peak of 32 in 1952. With one exception (1983), last year’s percentage is the lowest recorded since data was first published in 1934. Even so, tax breaks for corporations (and their investors, particularly large ones) were a major part of the Administration’s 2002 and 2003 initiatives. If class warfare is being waged in America, my class is clearly winning. Today, many large corporations – run by CEOs whose fiddle-playing talents make your Chairman look like he is all thumbs – pay nothing close to the stated federal tax rate of 35%. In 1985, Berkshire paid $132 million in federal income taxes, and all corporations paid $61 billion. The comparable amounts in 1995 were $286 million and $157 billion respectively. And, as mentioned, we will pay about $3.3 billion for 2003, a year when all corporations paid $132 billion. We hope our taxes continue to rise in the future – it will mean we are prospering – but we also hope that the rest of Corporate America antes up along with us. This might be a project for Ms. Olson to work on.

10. A town like Chapel Hill with its beauty and cultural amenities should have quite a few billionaires. I know we all know of people who can't afford to live in Chapel Hill, or move away, because of the high taxes. That's the reason that we're experiencing a billionaire drought? They can't afford to live here? If the billionaires can't afford to live here, we should just pack it in. Will someone turn the lights off on their way out?

Of all the people who might be turned away by the high cost of living in Chapel Hill, I have a hard time believing that group includes billionaires. Cops, firemen, mechanics, office assistants, housekeepers, retail clerks, artists? Yes. Billionaires? No.

11. I hope our elected officials will give this a lot of thought. Oh, I'm sure they will, right after they figure out how to attract more Martians to town.

12. By the way, I hope to be a billionaire someday. Shocker.