Do As I Say, Not As I Do?

My mother always used to tell me that, when in doubt, “do what your father would do.” It has turned out to be sound advice, and I don’t think I can recall one instance that when I did try to do what I believe he would have done that it that it turned out to be the wrong decision. In a similar vein, I have a long list of mentors who have told me that – when in charge – it is how you act, what you do, that is by the far the most important single impetus in moving those who work for you to act in a certain way. You can talk until you are ‘blue in the face’ but it will be your actions more than any other thing that will influence how others really act.

And so we get to the President and his good buddy Warren Buffet, and their apparent mutual despair over the tax code and the President’s tax return.

Let’s just start with one small item: you do not NEED to take deductions. If you want to, you can report the money you made from sale of a stock or a home as regular income. Your choice. Sure, it means you will pay a higher tax rate, but you are free to choose.

And so, the papers are now reporting that the President and Mrs. Obama had 2011 earnings of $789,674 and paid $162,074 in taxes. For the record, that is a tax rate of 20.5%. In case anyone is wondering, in 2010 the President and Mrs. Obama had adjusted gross income of $1,728,096 and paid $453,770 in taxes, for a rate of 26.2%.

We have all heard Warren Buffet’s lament that he is only paying taxes at an effective rate of 20%, a lower rate than his secretary.

So, let me ask this question (not that I expect an answer): Why are they taking all these deductions? In 2010 the President claimed $373,289 in itemized deductions. He didn’t need to. According to high ranking political figures in Washington, there is no reason why he needs all those deductions. And neither he, nor his pal Warren, need avail themselves of those deductions. If you think the deductions are unfair, don’t take them. Is their argument that “Since the deductions are there I should take advantage of them even though I believe that the end result – that I, as a ‘1 per-center’ pay taxes at a rate of only 20% - is fundamentally wrong?” (Everyone will be quick to point out that the President was not a “1 per-center” in 2011. Yes, I know. But he was for the last several years.) The point is this: Is this really the signal the President wants to send? Because that is the signal he is sending.

I know we will never get an answer to such questions, but I really would like to know why I should do as he says, but not as he does.

As for a saner approach on taxes, more tomorrow.