Mr. Buffett, His Secretary & Their Tax Rates

Inequality's pair most iconic,
Mr. Buffett and Mrs. Bosanek,
Have talked up the facts
Of the rates of his tax,
Which are lower than hers – most ironic.

"An investor like Buffett," says Mankiw,
"Has firms that pay tax as well, thank you;
We must add the taxation
Of each corporation
To see in which bracket we rank you."

So taxation's not simple as "one-two",
You can argue the point if you want to,
But unequal or not,
Ms. Bosanek ain't got
Someone else she can pass the tax onto.

Harvard's famed Professor Greg Mankiw, who chaired President George W. Bush's Council of Economic Advisers (and may someday do the same for Mitt Romney, if things should take such a turn), has made his voice prominent in rebutting the claim of Warren Buffett that he pays a lower income tax rate than his secretary. Debbie Bosanek pays roughly 33% of her income in taxes, while her billionaire boss pays 19%. The difference is due to the 15% rate of taxation on capital gains, which liberals argue is unfair. Professor Mankiw has argued that one must consider the shareholder's stake in the corporate income tax paid by the companies he owns.

Along comes a new and intriguingly anonymous blogger to put meat on the bones of Mankiw's argument. "PrometheeFeu" points out that, if Buffett pays 15% tax on his dividends and the company paying the dividend has already paid 25% income tax, then this is the same as a 35% income tax between Buffett and the original source of the income. Furthermore, one must distinguish between the person who pays the tax and the people on whom the burden of the tax ultimately falls. In other words, corporate tax burdens can be passed along to customers, vendors and employees as well as shareholders. However, this second point undermines the first, since it suggests that the companies owned by Berkshire Hathaway may spread the burden of their taxes, while Mrs. Bosanek would be hard-pressed to do so.

Davos: Private Gain, Public Pain

There's a forum for serious chatter
By the bankers and leaders who matter,
Who will see, when they're done,
That the debts of the one
Are obligingly backed by the latter.

This week, the global business and political elite meet at the World Economic Forum in Davos, Switzerland. Founded in 1971, the WEF describes itself as an international organization of large corporations "committed to improving the state of the world" with "no political, partisan or national interests." But, says Bloomberg columnist Jonathan Weil, "It’s becoming hard not to suspect that the annual gathering in Davos has become a conclave for global elites to promote crony capitalism and state-backed enterprise, ensuring that national coffers remain available to be tapped for private gain." Exhibit A in Weil's case against the Forum is its Co-Chair, Citigroup CEO Vikram Pandit. Angrily detailing the ways in which Pandit has "failed upwards" at his former hedge fund and then at Citi, ultimately taking multiple federal bailouts while declaring his institution to be sound, Weil concludes, sarcastically: "These little rough patches in the financial industry offered just the kind of hands-on experience the forum’s organizers were looking for in a leader, in which case they found their man."

Industrialist Obama

"To create better jobs in the shorter view,
Manufacturing needs the support of you,
For to firm up the health
Of our national wealth,
We must build some more cars and export a few."

President Barack Obama, in his State of the Union address on Tuesday night, predicted that manufacturing products for export would turn the US economy around. The President singled out companies such as General Motors and Master Lock as examples of this potential. Such rhetoric made Marketplace reporter Heidi Moore wonder whether we could build enough stuff to fill the financial hole left by crisis-riven banks. After all, the financial sector accounted for one third of US corporate profits before the bubble burst. Responded University of Maryland economics professor Peter Morici:

"We cannot succeed as an economy without a strong manufacturing base." While Wall Street has made a lot of money, Morici says, "It's nothing compared to the wealth generated by labs that come out of manufacturing."

State of the Union: Commando-In-Chief

"Though obstructionists threaten to ruin it,
Those who know what they say don't impugn it:
When I sound the attack,
Our economy's back
Like the Navy SEAL Bin Laden unit."

US Pres. Barack Obama, seeking to tie his military successes to hopeful signs in the economy, gave his economic-themed State of the Union address a military motif. The speech began with a salute to returning Iraqi war veterans, and ended with a tribute to the amazing teamwork of the Navy seal unit that killed Osama bin Laden. These twin martial references helped the president emphasize two key points: first, that there is much on which the President and Congress can work together as a team for the good of the American people; second, that there is much that I, as Commander-in-Chief, can order without you.

IMF MD to EU

"If the euro would founder and fester
From the wounds that beset and distressed 'er,
Ideology marred
The chance," said Lagarde,
"Of avoiding zees awful deezester."

IMF Managing Director Christine Lagarde, speaking in Berlin, sounded the euro-alarm as never before: "It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand," she said before the German Council on Foreign Relations; "A moment, ultimately, leading to a downward spiral that could engulf the entire world." The IMF managing director would like Germany, France, the ECB and other key players to strengthen their support of the eurozone's liquidity and financial stability, to avoid an Italian meltdown in particular. As Mme Lagarde expresses so dramatically, such a development would not be confined to Europe.

Why Apple Is Not Made in the USA

"With the notion we might go along
That employment at home should be strong,
But our skills, we apprise,
And our chain of supplies
Don't compare to those guys' in Guangdong."

A New York Times profile on Apple's manufacturing of the iPhone opens with President Obama at dinner with Steve Jobs, asking him what it would take to bring this operation back to America. It's a poignant moment, as it seems that both US iPhone jobs, as well as Steve Jobs himself, were going and not coming back. Charles Duhigg and Keith Bradsher take an in-depth look at the economics of iPhone manufacture and determine that factory-ready skills and scalable supply chains are lacking here at home. "Though Americans are among the most educated workers in the world, the nation has stopped training enough people in the mid-level skills that factories need," they write. As for supply chains -

The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.

Is massive vocational and technical training America's answer to this challenge?

A Strategic Withdrawal

The L.A. town council, climactic'ly,
Ruled that porn stars must act prophylactic'ly.
"To mandate a condom
Is really beyond 'em,"
Said producers; "We're pulling out tactic'ly."

In a case of regulatory overreach made for limericks, the Los Angeles City Council passed an ordinance that actors in pornographic productions must wear condoms as a condition of obtaining a film permit. Some immediately decried this unwarranted government penetration into business affairs, sensing a backdoor attempt to regulate the industry's license. Porn moguls fear that this law could lead to flaccid sales in a business that has never developed a pulsating market for safe sex films. The city responded that the filmmakers are being too thin-skinned about condoms, the use of which is really a public health issue. Taking a cue from their on-screen birth control practices, movie producers threatened withdrawal from a domain of which they are evidently not master. Industry observers (also known as voyeurs) cautioned against premature evacuation, as the business is too entrenched in Los Angeles. It is estimated that 80% of US pornographic films are produced within the San Fernando Valley.