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.